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SETTING THE RIGHT PRICE: CONCEPTS AND PRACTICE Mitchell Young.

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Presentation on theme: "SETTING THE RIGHT PRICE: CONCEPTS AND PRACTICE Mitchell Young."— Presentation transcript:

1 SETTING THE RIGHT PRICE: CONCEPTS AND PRACTICE Mitchell Young

2 Yummy Bar 12.50 kcChoco-Bar 9.90 kc

3 What does Price do?  Names Terms of Exchange  Signifies Quality  Shapes the Value of the Product  How?  Motivating consumer to rethink and better understand what they are being offered

4 What you need to know before determining price 1. Costs 2. Competitors 3. Customers and Value 4. Corporate Strategy

5 Slide 16.5 Kotler, Keller, Brady, Goodman and Hansen, Marketing Management, 1 st Edition © Pearson Education Limited 2009 The 3 C’s and Pricing Models Models:  Markup pricing  Going-rate pricing  Perceived-value pricing  Value pricing  Premium pricing  Auction-type pricing

6 Costs (costs plus or markup) = Product Cost

7 Analyze competitors’ costs, prices and offers  Consider the nearest competitor’s price  Evaluate worth to customer for differentiated features  Judge whether the customer will be willing to pay more  Anticipate response from competition – what would you do in competition’s place?

8 Where do customers perceive value?  Features  Buyer’s image of product performance  Ability to deliver on time  Warranty  Customer support  Supplier reputation  Trustworthiness and Reliability  Esteem  End user of the product

9 Slide 16.9 Kotler, Keller, Brady, Goodman and Hansen, Marketing Management, 1 st Edition © Pearson Education Limited 2009 Strategic Decisions: the pricing objective  Survival  Maximum current profit  Maximum market share  Maximum market skimming  Product-quality leadership

10 Porter’s Generic Strategies Target Scope Competitive Advantage Low CostProduct Uniqueness Broad (industry wide) Overall Cost Leadership Differentiation Narrow (market segment) Cost Focus Differentiation Focus

11 Price-adaptation strategies Geographical pricing Discounts/allowances Differentiated pricing Promotional pricing Bundle pricing

12 Communicating with Customers by Using Price  Commodification = Products become “commodities”  Skepticism, routinized behavior, minimal expectations, prefer swift and effortless transactions  All product dimensions are equally palatable, differences are not worth investigating  Not about products, but about customers (vs. actual commodities)  Objective is to reengage buyer who is past caring  Tires, Explosives, Car Insurance

13 Using Price – Change Parameters  Adjust price structure to clarify advantages  Move away from “units sold” model  Examples  Goodyear, price on “miles/km” expectation, rather than engineering  Orica, price on fragmentation of rock rather than explosive  Norwich Union, insurance based on miles driven, rather than risk

14 Using Price - Overpricing  Thought-provoking effect of moderate overpricing (50% to 80%)  Consumer: “Why is this so much more expensive?”  Revives considerations and recall of other features  Apple computers, Starbucks, etc.

15 Using Price - Partitioning  Use partitioning to highlight overlooked benefits  Showing broken down pricing can cause consumers to revise behavior  Unbundling  Cable television (channels, set top box, internet)  Low cost airlines (flight, luggage, food)

16 Using Price – Single Price Point  Customer focuses on choice, rather than price  Swatch -- which is right for me?  iTunes Varying $0.89 to $1.29 Uniform $1.29 Likelihood of Purchase (1 to 5) 2.773.63 Songs per month5.056.13 Implied annual revenue $25.95$49.10

17 Using Price – Free  Power of Free  Free $10 gift certificate, or seven dollars for a $20 gift certificate  Amazon France  Shipping for 1 Franc (vs. free)

18 Slide 16.18 Kotler, Keller, Brady, Goodman and Hansen, Marketing Management, 1 st Edition © Pearson Education Limited 2009 Presenting the price Anchoring  Use a comparison  TiVo (VCR vs. Computer)  $200 vs. $1000  Apple iPhone  $600 to $400  Anchor high value Price Cues  ‘Left to right’ pricing ($299 versus $300)  Odd number discount perceptions vs. Even number value perceptions  ‘Sale’ written next to price  Limited availability


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