1. Pricing Strategy for Business Markets Chapter 15

2. The Meaning Value The Importance of Price The Importance of Price Customer Value Customer Value “Business customers’ overall assessment of the utility of a relationship with a supplier based on benefits received and sacrifices made.”“Business customers’ overall assessment of the utility of a relationship with a supplier based on benefits received and sacrifices made.” Benefits Benefits Core benefitsCore benefits Add-on BenefitsAdd-on Benefits Three examples Three examples Sacrifices Sacrifices Total Cost in UseTotal Cost in Use Acquisition Acquisition Possession Possession Usage Usage Value-Based Strategies Value-Based Strategies

3. Pricing Process 1. Set Strategic Pricing Objectives 2. Estimate Demand and Price Elasticity of Demand 3. Determine Costs and Relationship to Volume 4. Examine Competitors’ Prices and Strategies 5. Set the Price Level

4. Step 1: Set Strategic Pricing Objectives Three goals Three goals ______________________________________ Dow v. DuPont Dow v. DuPont

5. Step 2: Estimate Demand and Price Elasticity of Demand What to Look At What to Look At Assessing Value Assessing Value Isolate important attributes and perceptionsIsolate important attributes and perceptions Four strategiesFour strategies

6. Step 2: Estimate Demand and Price Elasticity of Demand Elasticity of Demand Elasticity of Demand What does it measure?What does it measure? Satisfied customers= Less price sensitivitySatisfied customers= Less price sensitivity Customized solution means higher priceCustomized solution means higher price What increases price sensitivity?What increases price sensitivity? Easy to shop around Easy to shop around Easy price comparisons Easy price comparisons Buyers can switch without extra costs Buyers can switch without extra costs Inelastic when price comprises large part of total cost Inelastic when price comprises large part of total cost Focus on end-use Focus on end-use Value-based segmentation Value-based segmentation

7. Step 3: Determine Costs and Relationship to Volume Target costing Target costing What is it?What is it? Classifying costs Classifying costs Three typesThree types Direct traceable or attributable costs Direct traceable or attributable costs Raw materialsRaw materials Indirect traceable costs Indirect traceable costs General plant overheadGeneral plant overhead General costs General costs Administrative costs of sales districtsAdministrative costs of sales districts

8. Step 4: Examine Competitors’ Prices and Strategies Is price the only thing customers look at? Is price the only thing customers look at? Hypercompetitive Rivalries Hypercompetitive Rivalries CharacteristicsCharacteristics First-moversFirst-movers Advantages Advantages FollowersFollowers Advantages Advantages

9. Pricing Products in the Life Cycle Analyze from __________ perspective Analyze from __________ perspective Skimming Skimming What is it?What is it? When to use it?When to use it? Time segmentationTime segmentation Penetration Penetration What is it?What is it? When to use it?When to use it? Product Line Consideration Product Line Consideration Legal Considerations Legal Considerations Robinson-Patman ActRobinson-Patman Act

10. Responding to Price Attacks Evaluating the Threat Evaluating the Threat Is there a response that would cost you less than the preventable sales loss?Is there a response that would cost you less than the preventable sales loss? 3 ways to decrease threat 3 ways to decrease threat If you respond, is the competitor willing and able to lower price again to restore difference?If you respond, is the competitor willing and able to lower price again to restore difference? Why are they focusing on price? Why are they focusing on price?

11. Responding to Price Attacks Will multiple responses that maybe required to match a competitor’s prices still cost less than the available sales loss?Will multiple responses that maybe required to match a competitor’s prices still cost less than the available sales loss? Allow them to win? Allow them to win? Create barriers Create barriers Is your position in other markets at risk if the competitor gains marketshare? Does the value of all the markets at risk justify the cost of the strategy response?Is your position in other markets at risk if the competitor gains marketshare? Does the value of all the markets at risk justify the cost of the strategy response? Look at costs and benefits Look at costs and benefits Two general rules Two general rules

12. Competitive Bidding Two forms Two forms Gain understanding of pricesGain understanding of prices Reverse auctionsReverse auctions Closed bidding Closed bidding Open bidding Open bidding Online open biddingOnline open bidding Strategies Strategies How to gain profitability?How to gain profitability?