Pricing Strategy Pertemuan 18 Matakuliah: J0114/Manajemen Pemasaran Tahun: 2008

Bina Nusantara Learning Outcomes Students can give their arguments over pricing methods according to value and corporate goals.

Bina Nusantara Material Outline: Pricing policy Pricing methods Pricing over the PLC

Bina Nusantara Pricing Policy Creating and managing pricing policies strategically: –Price banding: is a statistical technique for identifying which customers are paying significantly more or less than the band of “fair” prices –There are five steps in the price banding process: Identify and get sales reps to agree on the legitimate factors (service levels, size of orders, geographic region, customer’s business type) that they believe justify price variations across accounts based on value. Execute a statistical regression of price levels or discount percentages Use the regression equation to estimate the price or discount that this customer would have gotten Plot the actual prices customers pay and compare them to the fair prices or fair discounts along the regression line Brainstorm possible causes of the random variation

Bina Nusantara Pricing Policy Policy development: –The key is to treat each request for a price exception as a request to create or change a policy. –Specifying what pricing is acceptable under what circumstances for customers meeting which criteria. –The goal of good policy is to specify the circumstances and criteria in a way that maximizes the benefits marketers gain. –Policies to manage price expectations: Promotional pricing: is effective to the extent that it induces a new product trial, desirable behaviors. Negotiated pricing Quantity discounting Bid-loyalty pricing

Bina Nusantara Pricing Policy Implementing policies: –Challenge: sales reps and customers will not accept the change in price. Management responsibility: –The existence and rationale for policies must be appropriately positioned with customers. Sales force buy-in: –Before policies are in place, it needs to measure and reward salespeople for driving profitability, not just revenue. Prioritize and sequence challenges: –Pricing policies also can empower sales reps to offer greater discounts. –Good policies can generate more business from customers who were disadvantaged Monitor and measure results: –The value in pricing is lied on the power a policy gives to test, evaluate and improve pricing strategy over time

Bina Nusantara Pricing Methods Cost-plus pricing: –Pricing every product or service to yield a fair return over all costs fully and fairly allocated. –Problem: in most industries, it is impossible to determine a product’s unit cost before determining its price. Customer driven pricing: –Pricing every product according to customer’s willingness to pay. –Problems: Buyers are rarely honest about how much they are actually willing to pay for a product. Sales reps has to raise customer’s willingness to a level that better reflects the product’s true value.

Bina Nusantara Pricing Methods Competition-driven pricing: –Pricing is dictated by competitive conditions. In this view, pricing is a tool to achieve sales objectives. –Prices should be lowered only when they are no longer justified by the value offered in comparison to the value offered by the competition.

Bina Nusantara Pricing over PLC New products : –When The Apple iPod first hit store shelves in 2002, it transformed the way that consumers purchase, stored and consumed music. –Not all new products start a new life cycle. –When a new product provides a completely new benefit, it may not be an innovation from the standpoint of buyers. –New products represent a primary source of organic volume and profit growth and avoiding pricing mistakes can have both short and long term impact –A new product launch creates an excellent opportunity to reengage with customers to change what and how they purchase.

Bina Nusantara Pricing over PLC Pricing innovation for market introduction: An innovation is a product so new and unique that buyers find the concept somewhat foreign. Recognition of the diffusion process is extremely important in formulating pricing strategy for two reasons: –The long-run demand for an innovative product depends on the number of initial buyers. –Value communications and effective promotional programs can influence which attributes drive purchase decisions and how these attributes valued.

Bina Nusantara Pricing over PLC Pricing new products for growth: Repeat purchasers are no longer uncertain Firm focuses its marketing efforts on developing unique attributes for its products As competition becomes more intense, the uniqueness of its product creates a value effect that attenuates buyer’s price sensitivity.

Bina Nusantara Pricing over PLC Pricing during maturity: Buyers evaluate and compare competing products, thus reducing brand loyalty Many product imitation that can reduce product differentiation Buyers increase their price sensitivity and lower risk Strategies: –Unbundling related products and services –Improve estimation of price sensitivity –Expansion on the product line –Improve control and utilization of costs

Bina Nusantara Pricing over PLC Pricing strategy in market decline: Retrenchment: –Liquidation of those assets and withdrawal from those markets that represent the weakest links in the firm’s competitive position Harvesting: –Is a phased withdrawal from an industry. The harvesting firm does not price to defend its remaining market share but rather to maximize its income. Consolidation: –Is an attempt to gain a stronger position in a declining industry.

Bina Nusantara Conclusions: Price banding: is a statistical technique for identifying which customers are paying significantly more or less than the band of “fair” prices The goal of good policy is to specify the circumstances and criteria in a way that maximizes the benefits marketers gain. Pricing can be set by: cost plus, customer driven, and competition driven pricing strategy.