Presentation on theme: "Pricing: Understanding and Capturing Customer Value"— Presentation transcript:
1Pricing: Understanding and Capturing Customer Value Chapter NinePricing: Understanding and Capturing Customer Value
2What Is a Price?Narrowly, price is the amount of money charged for a product or service.Broadly, price is the sum of all the values that consumers exchange for the benefits of having or using the product or service.Dynamic Pricing: charging different prices depending on individual customers and situations.Copyright 2007, Prentice Hall, Inc.
3Price Has Many Names ice? RentFeeRateCommissionAssessmentTuitionFareTollPremiumRetainerBribeSalaryWageInterestTaxCopyright 2007, Prentice Hall, Inc.
4Dynamic PricingThe Internet is ushering in a new era of fluid pricing. is an independent site that provides price comparisons and guides, and searches all airline and hotel sites for the best prices.
5Factors affecting price decisions Copyright 2007, Prentice Hall, Inc.
6Customer Value Perceptions Value-based pricing :Involves understanding how much value consumers place on the benefits they receive from the product and setting a price that captures that value.Uses buyers’ perceptions of value, not the seller’s cost, as the key to pricing.Good value pricingValue-added pricingCopyright 2007, Prentice Hall, Inc.
7Value-Based Pricing Vs. Cost-Based Pricing Copyright 2007, Prentice-Hall, Inc.
8GOOD VALUE PRICINGOffering just the right combination of quality and good service at a fair price.McDonald’s offer “value menus”EDLP Strategies of Wal-Mart etcVALUE ADDED PRICINGAttaching value added features and services to differentiate a marketing offer and support higher prices, rather than cutting prices to match competitors.Copyright 2007, Prentice Hall, Inc.
9GOOD VALUE PRICINGCopyright 2007, Prentice Hall, Inc.
10Value-Added PricingCaterpillar offers dealers a wide range of value-added services, including training, investment advice, and guaranteed parts delivery. These services justify charging a higher price.Copyright 2007, Prentice-Hall, Inc.
11Company and Product Costs: Fixed Costs:Costs that do not vary with production or sales level.Salary, room rent etcVariable Costs:Costs that vary directly with the level of production.Sales commission, raw material cost etcCopyright 2007, Prentice Hall, Inc.
12Cost-Based Pricing Cost-plus pricing The simplest pricing model every where usedAdding a standard markup to the cost of the productExampleFixed cost- 100 Baht/ unitVariable cost- 50 Baht / UnitTotal cost- 150 BahtProfit margin – 50 Baht/ unitSelling price – 200 Baht / UnitCopyright 2007, Prentice Hall, Inc.
13Break Even Analysis Break-even pricing Setting price to break even on the costs of making and marketing a product or setting price to make a target profitCopyright 2007, Prentice Hall, Inc.
14Break-Even Chart for Determining Price Copyright 2007, Prentice-Hall, Inc.
15Internal Factors Affecting Pricing Decisions Marketing Objectives:Company must decide on its strategy for the product.General pricing objectives:SurvivalCurrent profit maximizationMarket share leadershipProduct quality leadershipCopyright 2007, Prentice Hall, Inc.
16Internal Factors Affecting Pricing Decisions Marketing Mix Strategy:Price decisions must be coordinated with product design, distribution, and promotion decisions to form a consistent and effective marketing program.Target costing:Pricing that starts with an ideal selling price, then targets costs that will ensure that the price is met.Copyright 2007, Prentice Hall, Inc.
18Internal Factors Affecting Pricing Decisions Organizational Considerations:Must decide who within the organization should set prices.This will vary depending on the size and type of company.Copyright 2007, Prentice Hall, Inc.
19External Factors Affecting Pricing Decisions The Market and Demand:Costs set the lower limit of prices while the market and demand set the upper limit.Pricing in different types of markets:Pure competitionMonopolistic competitionOligopolistic competitionPure monopolyAnalyzing the price-demand relationshipThe price elasticity of demandCopyright 2007, Prentice Hall, Inc.
20Monopoly Only one company selling product in the market The seller may be a government monopoly or a private regulated monopoly.Copyright 2007, Prentice Hall, Inc.
21OligopolyThe market consists of a few sellers who are highly sensitive to each other’s pricing and other marketing strategies.The product can be uniform (steel, aluminum etc) or non uniform (cars, computers etc).Copyright 2007, Prentice Hall, Inc.
22monopolistic competition Under monopolistic competition, the market consists of many buyers and sellers who trade over a range of prices rather than a single market price.A range of prices occurs because sellers can differentiate their offers to buyers.Any physical product can be varied in quality, features, or style or the accompanying services can be varied.Copyright 2007, Prentice Hall, Inc.
24Pure competitionUnder pure competition, the market consists of many buyers and sellers trading in a uniform commodity such as wheat, copper, or financial securities such as stocks or bonds.No single buyer or seller has much effect on the going market place.Copyright 2007, Prentice Hall, Inc.
25Perfect Competition ตลาดแข่งขันสมบูรณ์ Many sellers offer many buyers an identical (homogeneous) product;no seller can influence price
26New-Product Pricing Strategies Market Skimming:Set a high price for a new product to “skim” revenues layer by layer from the market.Company makes fewer, but more profitable sales.Copyright 2007, Prentice Hall, Inc.
27Price Skimming When to Use: Product’s quality and image must support its higher price.Costs of low volume cannot be so high they cancel the advantage of charging more.Competitors should not be able to enter market easily and undercut the price.Copyright 2007, Prentice Hall, Inc.
28New-Product Pricing Strategies Market Penetration:Set a low initial price in order to “penetrate” the market quickly and deeply.Can attract a large number of buyers quickly and win a large market share.When to Use:Market is highly price sensitive so a low price produces more growth.Costs must fall as sales volume increases.Need to keep competition out or effects are only temporary.Copyright 2007, Prentice Hall, Inc.
29Product Mix Pricing Strategies Product line pricingOptional-product pricingCaptive-product pricingBy-product pricingProduct bundle pricingCopyright 2007, Prentice Hall, Inc.
30Product Line PricingSets price steps between various items in a product line based on:Cost differences between productsCustomer evaluations of different featuresCompetitors’ pricesCopyright 2007, Prentice-Hall, Inc.
31Optional- and Captive-Product Pricing Optional-ProductPricing optional or accessory products sold with the main product (e.g., ice maker with the refrigerator).Captive-ProductPricing products that must be used with the main product (e.g., replacement cartridges for Gillette razors).Copyright 2007, Prentice Hall, Inc.
32By-Product and Product Bundle Pricing Strategies By-Product PricingPricing low-value by-products to get rid of them (e.g., animal manure from zoo).Product Bundle PricingPricing bundles of products sold together (software, monitor, PC, and printer).Copyright 2007, Prentice Hall, Inc.
34Product-Bundle Pricing Marketing in ActionProduct-Bundle PricingTravelers who book flight, hotel, and car together can save on average $ from Expedia.comCopyright 2007, Prentice-Hall, Inc.
35Price Adjustment Strategies Discount and allowance pricingSegmented pricingPsychological pricingPromotional pricingGeographical pricingDynamic pricingInternational pricingCopyright 2007, Prentice Hall, Inc.
36Discounts and Allowances CashQuantitySeasonalAllowancesTrade-inPromotionalChristmas cards purchased out of season, such as in March or July, are often sold at a discount.Copyright 2007, Prentice-Hall, Inc.
37Segmented PricingSelling a product or service at two or more prices, where the difference in prices is not based on differences in costs.Types:Customer-segmentProduct-formLocation pricingTime pricingCopyright 2007, Prentice Hall, Inc.
38Psychological Pricing Considers the psychology of prices and not simply the economics.Consumers usually perceive higher-priced products as having higher quality.Consumers use price less when they can judge the quality of a product by examining it or recalling experiences.Copyright 2007, Prentice Hall, Inc.
39Promotional PricingCompanies offer promotional pricing to create excitement and a sense of urgency.Copyright 2007, Prentice-Hall, Inc.
40Geographical Pricing FOB-origin pricing Uniform-delivered pricing Zone pricingBasing-point pricingFreight-absorption pricingCopyright 2007, Prentice Hall, Inc.
41FOB-origin pricingThis practice means that the goods are placed free on board a carrier.At that point the title and responsibility pass to the customer, who pays the freight from the factory to the destination.Free On Board means it is the buyer’s responsibility to select the mode of transportation, choose the specific carrier, handle any damage claims, and pay all shipping chargesCopyright 2007, Prentice Hall, Inc.
42Uniform-delivered pricing Uniform delivered pricing is the opposite of FOB pricing.Here the company charges the same price plus freight to all customers, regardless of their location.The freight charge is set at the average freight cost.Copyright 2007, Prentice Hall, Inc.
43Zone pricingZone pricing falls between FOB origin pricing and uniform delivered pricing. The company sets two or more zones. All customers within a given zone pay a single total price, the more distant the zone, the higher the price.Copyright 2007, Prentice Hall, Inc.
44Basing-point pricingUsing the basing point pricing, the seller selects a given city as basing point and charges all customers the freight cost from that city to the customer location regardless of the city from which the goods are actually shipped.Copyright 2007, Prentice Hall, Inc.
45Basing-Point Pricing System Product Price = $100Basing-Point Pricing SystemBaseMill X$20Actual FreightCustomerpays$120$30Actual FreightMillY$10Actual FreightMillZ$10 Freight Absorption$10 Phantom FreightAdopted from: Monroe (1990), Pricing: Making Profitable Decisions, 2 ed.,New York: McGraw-Hill Publishing Company.
46Freight-absorption pricing Using this strategy, the seller absorbs all or part of the actual freight charges in order to get the desired businessCopyright 2007, Prentice Hall, Inc.