1. Pricing
The Puzzle of the Next Century

2. “ A price is not merely a function of costs
Pricing Puzzle
“ A price is not merely a function of costs
and margins… ”
Costs + Margins = PRICE

3. Pricing Puzzle Costs + Margins = PRICE
“ A price is not merely a function of costs
and margins… ”
Costs + Margins = PRICE
“…it is an expression of VALUE ”

4. Pricing Puzzle Costs + Margins = PRICE VALUE Production costs
Minimize Optimize Maximize
Costs + Margins = PRICE
VALUE
Production costs
Indirect costs
Advertising costs
Distribution costs
Manufacturer’s margin
Distributor’s margin
Seller’s margin
Product performance
Usefulness & Quality
Image / Aspirations
Brand Equity
Availability
Distribution Strategy
Service
Before/During & After sales

5. Pricing Puzzle 4 P’s 4 C’s PRODUCT PRICE PLACE PROMOTION
CUSTOMER VALUE
COST
CONVENIENCE
COMMUNICATION

6. Pricing Puzzle 4 P’s 4 C’s PRODUCT PRICE PLACE PROMOTION
CUSTOMER VALUE
COST
CONVENIENCE
COMMUNICATION

7. A Secret Pie Impact of a 1 % price increase on profits Coca-Cola 6,4 %
Nestlé 17,5 %
Ford 26,0 %
Philips 28,7 %

8. Pricing Puzzle 4 P’s 4 C’s Seller’s Dilemma PRODUCT PRICE PLACE
PROMOTION
4 C’s
CUSTOMER VALUE
COST
CONVENIENCE
COMMUNICATION
Seller’s Dilemma

9. Pricing Puzzle 4 P’s 4 C’s PRODUCT PRICE PLACE PROMOTION
CUSTOMER VALUE
COST
CONVENIENCE
COMMUNICATION
“ Tomorrow’s winner companies will
be those who offer distinct products at
comparatively low market prices ”

10. Key = Differentiation The key to drive value is to offer relevant and
distinctive product differentiation
Physical Differences
Features, performance, durability, conformance, design, etc…
Availability Differences
Distribution channels ; Stores, mail-order, internet, etc…
Service Differences
Delivery, installation, training, consulting, maintenance, etc…
Price Differences
Price positioning (Very high / High / Medium / Low / Very Low)
Image Differences
Symbols, atmosphere, events, media, etc…

11. Key = Differentiation Differentiation : Examples Physical Differences
Levi’s Engineered Jeans (Ergonomic construction, durability, style)
Availability Differences
Dell Computer’s customized production, Volkswagen “e.lupo”
Service Differences
Acıbadem Hospital – Mother Care Division, Nissan “5-year Warranty”
Image Differences
Audi vs Mercedes, DuPont (Innovation Leader)

12. Key = Differentiation Differentiating commodities…
Perdue Chicken (USA)
Guaranteed tenderness (30 % market-share, 10 % premium pricing)
Flora Drinking Water (Turkey – Sabancı Holding)
Service, packaging, attributes, operation
Starbuck’s Coffee (USA)
Atmosphere, standard service
Everything can be differentiated !...

13. Pricing Decisions INTERNAL FACTORS EXTERNAL FACTORS
Marketing Objectives
Positioning
Target Group
Marketing Mix Strategy
4 P’s
Costs
Fixed & Variable
Management Approach
Responsibility
Perspective
EXTERNAL FACTORS
Market
Pure Competition
Monopolistic Competition
Oligopolistic Competition
Pure Monopoly
Demand
Elastic / Inelastic
Competition
Competitors’ offers
Competitiors’ reactions
Economy
Buying power
Government Influence
Laws & Regulations

14. Pricing Approaches Cost-Based Pricing Buyer-Based Pricing
Cost-Plus Pricing
Product Cost + Standard Mark-Up = Price
BE Analysis & Target Profit Pricing
A necessary survival tool
Buyer-Based Pricing
Perceived Value
Consider buyers’ perceptions of value NOT the cost
Competition-Based Pricing
Basing prices on competitors’ prices
Premium Pricing
Going-Rate Pricing
Discount Pricing

15. Pricing Strategies PRICING a SINGLE NEW PRODUCT Market-Skimming
Highest possible price to skim small but profitable segments
Penetration Pricing
Lowest possible price to penetrate the market quickly

16. Pricing Strategies PRODUCT-MIX PRICING Product-Line Pricing
Establishing product lines at different price points
Volkswagen (Polo, Bora, Golf, Passat)
Optional-Product Pricing
Offering to sell optional/accessory products along with the main product
BMW & Mercedes
Captive-Product Pricing
Offering products, which must be used with the main product
Gillette razor blades
By-Product Pricing
Valued by-products positively affect pricing
Petroleum by-products
Product-Bundle Pricing
Several products combined and offered at a reduced price
Season tickets, New-year packages of hotels

17. Price Adjustments
Adjust basic prices to account for various customer differences and changing situations
Discounts & Allowances
To attract/reward certain customer respones
Discriminatory Pricing
To allow for differences in customers, products & locations
Promotional Pricing
Varying price reductions offered depending on shopping period, item purchased, etc...

18. Price Adjustment Strategies
DISCOUNTS & ALLOWANCES
Cash Discounts
Attract early payments
A 15% reduction applied to those customers who buy on cash
Quantity Discounts
Price reduction to buyers who buy large quantities
Functional Discounts
Differentiating prices among trade channel members
Different mark-ups for OLSs and corners
Seasonal Discounts
Price reduction to buyers who buy out-of-season
Allowances
Trade-in Allowances
Bring the old, take away the new...
Promotional Allowances
Discounts provided in return for participating in special programs

19. Price Adjustment Strategies
DISCRIMINATORY PRICING
Customer-segment Pricing
Different customers pay different prices
Disneyland Adult vs Child pricing
Product-form Pricing
Different versions of the product are priced differently, regardless of the cost
An additional feature with a slight cost might justify a fat price premium
Location Pricing
Different locations are priced differently, regardless of the cost
Business Class seats
Time Pricing
Prices differ from month to month, day to day, even hour to hour
Prime-time/Off-prime-time pricing of advertising time

20. Price Adjustment Strategies
PROMOTIONAL PRICING
Loss Leaders
Attract consumers in store, sell other items as well
Hyper-Markets (Carrefour, Gima, Praktiker, Migros, etc...)
Special-event Pricing
Offering discounts at times of special events
Valentine’s Day, New year, Şişli Municipality’s discount campaign
Cash Rebates
Discounts offered to consumers for purchases made in a limited period of time
Dockers campaign (20 % off)
Simple Cash Discounts
Over-the-counter to support revenues OR to defend against competition

21. Psychology of Price Consumer’s Mind-set (Black-Box) BE CAREFUL !!!
Price vs Quality Image
CK perfume
Rolex watch
Pharmaceutical items
Perceptions
TL vs TL

22. One Final Word “ A product is not a product unless it sells.
Otherwise, it’s just a museum piece…”
Ted Levitt