Pricing Factors: Cost 4380 5988 5098 0 1000 2000 3000 4000 5000 6000 7000 Huawei Mate 10 Apple iPhone 8 Samsung Galaxy S8 Price (HKD)

Pricing Factors: Company Objective Focus Examples of Specific Objectives Profit Focus • Maximize long-term profits • Maximize short-term profits Demand Focus • Create interest and build traffic • Signal the image/quality of the product • Desensitize consumers to price Market/ Competition Focus • Increase market share • Stabilize market • Discourage new entrants Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

Pricing Factors: Company Objective

Pricing Factors: Competition Characteristics Key Points Number of firms in the industry • Firms with no competition can set any price (subject to law) • Many active firms  fierce competition  limits pricing discretion • With few firms (especially undifferentiated industries), pricing usually set by industry leader Relative firm size • Firms with large market share (typically with lowest cost) can initiate price changes without worrying about competitors Product differentiation • Product differentiation allows small firms with many competitors to set prices, but often need heavy promotions • Pricing differences limited within a certain range Ease of entry • Low-barrier industries, existing firms have less discretion • High-barrier industries, existing firms have greater control Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

 What are the pros and cons of competing on price? + Allow quick reactions to competition + Give flexibility in adjusting demand (for price elastic products) + Often effective in increasing sales (for price elastic products) - Reduce profit and hard to sustain unless you have a low-cost advantage - Ignores product differentiation and train customers to be price sensitive - May signal you were over-priced - Does not build brand loyalty ( ) Pricing Factors: Competition

 Value to customers sets the ceiling price  Different customers derive/perceive different values  Affected by the number and quality of available alternatives  How to determine value?