Pricing Strategies

Pricing Factors
Objectives Cost

Pricing Objectives
Maximize long- or short-run profits Growth Stabilize market Desensitize customers to price Price-leadership Discourage entrants Speed exit of marginal firms

Pricing Objectives
Avoid government investigation and control Maintain loyalty and support of channel partners Avoid demands of more (from labor) Enhance image of firm and its offerings Perceived as fair by customers Create interest and excitement

Pricing Objectives
Be considered trustworthy and reliable by rivals Increase sales of weak items Discourage rivals from cutting prices Increase visibility of product Spoil market to obtain high price for sale of business Build traffic

Costs
Fixed Variable Out-of-pocket Incremental Opportunity Controllable Replacement

Pricing Strategy: Competitive Information

Published prices and advertising Past reactions to price moves Timing of price changes and initiating factors Special campaigns Product-line comparison Assumptions on pricing/marketing objectives

Pricing Strategy:competitive Information

Financial information Costs: fixed and variable Expected retaliation Capacity to retaliate Financial capability to sustain price war Strategic posture Competitive aggressiveness

Demand Analysis
Predict relationship between price level and demand Consider effects of other variables on demand Elasticity of demand Price sensitivity Number of units of product demanded at different prices

Demand Analysis: Levels of Price Sensitivity

Total industry Specific firm

Pricing Strategies: New Products

Skimming the cream
high initial price at upper end of demand curve

Penetration
low initial price to capture greater market share

Pricing Strategies: Established Products

Changes in marketing environment
Competitor changes price Market demand shifts

Price Flexibility: Alternative Strategies

One-price Flexible-price

Price Flexibility: Influences From Market Changes

Saturation of markets Slow growth New international competitors Consumer movement

Price Flexibility: Basis of Different Prices

Geography Time of delivery Complexity of product

Product-line Pricing
Maximize profits of whole firm rather than profits of single products

Product-line Pricing
Product line may have complementary or competitive products Influences the cross elasticities of demand of package deal of complementary products or competitive products

Bundling or Iceberg Pricing

Extra margin for support services over the price of product Included in one price Common in leasing

Price Leadership: Characteristics

Large share of industrys production capacity Large market share High commitment to product class or grade Cost-efficient plants Strong distribution system

Price Leadership: Characteristics

Good customer relationships
Technical assistance to industrial buyers Service during shortage periods to important customers

Information on supply and demand Sensitivity to price and profit needs of industry

Price Leadership: Characteristics

Sense of timing of price changes Sound management of pricing Product-line financial controls Attention to legal issues

Pricing Strategy To Build Market Share

Price to gain share and experience Higher market share or experience leads to lower costs Creates cost advantage Competitors cannot overcome advantage with normal performance Prevents competitors from entering market Competitors live in subordinate position