Pricing policy Prerequisites: Resource 265 "Targeting your customers" Resource 1549 "Positioning your offer" Resource 268 "Presentation of the marketing mix"

Objectives in terms of expertise n Act on the price variable n Know how to propose a retail price n Know how to argue in favour of this choice n Know how to change the price

Objectives in terms of content n A definition of the concept n Fixing methods n Reactions to changes in price Laurence Chérel and Catherine Madrid

Consumer law Pricing policy Management accounting Introduction to accounting Laurence Chérel and Catherine Madrid The transverse nature of the teaching:

DEFINING THE PRICE Laurence Chérel and Catherine Madrid

THE PRICE: n A monetary expression of the value n Value appreciated in exchange for an expected satisfaction n Resource to consult: The importance of perceived value Laurence Chérel and Catherine Madrid

Value is perceived: Resource to consult: 2012 price image barometer By OC&C Strategy Consultants

Notion of perceived value: in time Laurence Chérel and Catherine Madrid

In effort Laurence Chérel and Catherine Madrid

FIXING METHODS Laurence Chérel and Catherine Madrid

Fixing a price: n Traditional and other more recent methods n N.B. choose just one fixing method Laurence Chérel and Catherine Madrid

TRADITIONAL METHODS Laurence Chérel and Catherine Madrid

INTERNAL ASPECTS EXTERNAL ASPECTS Acceptability by the market Competition Regulations Marketing goal Positioning Cost analysis PRICE Resource to consult: study of the acceptability of a price by the market The traditional method

High unit marginLow unit margin High sales volume Penetration policy Low sales volume Skimming policy Laurence Chérel and Catherine Madrid Comparison between skimming and penetration

PENETRATION POLICY n Fix a price that maximizes demand –to make your mark from the outset in a large section of the market n In cases where: –demand is elastic depending on price, – the company has sufficient production capacity – and introduces appropriate distribution and communication policies Laurence Chérel and Catherine Madrid

SKIMMING POLICY n Sell at a high price by restricting yourself to a group of buyers who are prepared to pay a high price n In cases where: –demand is inelastic depending on price, – a fairly short life cycle, –the product can be rapidly imitated, –a low, fairly unprofitable price. Laurence Chérel and Catherine Madrid

RECENT METHODS Laurence Chérel and Catherine Madrid

The role of price against a background of bi-polar consumption n Hallmark attribute for the choice of a basic product –the individual is looking for functional value at a lower price –in a hyper-competitive environment n A challenge to the traditional price-fixing model Laurence Chérel and Catherine Madrid

Price and contemporary context quality Price Basic product Skimming policy Penetration policy

1,88 €/kg 2,80 €/kg 3,73 €/kg Example of a contemporary price-fixing context

The target price (or alignment with the competition) n The price war has an impact on –The consumer –Human resources management n The need to differentiate yourself in other ways to get away from the price war environment n Resource to consult: “too many low prices kill low prices”“too many low prices kill low prices” Laurence Chérel and Catherine Madrid

Flunch: "a menu idea with tasty dishes and big portions at a very nice price: 4€95."

The New Deal offer n Creating new market conditions by differentiating yourself in other ways n Offering better value for money through innovation. n Resource to consult: household appliance rental at Intermarché Intermarché Laurence Chérel and Catherine Madrid

An example of a new deal offer HP envy 5640

The Every Day Low Price (EDLP) n Aim: to put an end to promotional one- upmanship by offering low, stable prices n How: through a better organization of all the company’s processes, Laurence Chérel and Catherine Madrid

E.D.L.P.: examples: n The Club Méditerranée Best Offer guarantee n Little Extra: pleasure at low prices Laurence Chérel and Catherine Madrid

Summary AdvantagesLimitations SkimmingAdapted to products that require high investment Is there a target consumer segment? PenetrationTo make your mark rapidly in the market The company strategy needs to favour an appropriate sales volume, and the consumer must be sensitive to a low price Target priceAdaptation to market expectations Participation in a price war environment EDLPA source of strong differentiation The company’s processes must be adapted New DealA source of strong differentiation The company offer must be adapted

The price-fixing process 1 Define the marketing goal Define the Target Define the Positioning 2 Know the cost of manufacturing the product Know the price that maximizes demand Know the price of your competitors’ offers 3 Analyze the different options Fix the retail price Laurence Chérel and Catherine Madrid

REACTIONS TO CHANGES IN PRICE Laurence Chérel and Catherine Madrid

Buyers’ reactions to changes in price n Possible perceptions of a reduction in price –the product is selling badly –the product will be replaced –the quality has fallen –the price is going to fall further, it would be better to wait n Possible perceptions of a rise in price –strong demand and a risk of shortages –risk of a further increase –the price is fixed at the maximum tolerated by the market

Competitors’ reactions to changes in price n Problem of anticipating the competitor’s reactions –analyze the statistics of his previous reactions –analyze his strategy Laurence Chérel and Catherine Madrid

The company’s reactions to its competitors’ price changes n Maintain your price –and do nothing –counter-attack in other areas n Reduce your price n Increase and counter-attack on the product Laurence Chérel and Catherine Madrid

Conclusion: n How to fix a price (slide nos. 25 and 26) n How to adjust it to competitors’ manœuvres

Bibliography n Desmet Pierre (2008), Le prix, MBA - Editions d’Organisation – 2 nd edition / Eyrolles - Paris, 01/01/2008 n KOTLER Philip, DUBOIS Bernard (2012). - Marketing management. – 14th edition. - Paris: Pearson Education, XL- 841 pages. (chap 14. Choisir une stratégie de prix ) n Revue Décision Marketing n° 6 dedicated to prices

Check your knowledge! Laurence Chérel and Catherine Madrid