1. Marketing II / Session 5 14.04.2016 Martin Samek martin.samek@lbs.ac.at

2. Lauder Business School Price 2 Marketing II/ Session 4

3. Lauder Business School Price 3 Marketing II / Session 5 - is relative to competition and the economy - is a message about quality -is a signal regarding positioning and image of the brand - provides value for money/ cost benefit Easiest to change of the 4 Ps

4. Lauder Business School Price 4 Marketing II / Session 5 The 3 Cs influencing pricing decisions -> Company’s cost -> Customers’ sense of product’s value -> Competition’s price

5. Lauder Business School Pricing Strategies 5 Marketing II / Session 5 LOW PRICE: -> Nearly predatory -> Market penetration -> Loss leader -> Cost-plus

6. Lauder Business School Pricing Strategies 6 Marketing II / Session 5 MEDIUM PRICE: -> Competitive -> Slightly below competition -> Slightly above competition

7. Lauder Business School Pricing Strategies 7 Marketing II / Session 5 HIGH PRICE: -> Market Skimming -> Prestige or status pricing -> High because of real market difference

8. Lauder Business School Pricing 8 Marketing II / Session 5 Low price: - How do we determine whether costs are covered? - Are low prices a strategic choice or should we offer price fluctuations?

9. Lauder Business School Pricing 9 Marketing II / Session 5 Low price: - How do we determine whether costs are covered? - Are low prices a strategic choice or should we offer price fluctuations? -Cost is the limiting factor -- If variable costs are high – maximize margins per unit -- If fixed costs are high – Maximize number of units sold (to disperse the cost per unit) -Cost-plus pricing: P = (unit cost) / (1-X%)

10. Lauder Business School Pricing 10 Marketing II / Session 5 Low price: Break Even? ->Number of units needed to sell to cover costs BE = fixed costs/(price-variable costs) BE is calculated for different price scenarios

11. Lauder Business School Pricing 11 Marketing II / Session 5 Higher price: Price Sensitivity PS Price Sensitivity P1 New Price (Lower Price) P2 New Price (Higher Price)

12. Lauder Business School Pricing 12 Marketing II / Session 5 Higher price: Two unknown variables PS and % change in sales PS: ->Past data/experience ->Scanner Data -> Survey Data (WTP ) -> Conjoint Analysis

13. Lauder Business School Pricing 13 Marketing II / Session 5 Profit maximization: Profit = revenue – expense Revenue = price x quantity sold To maximize profits, find a price where any further increase in price would lead to a large falloff in quantity sold Profit Maximization: marginal revenue equals marginal cost

14. Lauder Business School Pricing Temporary Adjustments 14 Marketing II / Session 5

15. Lauder Business School Pricing Temporary Adjustments 15 Marketing II / Session 5

16. Lauder Business School Pricing Temporary Adjustments 16 Marketing II / Session 5