Pricing Considerations and Strategies

What is a price? Sum of all the values that consumers exchange for the benets of having or using the product or service Price vs. cost Marketers do not make decisions about costs, they make decisions about prices Dynamic Pricing The practice of charging different prices depending on individual customers and situations Internet and web-purchasing provides the technological capability Sites like eBay even add the ability to negotiate price to dynamic pricing practices Factors that Affect Pricing Decisions Review Figure 10.1 Fixed Costs vs. Variable Costs Product packaging variable VP of marketing salary xed Cost of 3 month billboard campaign xed Annual advertising budget xed Cost of the parts that go into manufacturing the marketer's product variable Review Price Elasticity General Pricing Strategies Cost-based approach Value-based approach Competition-based approach Pricing in Different Markets Pure monopoly through pure competition Pricing New Products Market Skimming Pricing High price to reap maximum prot from early adopter segments

Strategy must be supposed by product quality, production costs, and competitors' difculty in entering market Market Penetration Pricing Low price to gain maximum market share Market must be price sensitive, costs must fall with rising volume, and price must discourage competition Product Mix Pricing Strategies Product Line Pricing levels to deliver value to different segments Optional Products Separate options available for the main product Product Bundles Combinations of products Captive Products Needed to make main product usable Byproducts Created from the manufacture of the main product Price-Adjustment Strategies Discount and allowance pricing Segmented pricing Psychological pricing Promotional pricing Geographical pricing International pricing Initiating Price Changes Price Cuts Excess capacity Falling market share Dominate market through lower costs Price Increase Cost ination Over demand; cannot supply all customers' needs Pricing Ethics Competitors Price-xing Predatory pricing Manufacturer and Retailer Retail price maintenance Discriminatory pricing Manufacturer/Retailer and Consumer Deceptive pricing

The Pricing Tripod

Cost-Based Pricing: Traditional vs. Activity-Based Costing Traditional Costing Approach Labour and infrastructure costs are considered xed costs Service rms have higher ratio of xed to variable costs found in manufacturing Cost reduction decisions often cut these costs which leads to reduced service levels and unhappy customers Activity-Based Costing (ABC) Sets of delivery activities and related costs Firms can pinpoint protability of different services, channels, etc. Competition-Based Pricing When customers don't see a difference between competitive offerings, they choose the cheapest Price competition is reduced when... Non-price related costs of using competing alternatives are high Personal relationships matter Switching costs are high Time and location specicity reduce choice Value-Based Pricing - Understanding Net Value Value exchange will not take place unless customer sees positive net value in transaction Net Value = Perceived Benets to Customer (Gross Value) - All Perceived Outlays (Money, Time, Effort) Monetary price is not only perceived outlay in purchasing, using a service When looking at competing services, customers are mainly comparing relative net values Reduce Related Monetary and Non-Monetary Costs Incremental Financial Outlays

Includes the price of purchasing service and other expenses Expenses associated with search, purchase activity, usage E.g. Two theatre tickets also requires the cost of parking, babysitters, etc. Non-Monetary Costs Time Physical Psychological (mental) Sensory (unpleasant sights, sounds, feels, tastes, smells) The Flower of Service

There are two kinds of supplementary services Facilitating Supplementary Service - either needed for service deliver, or help in the use of the core product Enhancing Supplementary Service - Add extra value for the customer In a well-designed and well-managed service organization, the petals and core are fresh and well-formed Market positioning strategy helps to determine which supplementary services should be included Supplementary Services Facilitating Information - customers often require information about how to obtain and use a product or service Order-Taking - Customers need to know what is available and may want to secure commitment to delivery; the process should be fast and smooth Billing - Bills should be clear, accurate, and intelligible Payment - Customers may pay faster and more cheerfully if you make transactions simple and convenient for them Enhancing Consultation - Value can be added to goods and services by offering advice and consultation tailored to each customer's needs and situation

Hospitality - Customers who invest time and effort in visiting a business and using its services deserve to be treated as welcomed guests Safekeeping - Customers prefer not to worry about looking after the personal possessions that they bring with them to a service site Exceptions - Customers appreciate some exibility when they make special requests and expect responsiveness when things don't go according to plan