1. Pricing Making Profitable Decisions Third Edition
Kent B. Monroe
University of Illinois at Urbana Champaign
Champaign, Illinois, U.S.A.

2. Effective Pricing Management
Chapter 1
Effective Pricing Management

3. Russian Proverb There are two fools in any market:
One does not charge enough.
The other charges too much.

4. The Role of Price
Prices determine what products and services should be produced and in what amounts.
Prices determine how these products and services should be produced.
Prices determine for whom the products and services should be produced.

5. The Definition of Price
quantity of money or goods and services received by the seller
quantity of goods and services
paid by the buyer
Price =

6. Pricing Terms Rate Fees Premiums Rent Tuition Fares Tolls Admission
User fees
Minimum required balances
Interest charges
Tariffs
Duties

7. Ways to Change Price
Change the quantity of money or goods and services to be paid by the buyer
Change the quantity of goods and services to be provided by the seller
Change the quality of goods and services provided

8. More Ways to Change Price
Change the premiums or discounts to be applied for quantity reasons.
Change the time and place of transfer of ownership.
Change the place and time of payment.
Change the acceptable form of payment.

9. Faster Technological Progress Has…
Reduced the gap between invention and innovation
Reduced the average age of products
Intensified competition from alternative uses of income

10. Proliferation of New Products
“Population explosion” of new products
Product lines have widened
Blurred market segments
Small price differentials may produce relatively large shifts in demand

11. Increased Demand for Services
Increase in demand for services has led to an increase in prices, which have led to public concern and governmental activity
There is also an increase in demand for services built into products

12. Increased Global Competition
Increased foreign trade around the world has increased the amount of price competition faced by domestic producers

13. The Changing Legal Environment
Deregulation and privatization of companies have resulted in more complex, more difficult, and more important pricing decisions

14. Economic Uncertainty
Slowed or stopped inflation rates in other countries’ economies has led to the need for new approaches to developing pricing strategies

15. Five Factors to Consider
Demand
Costs
Competitive factors
Corporate profit and market objectives
Regulatory constraints

16. Demand Implications Market versus product elasticity
Derived demand for buyer’s output
Likelihood of competitive entry
Demand consequences of a product line

17. Cost Implications Cost-plus pricing Maximizing margins
Pricing with scarce resources

18. Marketing and Distribution Strategy Implications
The product life cycle
Sales force management

19. How To Become a Proactive Pricer
1. Understand how pricing works
2. Understand how customers perceive prices and price changes

20. The Three Levels of Pricing Management
1. Understanding the economic and competitive environment
Factors that influence supply and demand
2. Developing product and market pricing strategy
Benefits, costs, and prices
3. Administering the pricing process
Tactical pricing decisions

21. Level One 1. Traditional Economic
How will current and future supply and demand dynamics affect overall market price levels?
Economic/market environment
Changes in competition, supply, capacity
Shifts in demand
New product developments

22. Level Two 2. Product and Market Strategy
Within each market segment, what is the correct list or target price for each product?
Customers’ perceptions of price and value
Price research
Profitability analysis
Pricing strategy

23. Concept Of Benefits A product or service must promise to:
Perform identified functions,
Solve identified problems, or
Provide specified pleasure.
Thus, a product or service is bought for what it does, not what it is made of.

24. Customer’s Perceptions Are Important!
The relative benefits customers perceive the product or service provides;
The relative total costs of acquiring, installing, and using the product or service over its lifetime;
The tradeoff that customers perceive between receiving the perceived benefits compared to the total costs - perceived value

25. Model Of Price-value Relationship

26. Level Three 3. Price Structure Management
How to determine the actual price to receive from each transaction?
Organizing for price administration
Transaction management: setting discounts, allowances, rebates…
Establishing pricing tactics
Maintaining feedback and control
Legal and ethical issues

27. Tactical Pricing Decisions
Tactical pricing decisions concern day-to-day management of the pricing function, including:
Timing of price changes
Amount of price changes
Direction of price changes
Administering price changes
Communicating price changes to
sales force
customers

28. Topics Covered in Following Sections!
Section 1: Economic and competitive issues
Section 2-3: Techniques to acquire and analyze relevant information
Section 4: How to develop prices for product life cycles and multiple products/services
Section 5: How to increase pricing flexibility
Section 6: Techniques for pricing in a competitive bidding situation
Section 7: Guidelines for developing and implementing a proactive approach to pricing