MARKETING Pricing Strategies Prof BauerRamazani Overview Definition of

MARKETING Pricing Strategies Prof. Bauer-Ramazani

Overview + Definition of price + Prices in BU 113 companies + Factors that influence the pricing decision + Pricing objectives + Three major pricing strategies and their advantages and disadvantages + Pricing strategies over the product life cycle + Pricing tactics

Price -- Definition • the amount of money charged for a product or service • the sum of all the values that consumers exchange for the benefits of having or using the product or service • Examples of “price? ” – Tuition, rent, fare, retainer, toll, salary/wage, dues

Prices -- BU 113 Companies • What objectives did the managers have in mind when they set their prices?

Factors in Setting Price

y lit on bi ati ls ita iz oa of xim n G Pr a ur M et itof t R Pr rge Ta Sa le Vo s M Ma lum ar ke xim e t S iz ha atio re n Pricing Objectives Meet Business Objectives Other Pricing Objectives ¥ Status Quo ¥ Image ¥ Social & Ethical Considerations

Price Strategies for New Products PRICE Penetration Pricing Low price establish product in the market PRICE Skimming Pricing PRICE Skimming Penetration High price/Prestige pricing appeal to early adopters; recover high R&D costs Lower price over time Move inventory, stimulate D, extend product life

Marketing Strategy Over the Product Life Cycle INTRODUCTION GROWTH MATURITY DECLINE Marketing strategy emphasis Market development Increase market share Defend market share Maintain efficiency in exploiting product Pricing strategy High price/unique Lower price Price at or below Set price to product / cover time production costs competition remain profitable or reduce to Promotion Strategy Place strategy Low price/gain market share liquidate Mount sales promotion for product awareness Appeal to mass market Emphasize brand differences, benefits & loyalty Reinforce loyal customers; reduce promotion costs Distribute through selective outlets Build intensive network of outlets Enlarge distribution network Be selective in distribution, trim unprofitable outlets

Br k- ea Economic—Supply/Demand sis aly An Price. Setting Tools en ev Co Va st-O ria ri bl en e/ te Fi d xe d Determining Prices

Elasticity of Demand measure of the sensitivity of demand to changes in prices Price Inelastic Demand Electricity P 2 P 1 Price Q 2 Q 1 Quantity Elastic Demand Fast food P 2 P 1 Q 2 not price sensitive - no real change in demand Q 1 Quantity price sensitive - changes in demand

Market-based Pricing n Pricing Existing Products/Services - 3 options E Pricing below market prices price wars § EX: airlines, store brand vs. manufacturer’s brand § Dumping E Pricing above prevailing market prices for similar products § EX: Sony higher price = higher quality? E Pricing at or near market prices

Pricing Tactics n Price Lining • Price points: Setting a limited number of prices for certain categories of products n Psychological Pricing • Odd-even n Discounting • Quantity discounts • Cash discounts (2/10 net 30) ¢ Web programs: free!

Cost-based Pricing (Cost-Plus) 1. Cover costs Ø Ø Material Labor Capital resources Marketing variable costs fixed costs 2. Mark-up Ø Targeted return for shareholders Costs + mark-up = Sales price $1. 00 + $0. 50 = $1. 50 (50% markup)

Mark-up Calculation – Exercise 1. Price per product 2. Less the cost per product (what you paid the supplier, e. g. total cost paid / # of items purchased)

Breakeven Analysis TC = TR

Breakeven Point Formula (Contribution Margin)

Review • 5 Factors that influence prices • Pricing objectives • Pricing strategies at different stages of the Product Life Cycle (advantages/disadvantages) • Methods of Determining Prices – Elasticity of demand – Mark-up – Breakeven Analysis