MP&PCh8

MP&PCh8 - Welcome to Pricing Principles and Processes...

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Welcome to Pricing Principles and Processes Copyright 2007 Peter R. Dickson
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Profit: Shareholder value Customer Product Distribution Market Environment Economic Competition Supply Legal Technology Culture Demand Nature Political Advertising Pricing
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Pricing Strategy How price sensitive is your product category? How price sensitive is your brand? Develop your pricing strategy: premium pricing, penetration pricing. Price bundling/unbundling. Run the numbers combining cost analysis with demand analysis. Develop your pricing tactics
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When price is a large part of buyer’s income such as mortgage interest rates. When the whole economy is in a belt-tightening crunch, a recession. When there is little product differentiation and quality added-value across supply, thus the product has become a commodity. When major competitors feature price in their advertising (and potentially get into a price war). When retailers compete with each-other to sell the same brand and model. When the cost of searching for a lower price decreases a lot such as when the Internet came along or when newspapers list mortgage rates. Around particular price points. When is a market price sensitive?
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Price Point Sensitivity Go above these price points and demand drops off: Perceptual price points, e.g. 99 cents, $19,995 Customary price points, Gas below $2 a gallon, fair prices are prices we are accustomed to. Substitute price point, six pack of Coke costs $1.99.
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Premium pricing As in skimming the cream off the top of the milk, in premium pricing you set a high price and skim off the least price sensitive demand and make sales to customers who are willing to pay a high price. Best when you have clear quality advantages, sustainable product differentiation protected by patents, limited supply/capacity and high demand. When sales falter, you introduce a lower priced model and keep doing this over time Such as happened with digital cameras. This approach makes you vulnerable to new competitor entries who come in with a penetration price.
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Prestige Pricing Is a form of premium pricing where the price is set so it can only be afforded by the wealthy, the famous or the real aficionado: very high priced jeans such as True Believer, very high priced cars such as Ferraris and Rolls Royce, very high priced watches or perfume, hand-bags and golf-clubs. Notice they are all used in social settings – prestige pricing is associated with conspicuous consumption.
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Price Penetration Come in with a very low price that discourages competition or gives you a quality/price competitive advantage. As you build a quality reputation introduce higher priced models over time. This is what Toyota and Honda did in the U.S. market.
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This note was uploaded on 04/07/2008 for the course ENG 2021 taught by Professor Yunhaochen during the Spring '08 term at FIU.

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MP&PCh8 - Welcome to Pricing Principles and Processes...

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