Chapter 7 Pricing strategies. ‘Value’ may be one of the most overused and misused terms in marketing and pricing today. ‘Value pricing’ is too often misused.

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Presentation transcript:

Chapter 7 Pricing strategies

‘Value’ may be one of the most overused and misused terms in marketing and pricing today. ‘Value pricing’ is too often misused as a synonym for low price or bundled price. The real essence of value revolves around the tradeoff between the benefits a customer receives from a product and the price he or she pays for it. R. Leszinki & M.V. Marn, ‘Setting value, not price’, The McKinsey Quarterly, 1997 No. 1, pp. 99–100.

Objectives At the end of this chapter, you will be able to develop realistic pricing strategies taking into account: external considerations internal factors legal considerations.

The strategic marketing planning process Marketing strategies – pricing strategies Determination of pricing strategies, taking into account the external environment, internal factors and legal considerations. Situation analysis Situation analysis Problems & opportunities Problems & opportunities Marketing objectives Marketing objectives Marketing strategies Marketing strategies Budget Implementation Evaluation & control Evaluation & control

A holistic process Marketing objectives Corporate objectives Financial objectives Marketing objectives Performance objectives Marketing strategies Higher-level strategies Business position Product-market strategies Marketing mix strategies Target markets Consumer positioning Product strategies Pricing strategies Distribution strategies IMC strategies + additional 3Ps for service providers People, process management and physical asset strategies

Developing pricing strategies (1) Determining an effective pricing strategy involves three sets of considerations: the external environment internal factors legal considerations.

Developing pricing strategies (2) External environment Internal factors Legal considerations Market factors Customer demand - price elasticity - price threshold Competitive influences - price/quality position - price lining

Developing pricing strategies (3) External environment Internal factors Legal considerations Business positioning Strategic position Profit/ROI objectives Internal capabilities (cost leadership) For new products Skimming v. penetration For all products Ensure pricing strategy is consistent with all other marketing mix strategies.

Developing pricing strategies (4) External environment Internal factors Legal considerations Compliance with provisions in TPA and PSA particularly TPA s.45 Anti-competitive agreements, s.46 Misuse of market power and s.48 Resale price maintenance.

Decision-making aids As an aid for analysis and decision making, draw on tools such as: the PLC and innovator theory product portfolio models models of competitive advantage price elasticity and demand curve (Figure 7.1) the price/quality positioning map (Figure 5.2).

Demand curve: Example $3000 $2800 $2600 $2400 $2200 $ Units Demand for a hypothetical notebook computer at various price points

A price/quality positioning map High Low Product quality Price XX XXX XX

Responding to a competitive pricing challenge 1Determine the motives for the price attacker and the capabilities of the competing organisation. 2Attempt to achieve superior performance (cost leadership or differentiation) based on customer needs. 3Show the competitor that the battle will not be easy.