PRICING STRATEGY

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PRICING STRATEGY
1. Methods of pricing a. Cost oriented pricing i. Full cost pricing: FC+VC+Profits=price; sensitive to sales/output ii. Direct cost pricing: VC+Profits=Price; for utilizing idle capacities; not for long run b. Competitor oriented pricing i. Going rate pricing: when no differentiation, perfect competition exists. ii. Competitive bidding: expected profit=profit X probability of bidding; salespeople can help c. Marketing oriented pricing i. Pricing new products 1. Positioning strategy:like whether calculators are for engineers or general public,may be include others later but clear cut differentiation 2. Rapid(high price & high promotion) & slow (high price low promotion,e.g. for cult products)skimming strategy , rapid (low price high promotion)& slow(low price low promotion e.g for owner label brands) penetration 3. Characteristics of market segment if it is willing to pay high price.;payer & user,lack or extent of competition,high pressure on buying like air line ticket 4. Low price as the only alternative,or to make customer switch brand; or cost to be recovered in spares & services. 5. Price sensitivity ii. Pricing existing product 1. Build objective:e.g. to increase market share or for mass & class. 2. Hold objective:to maintain market share, mostly reactionary in nature 3. Harvest: focus on increasing revenue,no match with price cut but match with price increase 4. Repositioning strategy d. Value to the customer i. Buy response method: the graph ,after which majority falls buying ii. Trade-off analysis: of features vs price iii. Experimentation:at different locations with varying price levels.; mostly for consumer products iv. Economic value to the customer(EVC) analysis: mostly for industrial products. Buying cost+operational cost. 2. Factors influencing pricing decisions a. Price-quality relationship:specially when objective measurement of quality is not possible, price is the indicator.e.g. perfumes b. Product line pricing:extending product lines i.e.variety of products to survive fierce low price competition & retains brand image. c. Explicability: convince power of salesman or the product finish. d. Competition: three levels of competition i. 1st: direct competition, similer products,like telephone companies ii. 2nd :dissimilar products serving same problem iii. 3rd :products serving problems in dissimler ways. e. Negotiating margins f. Effect on distributors & retailers: of list price, on their margins

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g. Political factors h. Earning very high profits i. Charging very low pricing Pricing cues: A price cue is defined as any marketing tactic used to persuade customers that prices offer good value compared to competitors’ prices, past prices or future prices,by: a. ‘sale’ word b. ‘9’ ending prices c. Lowering prices of memorable products. d. Price guarantee Consumption & pricing a. Consumption to be ensured for renewal of membership,subscription & secondary sales b. Rest photo Price sensitivity Initiating price changes a. Circumstances under which price can be raised b. Circumstances under which prices may be cut c. Proactive price cut d. Tactics of price change e. Estimating competitors reaction f. Reacting to competitors price changes g. Tactics of reaction Price wars

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