Pricing lecture1

1、msc marketing management: gareth smith pricing topics: determinants of pricing strategy cost issues competition issues customer value and pricing the pricing plan using marketing- orientated pricing. hansen (a) case msc marketing management: gareth smith positive direction dr martens will remain a b

2、rand true to its heritage and deliver footwear of the highest quality. the offshore strategy is the first step in moving the company and the brand forward in a positive direction. paul gates, general secretary of kfat, said: it may be cheaper in china, but this is an issue of added value and quality

3、. it does not matter if the boots are cheap if nobody is going to buy them (because of their poorer quality). dr martens moves to china the makers of dr martens boots have announced the company is moving production to china with the loss of more than 1,000 jobs. a spokesman for the company said the

4、decision was made because it was far cheaper to produce footwear in china. it plans to cease all production in the uk, but will continue to employ a number of office and design staff. msc marketing management: gareth smith pricing methods cost competitionmarketing pricing methods msc marketing manag

5、ement: gareth smith ceiling and floor of price pricings black box low price no possible profit at this price high price no possible demand at this price competitor prices costs usps differentiation msc marketing management: gareth smith q2 q1 p2 p1 price quantity the demand curve does the demand cur

6、ve always look like this? what of luxury goods so called giffen goods what may cause an inelastic market/demand curve? msc marketing management: gareth smith losses break even point fixed costs total revenue total variable costs total cost profits units of production money () determining the break e

7、ven point msc marketing management: gareth smith 4 cost-oriented pricing direct costs (per unit)2 fixed costs 200,000 expected sales 100,000 costs per unit direct costs 2 fixed costs (200k/100k) 2 full costs 4 mark-up (10%)0.4 price (costs + mark-up)4.4 costs are taken into account only when they ar

8、e directly attributable to the production of a particular product. fixed costs or overheads are not included in the marginal cost. marginal cost for the example given: fixed costs200,000 expected sales 100,000 marginal cost2 mark-up (10%)0.2 marginal price2.2 full cost pricingdirect (marginal) cost

9、pricing msc marketing management: gareth smith evaluating cost-plus pricing nbenefits cost-plus is easy and quick to evaluate. it is perceived by firms to be inexpensive. it might be required or desired by customers. msc marketing management: gareth smith evaluating cost-plus pricing ndisadvantages

10、often delegated to inappropriate management levels. in the initial calculations, there are obvious difficulties in allocating appropriate figures for contribution to fixed costs. such calculations are meaningless if estimated volume levels are greatly above/below actual levels achieved. no considera

11、tion of competitive prices or response. does not systematically evaluate demand. logically corrupt. uses estimate of volume to calculate price. in competitive markets price determines volume. opportunities to charge a higher price may be missed. msc marketing management: gareth smith competitor-orie

12、nted pricing going-rate pricing: with no product differentiation producers are forced to accept the going rate. in reality there is almost no situation in which no differentiation occurs. competitive bidding: the supplier will price according to a specification drawn up by the purchaser. usually the

13、 supplier will choose the lowest (most competitive) price tendered. statistical modelling has resulted in the following basis for calculating expected profits. expected profit = profit x probability of winning msc marketing management: gareth smith pricing plans premise: experience of pricing decisi

14、ons in a range of companies suggests that the biggest gains are likely to result not from additional knowledge or insights concerning specific aspects of pricing, but from a more consistent and rational application of what is already known. more specifically, there is a need to ensure that the decis

15、ions that are taken concerning the many different aspects of a companys price structure form part of a coherent plan. msc marketing management: gareth smith marketing-orientated pricing effect on distributors/ retailers negotiating margins costs political factors product line pricing competition pri

16、ce-quality relationships explicability marketing strategy value to customer marketing-oriented pricing plan msc marketing management: gareth smith evc analysis 120000120000 30000 50000 30000 evc = 90000 100000 20000 evc = 80000 40000 added value life cycle cost purchase price start-up costs post- pu

17、rchase costs reference product new product x new product y msc marketing management: gareth smith nine marketing-mix strategies on price/quality 1. premium strategy2. high-value strategy 3. superb-value strategy high medium low product quality 4. overcharging strategy 7. rip-off strategy 5. average

18、strategy 8. false economy strategy 6. good value strategy 9. economic strategy highmediumlow price msc marketing management: gareth smith revenue time 0 introduction stage growth stage maturity stage decline stage the product life cycle msc marketing management: gareth smith new product launch strat

19、egy rapid skimming high slow skimming rapid penetration slow penetration price low promotion highlow msc marketing management: gareth smith when to use a penetration or a skimming strategy for pricing new products level of desire in market distinctiveness from competitive products importance of pric

20、e to market ease of duplicating product return on investment objective dimension skimming strategy penetration strategy highlow similar important easy gradualfast not easy not important distinctive source: hise, r, gillett, p and ryans, j, (1979), basic marketing concepts and decisions, winthrop pub

21、lishers, cambridge, massachusetts, p 450. msc marketing management: gareth smith initiating price changes increases cuts circumstances value greater value less than price than price rising costs excess supply excess demand build objective harvest objective price war unlikely pre-empt competitive ent

22、ry msc marketing management: gareth smith initiating price changes increases cuts tactics price jump price fall staged price increases staged price reductions escalator clauses fighter brands price unbundling price bundling lower discounts higher discounts msc marketing management: gareth smith init

23、iating price changes increases cuts estimating strategic objectives competitor self-interest reaction competitive situation past experience msc marketing management: gareth smith reacting to competitors price changes increases cuts when to rising costs falling costs follow excess demand excess suppl

24、y price insensitive customers price sensitive customers price rise compatible with brand image price fall compatible with brand image harvest or hold objective build or hold objective msc marketing management: gareth smith reacting to competitors price changes increases cuts when to stable or falling costs rising costs ignore excess supply exc