Marketing management strategy Lecture 8
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Lecture
Pricing Strategy
8
BMA351 Marketing Management
Pricing StrategyIs a key factor in producing revenue for the firm Is the easiest of all marketing variables to change Is an important consideration in competitive intelligence Is considered to be the only real means of differentiation in highly commoditized markets Is among the most complex decisions in the marketing plan© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
The Role of Pricing in Marketing StrategyThe Seller’s Perspective on PricingPrice is about what the seller will accept in exchange for a product. Sellers consider four key issues:Costs Demand Customer value Competitors’ prices
The Buyer’s Perspective on PricingPrice is about what the buyer is willing to give up in exchange for a product. Buyers consider two key issues:Perceived value Price sensitivity© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
A Shift in the Balance of PowerA buyer’s market occurs when:Large number of sellers in the market Many substitutes for the product Economy is weak
A seller’s market occurs when:Products are in short supply Products are in high demand Economy is strong
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
The Relationship Between Price and RevenueMyth #1 – When business is good, a price cut will capture greater market share. Myth #2 – When business is bad, a price cut will stimulate sales.
Price cutting is generally not in the best interests of the firm unless sales volume will increase. A better strategy is to build value into the product offering at the same (or even a higher) price.© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Key Issues in Pricing StrategyPricing Objectives Supply and Demand The Firm’s Cost Structure Competition and Industry StructurePerfect competition Monopolistic competition Oligopoly Monopoly
Stage of the Product Life Cycle© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Common Pricing Objectives (Exhibit 8.1)
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Pricing Strategy Over the Product Life Cycle (Exhibit 8.2)
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Pricing Service ProductsService pricing is critical because price may be the only cue to quality in advance of purchase.
Service pricing becomes more important and difficult when:Service quality is hard to detect prior to purchase Costs are difficult to determine Customers are unfamiliar with the service process Brand names are not well established Customers can perform the service themselves The service has poorly defined units of consumption Advertising within the service category is limited The total price of the service is difficult to state beforehand
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Service Pricing and Yield ManagementService pricing becomes a key issue in balancing supply and demand during peak and off-peak demand times. Yield management allows the firm to simultaneously control capacity and demand.Control capacity by limiting available capacity at certain price points Control demand through price changes and overbooking capacity
Yield management also allows service firms to segment markets based on price elasticity.© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Yield Management for a Hypothetical Hotel (Exhibit 8.3)
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Price Elasticity of DemandRefers to customers’ sensitivity to changes in price The relative impact on the demand for a product, given specific increases or decreases in the price charged for that productInelastic demand – Customers are not sensitive to price changes; demand remains relatively the same Elastic demand – Customers are sensitive to price changes; demand falls as the price increases Unitary demand – Change in price and demand offset, so total revenue remains the same
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Price Elasticity of Demand (Exhibit 8.4)
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Situations That Increase Price SensitivityAvailability of Product SubstitutesCustomers are more sensitive to price changes when they can choose among a number of substitute products.
Higher Total ExpenditureThe higher the total expense, the more elastic the demand.
Noticeable DifferencesProducts having heavily promoted prices tend to experience more elastic demand.
Easy Price ComparisonsCustomers are more price sensitive if they can shop around for a better price.© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Situations That Decrease Price SensitivityLack of SubstitutesCustomers are less price sensitive when
they have fewer options.
Real or Perceived NecessitiesThese products have very inelastic demand because customers have to have them.
Complementary ProductsIf the price of one product falls, customers will be less sensitive to the price of complementary products.
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Situations That Decrease Price Sensitivity (continued)Perceived Product BenefitsSometimes, products are “just worth it” to consumers.
Situational InfluencesCustomers are less price sensitive in certain situations (time pressure, emergencies, gift giving, etc.)
Product DifferentiationDifferentiation reduces the number of perceived substitutes. The goal of product differentiation is to make the demand curve for a product more inelastic.
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Internet’s Role in Price DiscriminationBuyers can: Instant price comparisons Name price and have it met Get products for free Sellers can: Monitor customer behaviour and tailor offers to individuals Select customers for special prices Negotiate prices in online auctions and exchanges
Pricing Strategies in Consumer MarketsBase Pricing StrategiesMarket introduction pricing (skimming and penetration) Prestige pricing Value-based pricing (EDLP) Competitive matching Nonprice strategies
Adjusting Prices in Consumer MarketsPromotional discounting Reference pricing Odd-Even pricing Price bundling© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Pricing Strategies in Business MarketsAdjusting Prices in Business MarketsTrade discounts Discounts and allowances Geographic pricing Transfer pricing Barter and countertrade Price discrimination
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Marketing management strategy Lecture 808-27
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