Pricing Strategy

Pricing Objectives Segmentation and Positioning Objectives Sales and Profit Objectives Competitive Objectives Survival Objectives Social Responsibility Objectives

Basic Value Positions Price Level Value Position High Relative to Product Class Around Average for Product Class Low Relative to Product Class Value Position High Value Because of Quality and Prestige High Value Because of Good Quality at a Reasonable Price High Value Because of Acceptable Quality at a Low Price

Customer Value Map Relative Price Market-perceived Quality Ratio Higher Worse customer value Fair-value line Relative Price 1.0 Better customer value Lower Inferior 1.0 Superior Market-perceived Quality Ratio

Pricing as Value-Sharing Upper bound Customer perceived value Customer surplus value Price Supplier surplus value Lower bound Cost

The Pricing Process Set Pricing Objectives Evaluate Customer Response and Other Pricing Constraints Analyze Profit Potential Make Price Adjustments as Needed Set Initial Price

Major Considerations in Setting Price

Cost-Plus Pricing Adding a standard markup to the cost of the product. Popular because: Sellers more certain about cost than demand Simplifies pricing When all sellers use, prices are similar and competition is minimized Some feel it is more fair to both buyers and sellers

Value-Based Pricing Uses buyers’ perceptions of value, not the seller’s cost, as the key to pricing.

Value-In-Use Analysis Value-in-use analysis, also termed economic value added (EVA) is a method of estimating the price equivalence of the firm’s product as opposed to a competitive product It is frequently employed in industrial markets when a new product is being introduced The task is to identify the maximum price customers should be prepared to pay based on the enhanced customer value offered by the new product

Illustration of Value-In-Use Analysis Negative differentiation value Maximum polyester price excluding extra processing $2.00 $0.20 Extra processing cost $1.80 Maximum price customers will pay $1.50 Total economic value Positive differentiation value $1.00 $0.50 Cotton Price Reference value $ 0.00 Price (per lb.)

王品集團7折定價策略 「物超所值不稀奇，我們還要『超』物超所值！」聽來有點繞口令式的行銷策略，正是董事長戴勝益帶給顧客「平價奢華」體驗的祕訣，也是能在台灣餐飲業逆勢成長的祕密武器。 在「物超所值」4字前，這刻意被冠上的「超」字，究竟有何神奇的魔法，讓王品集團能在小小餐桌上，點「食」成金，還能跨過台灣海峽，大舉開疆拓土？魔法1 ： 7折定價策略，觸動消費欲望 先從價格策略來看，王品集團每成立新品牌，會邀來目標顧客試吃估價，求其平均後再打「7折」，即為上市後的價格。 為什麼是「7折」？戴勝益以打折心理學分析，消費者對「9折」的觀感往往是公關價，只要靠點關係，大多能如願以償；「8折」則是週年慶價，每年總會有這麼一次，不足為奇。若落到「7折」，在消費者心中就會打破市場行情，產生強大吸引力。

Competition-Based Pricing Going-Rate Pricing: Firm bases its price largely on competitors’ prices, with less attention paid to its own costs or to demand. Sealed-Bid Pricing: Firm bases its price on how it thinks competitors will price rather than on its own costs or on demand.

New-Product Pricing Strategies When to use: Product’s quality and image must support its higher price. Costs of smaller volume cannot be so high they cancel the advantage of charging more. Competitors should not be able to enter market easily and undercut the high price. 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.

New-Product Pricing Strategies When to use: Market must be highly price sensitive so a low price produces more market growth. Production and distribution costs must fall as sales volume increases. Must keep out competition and maintain low price or effects are only temporary. 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.

Pricing Analysis for A New Item of Capital Equipment $360,000 Maximum price Toe hold price Maximum profit price $260,000 Competitive equivalence Price High market share price $160,000 Fully loaded manufacturing costs $100,000 Direct out-of-pocket costs

Product Line Pricing Involves setting price steps between various products in a product line based on: Cost differences between products Customer evaluations of different features Competitors’ prices

Optional- and Captive-Product Pricing Optional-Product Pricing optional or accessory products sold with the main product (e.g., ice maker with the refrigerator). Captive-Product Pricing products that must be used with the main product (e.g., replacement cartridges for Gillette razors).

Product Bundle Pricing CityPASS bundles tickets to many attractions at a low combined price.

Psychological 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 quality of a product.

The Psychology of Consumption Higher consumption means higher sales Costs drive consumption Pricing drives perception of cost

Consumption Follows the Timing of Payments Annual payment plan Quarterly payment plan Mean attendance Semiannual payment plan Monthly payment plan Month of membership

Promotional Pricing Approaches: Temporarily pricing products below list price and sometimes even below cost to create buying excitement and urgency. Low-Interest Financing Loss Leaders Approaches: Special-Event Pricing Longer Warranties Cash Rebates Free Maintenance Discounts