Professional Documents
Culture Documents
Unit 4 (Contd.)
Formulating
Business
Marketing
Strategy
B2B Marketing
Pricing
Strategy for
Business Markets
Pricing Strategy for
Business
Price is all aroundMarkets
us.
We pay rent for our apartment,
tuition for our education, and a fee
to our dentist or physician.
The airline, railways, taxi and bus
charge us a fare; the utilities call
their price a rate; and the bank
charges us interest for the money
we borrow.
We pay a toll when we drive on the
DND and the insurance company
charges us a premium. The
salesman earns commission and the
worker is paid wages.
Pricing Strategy for
Business Markets
Story……
One fine morning Raju went to get his bike
repaired. While his bike was being repaired he
went to a nearby tea stall for his morning tea.
While sipping his hot tea, he observed a cockroach
lying on its back struggling to get up.
It
Value?
is imperative for a company to
understand and empathize with its
customers before defining value –
and remember that there will
always be a trade-off between total
benefit versus total cost.
The customer will continually evaluate
that trade-off. A salesman's role is to
convince the customer that the benefits
the customer perceives are the best that
money can buy. The salesman may not be
able to keep the relationship going if the
value remains a perception only.
Customer
The customer value is
Value?
defined as the perceived
worth of the benefits
received by a customer
in exchange for the total
cost of the offer, taking
into consideration
available competitive
offers and prices.
What Is Customer
Value?
Fundamentals of Customer Value
What Is Customer
Value?
Models of Customer Value
Customer Value
Proposition in Business
Markets
The value propositions are classified into
three types:
All benefits: The suppliers list every perceived
benefit delivered by their product or service.
Favourable points of difference: Based on the
customer's awareness of alternatives, this
requires the supplier to have knowledge of
alternatives to his own offers.
Resonating focus: The suppliers need to make
their offers superior on key elements of value that
are most relevant to the customers. The supplier's
offer must demonstrate and document their
superior performance. In addition, the offer must
clearly display the supplier's understanding of
their customers' business problems.
Pricing is all around us
Price = Cost +
Profit
Price brings in the
Revenues
• This is the only element in the
marketing mix that brings in the
revenues. All the rest are costs.
Price
Estimating Costs
• Fixed costs
• Variable costs
• Learning curve
• Activity based costing
• Target costing
Pricing methods
• Markup pricing
• Target return pricing
• Perceived value pricing
• Value pricing
• Going rate pricing
• Sealed bid pricing
Psychological
Pricing
• It is used to lessen the impact of
the actual pricing in the
consumers’ mind.
• It is used as a surrogate to
indicate the product quality or
esteem.
Discounts and
Allowances
• Early payment
• Off – season
• Bulk purchase
• Retail discount
• Cash discount
• Trade in allowance
Promotional
•
Pricing
Loss leader pricing
• Special event pricing
• Cash rebate
• Low interest financing
• Longer payment terms
• Warranties and service contracts
• Psychological discounting
Geographical
Pricing
• Different pricing at different
locations
• Could be in terms of barter,
countertrade and foreign
currency
Discriminatory
Pricing
• Customer segment
• Product form
• Image pricing
• Location pricing
• Time pricing
Preconditions
• Market must be segmentable.
• The lower price segment should not be able to
resell the product to the higher price segment.
• The competitors must not be able to undersell
the firm in the higher price segment.
• Should not breed customer resentment and ill-
will.
• Price discrimination should not be illegal.
Product Mix
Pricing
• Product line pricing
• Optional feature pricing
• Captive product pricing
• Two part pricing
• Byproduct pricing
• Product bundling pricing
Initiating Price
cuts
• Excess plant capacity
• Competition
• Aggressive pricing
Initiating price
increases
• When demand exceeds supply
• When costs go up
• Govt. policies
• Reduce/remove discounts and
rebates
Indirect price
increases
• Shrinking pack size for same price
• Substituting less expensive raw
materials
• Reducing product features
• Removing product services
• Using less expensive packaging
material
• Reducing the no. of packs and sizes
offered
• Creating new economy brands
Reaction to price
changes
• Customer reaction
• Competitor reaction
Responding to
competitor price
• Maintain changes
price
• Maintain price and add value
• Reduce price
• Increase price and quality
• Launch a low price fighter
Elements of Customer
Value Framework
Elements of Customer Value
Framework
How Do You Know When
the Price Is Right?
Pricing is managers' biggest marketing headache. It's where
they feel the most pressure to perform and the least certain that
they are doing a good job. The pressure is intensified because,
for the most part, managers believe that they don't have control
over price: It is dictated by the market.
High unit sales and increased market share sound promising but
they may in fact mean that a price is too low. And forgone profits
do not appear on anyone's scorecard.
The first question to ask is not, what should the price be? But
rather, have we addressed all the considerations that will
determine the correct price? Proper pricing comes from carefully
and consistently managing a myriad of issues.
How to fight a
Price War?
In the battle to capture the customer, companies use
increasingly price as the weapon of choice – and
frequently the skirmish degenerates into a price war.
Virtually every competitive move is based on price, and every
countermeasure is a retaliatory price cut. Price wars are
becoming more common because price change is viewed as an
easy, quick and reversible action.
There are several ways to stop a price war before it starts. One
is to make sure your competitors understand the rationale
behind your pricing policies. In other words, reveal your
strategic intentions and capabilities.