5-PLC and Pricing

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 communicates the value positioning of the product.

The pricing objective Survival Maximum current profit Maximum market share – penetration pricing Maximum market skimming Product quality leadership

What influences price sensitivity? Shared cost Sunk investment Price – quality Inventory effect Unique value effect Substitute awareness Difficult comparision End benefit Total expenditure

What is price elasticity? This determines the changes in demand with unit change in price If there is little or no change in demand, it is said to be price inelastic. If there is significant change in demand, then it is said to be price elastic.

Demand is likely to be less elastic when There are few or no substitutes Buyers readily do not notice the higher price Buyers are slow to change their buying habits Buyers think that the higher prices are justified

Price Quality Strategies Super valueHigh valuePremium Good valueMedium valueOvercharging EconomyFalse economy Rip off Price quality

Pricing methods Markup pricing Target return pricing Perceived value pricing Value pricing Going rate pricing Sealed bid pricing

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

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

PLC Products have a limited life Product sales pass through distinct stages Profits rise and fall at different stages of the PLC Product require different strategies in each stage of the PLC

The Product Life Cycle Time Sales or Profits Growth Maturity Decline Introduction Profit curve Sales curve

Strategies - Introduction Skimming the market Penetrating the market Must have sufficient resources to withstand the initial losses and heavy promotion costs Incremental selling efforts at this stage is highest

Strategies - Growth Improves quality and adds features Adds new models and variants Enters new market segments Increases distribution coverage and adds new channels Shifts communication from awareness to preference building Scale economies enable it to lower prices to attract the next level of price conscious buyers

Strategies - Maturity Most products are in this stage Price wars are inevitable. Scramble for market share The fittest survive Market modification, product modification, marketing mix modification can help extend the maturity stage

Strategies - Decline Withdrawal Rationalisation of products Harvesting whatever is possible Divesting the product

The competitive cycle Pioneer Introduction Growth of Industry Excess capacities High Inventories Reduction In margins New entrants discouraged Existing companies consolidate Weaker companies withdraw Pioneer increases share

Market Share Market Growth High Low HighLow 1. Stars 3. Question Mark 2. Cash Cows4. Dogs The Boston Matrix (Growth/Share Matrix)

Diversification Market PenetrationMarket Development Product Development Existing MarketsNew Markets Existing Products New Products Ansoff’s Matrix (Product/Market Matrix)

New- Product Development Process 1.New product strategy 2.Idea generation 3.Idea screening 4.Concept development and testing 5.Marketing strategy 6.Business analysis 7.Product development 8.Test Marketing 9.Commercialisation

LowHigh Low High Economy Strategy Penetration SkimmingPremium Price Quality

Ten ways to ‘increase’ prices without increasing price - Winkler Revise the discount structure Change the minimum order size Charge for delivery and special services Invoice for repairs on serviced equipment Charge for engineering, installation Charge for overtime on rushed orders Collect interest on overdue accounts

Produce less of the lower margin models in the line Write penalty clauses into contracts Change the physical characteristics of the product