1. Instructor: Safaa S. Y. Dalloul
E-Marketing
Unit 7
Pricing Strategies
Instructor: Safaa S. Y. Dalloul

2. Elements of Lecture Pricing Strategy Definition Role of Pricing
How Companies Price?
Pricing Strategies and Procedures
Adapting for Pricing
Price Change

3. Pricing

4. Pricing Price is not just a number on a tag or an item.
Price is not just a number on a tag or an item.
Prices were set by negotiation between buyers and sellers. "Bargaining" is still a sport in some areas.

5. Pricing
Today the Internet is partially reversing the fixed pricing trend.
Computer technology is making it easier for sellers to use software that monitors customers' movements over the Web and allows them to customize offers and prices.

6. Role of Pricing

7. Business (Vision, Mission…)
Role of Pricing
Pricing can help a company attain its other marketing objectives.
Business (Vision, Mission…)
Marketing Objectives
Competitors

8. Role of Pricing
Pricing enables the marketer to segment markets, define products, create customer incentives, and even send signals to competitors.
The pricing program should be supported with a focused plan of implementation.

9. Role of Pricing
Many marketing professionals argue that pricing is a valuable strategic weapon that helps companies enhance and capitalize on competitive vulnerability, and there is no question that pricing decisions have an immediate impact on a company’s bottom line.

10. Role of Pricing
From this perspective, it is easy to argue that to a large degree, pricing decisions can determine whether a product or a company will succeed or fail.

11. How Companies Price?

12. How Companies Price?
In small companies, prices are often set by the boss.
In large companies, pricing is handled by division and product-line managers. Even here, top management sets general pricing objectives and policies and often approves the prices proposed by lower levels of management.

13. How Companies Price?
In industries where pricing is a key factor (aerospace, railroads, oil companies), companies will often establish a pricing department to set or assist others in determining appropriate prices.
This department reports to the marketing department, finance department, or top management.

14. Consumer Psychology and Pricing
Many economists assume that consumers are "price takers" and accept prices at "face value" or as given.
Marketers recognize that consumers often actively process price information, interpreting prices in terms of
Their knowledge from prior purchasing experience
Formal communications (advertising, sales calls, and brochures)
Informal communications (friends, colleagues, or family members), and point-of-purchase or online resources.

15. Consumer Psychology and Pricing
Understanding how consumers arrive at their perceptions of prices is an important marketing priority.
Reference Prices
Price-Quality Inferences
Price Cues

16. Consumer Psychology and Pricing
Understanding how consumers arrive at their perceptions of prices is an important marketing priority.
Reference Prices: consumers may have fairly good knowledge of the range of prices.

17. Consumer Psychology and Pricing
Understanding how consumers arrive at their perceptions of prices is an important marketing priority.
Price-Quality Inferences: many consumers use price as an indicator of quality.
High Price
High Quality

18. Consumer Psychology and Pricing
When alternative information about true quality is available, price becomes a less significant indicator of quality.
When this information is not available, price acts as a signal of quality.
Demand
Lead to
Market Price
Strong
High

19. Consumer Psychology and Pricing
Understanding how consumers arrive at their perceptions of prices is an important marketing priority.
Price Cues: many sellers believe that prices should end in an odd number. Many customers see a stereo amplifier priced at $299 instead of $300 as a price in the $200 range rather than $300 range.

20. Pricing Strategies

21. Pricing Strategies
Price has become one of the more important marketing variables.
Despite the increased role of non-price factors in the modern marketing process, price is a critical marketing element, especially in markets characterized by monopolistic competition or oligopoly.

22. Pricing Strategies
Competition and buyers that are more sophisticated has forced many retailers to lower prices and in turn place pressure on manufacturers.

23. Pricing Strategies
Further, there has been increasing buyer awareness of costs and pricing, and growing competition within the channels, which in turn provides the consumer with even more awareness of the pricing process.

25. Pricing Procedure

26. Pricing Procedure Establishes marketing objective
Determines the demand schedule
Estimates how its costs vary
Examines competitors’ prices
Selects pricing methods
Selects final price

27. Pricing Procedure 1 Survival Maximum current profit
The company carefully establishes its marketing objective(s)
Survival
Maximum current profit
Maximum market share
Maximum market skimming
Product-quality leadership.

28. Pricing Procedure 1 Survival
Companies pursue survival as their major objective if they are plagued with overcapacity, intense competition, or changing consumer wants.
As long as prices cover variable costs and some fixed costs, the company stays in business.
Survival is a short-run objective; in the long run, the firm must learn how to add value or face extinction.

29. Pricing Procedure 1 Maximum Current Profit
Many companies try to set a price that will maximize current profits.
They estimate the demand and costs associated with alternative prices and choose the price that produces maximum current profit, cash flow, or rate of return on investment.
This strategy assumes that the firm has knowledge of its demand and cost functions.

30. Pricing Procedure 1 Maximum Market Share
Some companies want to maximize their market share.
They believe that a higher sales volume will lead to lower unit costs and higher long-run profit.
They set the lowest price, assuming the market is price sensitive.

31. Pricing Procedure 1 Maximum Market Skimming
Companies presentation a new technology favor setting high prices to maximize market skimming.
Sony is a frequent practitioner of market-skimming pricing, where prices start high and are slowly lowered over time.

32. Pricing Procedure 1 Maximum Market Skimming
Market skimming makes sense under the following conditions:
A sufficient number of buyers have a high current demand 
The high initial price does not attract more competitors to the market
The high price communicates the image of a superior product.

33. Pricing Procedure 1 Product Quality Leadership
A company might aim to be the product-quality leader in the market.
Many brands strive to be "affordable luxuries"—products or services characterized by
High levels of perceived quality, Taste, and status with a price just high enough not to be out of consumers' reach.

34. Pricing Procedure 1 Product Quality Leadership
BMW cars, has been able to position themselves as quality leaders in their categories, combining quality, luxury, and premium prices with an intensely loyal customer base.

35. Pricing Procedure 2
The company determines the demand schedule
The company determines the demand schedule, which shows the probable quantity purchased per period at alternative price levels.

36. Pricing Procedure 2 Price Elasticity of Demand
Marketers need to know how responsive, or elastic, demand would be to a change in price.

37. Pricing Procedure 2 Price Elasticity of Demand
With demand curve (a), a price increase from $10 to $15 leads to a relatively small decline in demand from 105 to 100.
With demand curve (b), the same price increase leads to a substantial drop in demand from 150 to 50.
If demand hardly changes with a small change in price, we say the demand is inelastic.

38. Pricing Procedure 2 Price Elasticity of Demand
If demand changes considerably, demand is elastic.
The higher the elasticity, the greater the volume growth resulting from a 1 percent price reduction.
The more inelastic the demand, the higher the company can set its price.

39. Pricing Procedure 2 Estimating Demand Curves
Most companies make some attempt to measure their demand curves using several different methods.
Statistical analysis
Price experiments
Surveys

40. Pricing Procedure 3
The company estimates how its costs vary
The company estimates how its costs vary at different output levels: “production levels, different marketing strategies, differing marketing offers, and target costing based on market research”

41. Pricing Procedure 3
The company estimates how its costs vary
A company's costs take two forms, fixed and variable.
Fixed costs (also known as overhead) are costs that do not vary with production or sales revenue.
A company must pay bills each month for rent, heat, interest, salaries, and so on, regardless of output.

42. Pricing Procedure 3
The company estimates how its costs vary
Variable costs vary directly with the level of production.
For example, each hand calculator produced by Texas Instruments involves the cost of plastic, microprocessor chips, packaging.

43. Pricing Procedure 3
The company estimates how its costs vary
These costs tend to be constant per unit produced. They are called variable because their total varies with the number of units produced. (HOW)

44. Pricing Procedure 3
The company estimates how its costs vary
Total costs consist of the sum of the fixed and variable costs for any given level of production.
Average cost is the cost per unit at that level of production; it is equal to total costs divided by production

45. Pricing Procedure 4
The company examines competitors’ prices
The company examines competitors’ prices as a basis for positioning its own price.

46. Pricing Procedure 5 Markup pricing Target return pricing
The company selects one of the pricing methods
Markup pricing
Target return pricing
Perceived-value pricing, value-pricing
Going-rate pricing
Sealed-bid pricing.

47. Pricing Procedure 5 Markup Pricing
The most elementary pricing method is to add a standard markup to the product's cost.
Construction companies submit job bids by estimating the total project cost and adding a standard markup for profit.
Lawyers and accountants typically price by adding a standard markup on their time and costs.

48. Pricing Procedure 5 Markup Pricing
Variable cost per unit $10 Fixed cost $300,000
Expected unit sales 50,000
The manufacturer's unit cost is given by:
Unit cost = variable cost + fixed cost = $10 + $300,000 = $16 unit sales 50,000

49. Pricing Procedure 5 Markup Pricing
Now assume the manufacturer wants to earn a 20 percent markup on sales.
The manufacturer's markup price is given by:
Markup price = unit cost/(1 - desired return on sales) = $16/( ) = $20

50. Pricing Procedure 5 Target-Return Pricing
In target-return pricing, pricing used to achieve a planned or target rate of return on investment.
Target-return price = unit cost + (desired return * invested capital) / Unit sales
Target-return price =16$ * 1,000,000/ $50,000

51. Pricing Procedure 5 Value Pricing
In recent years, several companies have adopted value pricing:
They win loyal customers by charging a fairly low price for a high-quality offering that means : reengineering the companies operations to be low-cost without sacrificing quality.

52. Pricing Procedure 5 Value Pricing
Among the best practitioners of value pricing are:

53. Pricing Procedure 5 Going-Rate Pricing
In going-rate pricing, the firm bases its price largely on competitors' prices.
It is quite popular where costs are difficult to measure or competitive response is uncertain.

54. Pricing Procedure 5 Auction-Type Pricing
Auction-type pricing is growing more popular, especially with the growth of the Internet.
There are over 2,000 electronic marketplaces selling everything from pigs to used vehicles to cargo to chemicals.
One major purpose of auctions is to dispose of excess inventories or used goods.

55. Pricing Procedure 6
The company selects its final price
The company selects its final price, expressing it in the most effective psychological way, coordinating it with the other marketing mix elements, checking that it conforms to company pricing policies, and making sure it will prevail with distributors and dealers, company sales force, competitors, suppliers, and government.

56. Strategies of Adapting/adjusting the Price

57. Price adjustment strategies
Companies will adapt the price to varying conditions in the marketplace.
Geographical pricing is one marketplace adjustment based on a company decision related to pricing distant customers (cash, counter trade, barter).

58. Price adjustment strategies
Price discounts and allowances are a second area for adjustment where the company establishes Cash discounts.
The more you buy, the cheaper it becomes cumulative and non-cumulative.
Quantity discounts
discount offered by a manufacturer to trade-channel members if they will perform certain functions.
Functional (trade) discounts
Price reduction to buyers who buy merchandise or services out of season
Seasonal Discounts

59. Adapting/adjusting the Price
are payments or price reductions designed to reward dealers/reseller for participating in Advertising and Sales Support programs.
Promotional Allowances

60. Adapting/adjusting the Price
Promotional pricing provides a third marketplace option, with the company deciding on loss-leader pricing, to stimulate traffic.
Special event pricing—to draw customers
Cash rebates—to encourage purchase within a specified time period
Low-interest financing—to facilitate purchase

61. Adapting/adjusting the Price
Promotional pricing provides a third marketplace option, with the company deciding on loss-leader pricing, to stimulate traffic.
Longer payment terms—for lower monthly payments
Warranties and service contracts—added value
Psychological discounting—set an artificially high initial price

62. Adapting/adjusting the Price
Discriminatory/Segmented pricing, the fourth option, enables the company to establish different prices for different customer segments, product forms, brand images, places, and times.

63. Adapting/adjusting the Price
Customer-segment pricing—different prices for different groups for the same product or services
Product-form pricing—different versions priced differently
Image pricing—same product at two different levels

64. Adapting/adjusting the Price
Channel pricing (location pricing)—same product priced differently at different locations
Time pricing—same product priced differently at different day, time or season.

65. Adapting/adjusting the Price
Price discrimination works when:
Market segments show different intensities of demand.
Consumers in higher price tiers must feel that they’re getting their extra money’s worth for the higher prices paid.

66. Adapting/adjusting the Price
Price discrimination works when:
Competitors can not undersell the firm in higher-price segments.
The costs of segmenting and reaching the market cannot exceed the extra revenue obtained from the price difference.

67. Adapting/adjusting the Price
Product-mix pricing, enables the company to determine price zones for several products in a product line, as well as differential pricing for optional features, captive products, byproducts, and product bundles.
Product-Line Pricing— determine price steps
Optional-feature pricing—in addition to main product

68. Adapting/adjusting the Price
Captive-product pricing—main products that require ancillary products, It is also called “Two-part pricing”—fixed fee + variable fee based on usage
Byproduct pricing—to recover production costs of main product
Product-bundling pricing—less costly when purchased together

69. Price Change

70. Price Change
When a firm considers initiating a price change, it must carefully consider customer and competitor reactions.
Customer reactions are influenced by the meaning customers see in the price change.
Competitor reactions flow either from a set reaction policy or from a fresh appraisal of each situation.

71. Price Change
The firm initiating the price change must also anticipate the probable reactions of suppliers, middlemen, and governments.
The firm encountering a competitor-initiated price change must attempt to understand the competitor’s intent and the likely duration of the change.

72. Circumstances leading to price cuts
Price Change
Initiating price cuts
Circumstances leading to price cuts
Price cutting traps
Excess plant capacity
Declining market share
Attempt to dominate the market via lower costs
Price/quality perceptions
Low prices don’t create market loyalty
Competition may match or beat price cuts

73. Price change Initiating price increases
Initiating price increases
Circumstances leading to price increases
Methods of dealing with over demand
Cost inflation
Over demand
Delayed quotation pricing
Escalator clauses
Unbundling
Reduction of discounts

74. Competitor reactions are common when
Price Change
Reactions to competitor’s price changes
Competitor Reaction
Competitor reactions are common when
Few firms offer the product
The product is homogeneous
Buyers are highly informed

75. Price Change
Market Leader can respond to competitor initiated price cuts in several ways:
Maintain price and add value
Reduce price (and cost)
Maintain price and profit margin
Increase price and improve quality (add new brand)
Launch a low-price fighter line

76. Price change Rolex “Example” Reactions to competitor’s price changes
Reactions to competitor’s price changes
Customer Reaction
Cut/Increase
Rolex “Example”

77. For more information click on the below link:
For more information click on the below link: