CHAPTER 2 PRICING STRATEGY PRICING BM 632 6

CHAPTER 2 : PRICING STRATEGY PRICING BM 632 ฉบบปรบปรงคร งท 6

DEVELOPING AN EFFECTIVE PRICING STRATEGY COSTS COMPETITORS CUSTOMERS STRATEGIC OBJECTIVES GOAL TACTICS Price or price policy 2

SELECTING PRICING OBJECTIVES Total revenue § Profit Sales pricing objectives Competition Social Image 3

OBJECTIVES - TOTAL REVENUE Total revenue Profit Sales Growth in revenue Increase cash flow pricing objectives Competition Social Image 4

OBJECTIVES - PROFIT Total revenue Profit Achieve a target ROI Maximize profit Sales pricing objectives Competition Keep a going concern Social Image 8

OBJECTIVES - SALES Total revenue Survival Profit Encourage sales growth Sales pricing objectives Competition Social Image Maintain a share of market Increase in market share 28

OBJECTIVES - COMPETITION Total revenue Profit Sales pricing objectives Competition Meet competition Avoid Competition Undercut Competition Social Image 31

OBJECTIVES - SOCIAL Total revenue Profit Sales pricing objectives Behave ethically Competition Social Imaage Maintain employment 41

OBJECTIVES - IMAGE Total revenue Profit Sales pricing objectives Competition Social Image Product Image Company Image 42

Corporate and Pricing Objectives Corporate Objectives Profitability Objectives Volume-Based Objectives Competitive Objectives 45

Profitability Objectives It makes sense to use price to achieve profit objectives when §The firm is the low-cost supplier in the marketcost advantage §The firm is the price leader. §There is an internal required rate of return for new product introductions. §There is a short lead time for new products before competitors will likely enter the market. 46

Volume Objectives It makes sense to use price to achieve volume based objectives when §The market is sensitive to relatively small price changes. §The firm knows it is the low-cost supplier. §Costs decline in a predictable way as cumulative vol. increase. §There is a strong “captive” aftermarket for replacement supplier. §There is an identifiable growth market segment. §There is little differential perceived value in the offerings of firms in the market. §There is a desire to limit competitive entry. 47

Competition Objectives It makes sense to use price to achieve competition oriented objectives when §The firm knows it is the low-cost supplier. §There are no perceived value differences across sellers in the minds of buyers. §Market share could be captured by using non price. 48

Geographical Pricing Policies F O B Origin Discounts & Allowances Policies New Product Pricing Policies The Level of pricing Policy One Price & Variable Price Policies Uniform delivered Zone Product Mix Pricing Policies Declining product Pricing Policies Discrimination Pricing Freight absorption 49

Discounts & Allowances Policies Geographical Pricing Policies Discounts & Allowances Policies Quantity Cash New Product Pricing Policies Functional (Trade) The Level of pricing Policy Seasonal One Price & Variable Price Policies Promotional (Trade) Product Mix Pricing Policies Declining product Pricing Policies Discrimination Pricing Rebate 0 % Financing Value-based 55

Discounts & Allowances Policies §Discounts – Quantity discount, Trade discount, Cash discount, Seasonal discount สวนทลดใหจากราคาทกำหนดไวในรายการเพอใหกร ะตนผซอเลอกอนเปนการกอประโยชนเพมคนใ หกบ ผขาย §Allowances – Trade in allowance, Promotional allowance, Brokerage allowance -สวนทผขายลดใหกบผซอ 56

Discounts & Allowances Policies §Quantity discounts – A price reduction offered to buyers buying in multiple units or above a specified dollar amount §Cumulative discounts – A deduction from list price that applies to the buyer’s total purchased made during a specific period 57

Discounts & Allowances Policies §Noncumulative discounts – A deduction from list price that applies to a single order rather than to the total volume of orders placed during a certain period. §Seasonal discount – A price reduction for buying merchandise out of season. 58

Discounts & Allowances Policies §Promotional allowance (Trade Allowance) – A payment to dealer for promoting the manufacturer’s products. § Rebate – A cash refund given for the purchase of a product during a specific period. 59

Discounts & Allowances Policies § 0 % Financing – No interest charge § Value – based pricing – Setting the price at a level that seems to the customer to be a good price compared to the prices of other options. 60

New Product Pricing Policies Geographical Pricing Policies Skimming Discounts & Allowances Policies New Product Pricing Policies Penetration The Level of pricing Policy One Price & Variable Price Policies Product Mix Pricing Policies Declining product Pricing Policies Discrimination Pricing 64

Skimming Pricing Policies Market Skimming >Setting a high price for a new product to skim maximum revenues from the target market. >Results in fewer, more profitable sales. >Popular night club charges a high cover charge 65

Penetration Pricing Policies Market Penetration > Setting a low price for a new product in order to attract a large number of guests. >Results in a larger market share. >New Marriott 67

Product Quality กลยทธราคาสำหรบผลตภณฑใ หม (ค) กรณ Me-Too Product Price H M. 1 Premium. 2 High-value H Strategy. 4 Overcharging. 5 Average M Strategy. 7 Rip-off. 8 False economy L Strategy ใหพจารณานโยบายของบรษท คแขงขน L. 3 Superb-value Strategy. 6 Good-value Strategy. 9 Economy Strategy และความตองก 72

The level of Pricing Policies Geographical Pricing Policies Pricing at market Discounts & Allowances Policies New Product Pricing Policies Below the market The Level of pricing Policy One Price & Variable Price Policies Above the market Product Mix Pricing Policies Declining product Pricing Policies Discrimination Pricing 77

One Price & Variable Price Policies Geographical Pricing Policies One price policy Discounts & Allowances Policies New Product Pricing Policies Single Price policy The Level of pricing Policy One Price & Variable Price Policies Variable Price Policy Product Mix Pricing Policies Declining product Pricing Policies Discrimination Pricing 83

Product Mixed Pricing Policies Geographical Pricing Policies Product line Pricing Discounts & Allowances Policies Optional Feature Pricing New Product Pricing Policies The Level of pricing Policy One Price & Variable Price Policies Product Mix Pricing Policies Byproduct Pricing Two part Pricing Product Bundling Declining product Pricing Policies Discrimination Pricing Captive Product Pricing 90

Product Mixed Pricing Policies Promotion คายมอถอ 102

Declining product Pricing Policies Geographical Pricing Policies Discounts & Allowances Policies New Product Pricing Policies The Level of pricing Policy One Price & Variable Price Policies Product Mix Pricing Policies Declining product Pricing Policies Discrimination Pricing 115

Discrimination Pricing Policies Geographical Pricing Policies Customer segment pricing Discounts & Allowances Policies Product Form pricing New Product Pricing Policies The Level of pricing Policy One Price & Variable Price Policies Product Mix Pricing Policies §Image pricing Place pricing Competitor pricing Declining product Pricing Policies Discrimination Pricing Time pricing 120

กลยทธของการกำหนดตำแหน งราคา More quality for more price More quality for the same price More quality for less price Same quality for less price Less quality for much less price 121

Price setting VS Strategic Pricing การกำหนดนโยบายราคาและการกำหนดราคาเชงกล ยทธ §Few companies proactively manage their businesses to create the conditions that faster more profitable pricing. §The difference between price setting and strategic pricing is the difference between reacting to marketing conditions and proactively managing them. 122

Strategic Pricing §It is the coordination of interrelated marketing, competitive, and financial decisions to set prices profitably. Financial must learn how costs change with changes in sales and must use that knowledge to develop appropriate incentives and constraints for marketing and sales to achieve their objectives profitably. 123

Pricing-Marketing Vs Finance §It is actually the interface between marketing and finance. §It involves finding a balance between the customer’s desire to obtain good value and the firm’s need to cover costs and earn profits. 124

Price Setting ราคาขาย จำนวน หนวยท ตอหน ขาย วย ยอดขาย ตนทน ตอหนว ย ตนทนข าย กำไร A B C 10 11 12 13 15 400* 350 325 310 260 4, 000 3, 850 3, 900 4, 030 3, 900 D A*B 7 7 7 E B*D 2, 800 2, 450 2, 275 2, 170 1, 820 F C-E 1, 200 1, 400 1, 625 1, 860 2, 080*125

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Pricing strategies Low High Economy Strategy e. g. Tesco Spaghetti Penetration e. g. Tele west cable phones Price High Skimming e. g. New film or Album Premium e. g. BA first Class Quality 127

Pricing strategies • Premium pricing • Uses a high price, but gives a good product/service exchange e. g. Concorde, The Ritz Hotel • Penetration pricing • offers low price to gain market share - then increases price • e. g. France Telecom - to attract new corporate clients (or Telewest cable) • Economy pricing • placed at ‘no frills’, low price • e. g. Soups, spaghetti, beans - ‘economy’ brands 128

Pricing strategies • Price skimming • where prices are high - usually during introduction • e. g new albums or films on release • ultimately prices will reduce to the ‘parity’ • Psychological pricing • to get a customer to respond on an emotional, rather than rational basis • . e. g 99 p not £ 1. 01 ‘price point perspective 129

Pricing strategies • Product line pricing • rationale of a product range • e. g. MARS 32 p, Four-pack 99 p, Bite-size £ 1. 29 • Pricing variations • ‘off-peak’ pricing, early booking discounts, etc • e. g Grundig offers a ‘cash back’ incentive for expensive goods 130

Pricing strategies • Optional product-pricing • e. g. optional extras - BMW famously underequipped • Captive product pricing • products that complement others • e. g Gillette razors (low price) and blades (high price) • Product-bundle pricing • sellers combine several products at the same price • e. g software, books, CDs. 131

Pricing strategies • Promotional pricing • BOGOF e. g. toothpaste, soups, etc • Geographical pricing • different prices for customers in different parts of the world • e. g. Include shipping costs, or place on PLC • Value pricing • usually during difficult economic conditions • e. g. Value menus at Mc. Donalds 132

Ten ways to ‘increase’ prices without increasing price - Winkler • • • Revise the discount structure Change the minimum order size Charge for delivery and special services Invoice for repairs on serviced equipment Charge for engineering, installation 133

Ten ways to ‘increase’ prices without increasing price - Winkler • Charge for overtime on rushed orders • Collect interest on overdue accounts • Produce less of the lower margin models in the line • Write penalty clauses into contracts • Change the physical characteristics of the product 134