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–is the amount of money charged for a product or service.
Price
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–is the sum of all the values that consumers exchange for the benefits of having or using the product or service.
Price
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–charging different prices depending on individual customers and situations.
Dynamic Pricing
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Pricing Best Practices
- Develop a unique pricing mentality.
- Consistently deliver more value.
- Price strategically, not opportunistically.
- Know your competition.
- Make pricing a process.
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Pricing Decision Factors
* Internal Factors:
- Marketing objectives
- Marketing mix
- Costs
- Organization style
- Target market
- Positioning objectives
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Pricing Decision Factors
* External Factors:
- Nature of the market
- Demand
- Competitor
- Economic state
- Reseller needs
- Government actions
- Social concerns
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–Many buyers and sellers where each has little effect on the going market price
Pure Competition
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–Many buyers and sellers who trade over a range of prices.
Monopolistic Competition
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–Few sellers and sensitive to each other’s pricing/marketing strategies.
Oligopolistic Competition
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–Market consists of a single seller.
Pure Monopoly
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–The relationship between price
changes and the number of units sold.
Demand
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–A way of measuring how sensitive the market is to price changes.
Elasticity
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– minimal change in demand as price increases.
Inelastic
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– significant drop in demand as price increases.
Elastic
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General Pricing Approaches
- Cost-based approach
- Value-based approach
- Competition-based approach
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–Cost-plus pricing (cost of product + markup).
–Break-even analysis
Cost-based Approach
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–Consumer perceptions of value.
Value-based Approach
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–What competitors are charging.
Competition-based Approach
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Pricing New Products
- Skimming Pricing
- Penetration Pricing
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–High price to reap maximum profit from early adopter segments.
–Can encourage competition.
–Products must be unique and hard to copy.
Skimming Pricing
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–Low price to gain maximum market share.
–May discourage competition.
–Used when the product is easily copied.
Penetration Pricing
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Product Mix Pricing Strategies
- Product Line
- Optional-product
- Product Bundle Pricing
- Captive-product
- By-product Pricing
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–Involves setting price steps between various products in a product line.
Product Line
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–Pricing optional or accessory products sold with the main product (e.g., ice maker with the refrigerator).
Optional-product
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–Combining several products and offering the bundle at a reduced price (e.g., computer with software and Internet access).
Product Bundle Pricing
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–Pricing products that must be used with the main product (e.g., replacement cartridges for Gillette razors).
Captive-product
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–Setting a price for by-products in order to make the main product’s price more competitive (e.g., sawdust and buttermilk).
By-product Pricing
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Price-Adjustment Strategies
- Discount and allowance pricing
- Segmented pricing
- Psychological pricing
- Promotional pricing
- Geographical pricing
- International pricing
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– a straight reduction based on cash, quantity, function, season.
Discounts
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Kinds of Discounts
- Cash (save 2 pesos)
- Quantity (plus 20ml free)
- Function (with fabcon)
- Season (discount based on season)
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– promotional money paid by manufacturer to retailer.
Allowances
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- Selling a product or service at two or more
prices, where the difference in prices is not based on differences in costs.
Segmented Pricing
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Segmented Pricing
- Customer-segment
- Product-form
- Location pricing
- Time pricing
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•Consumers usually perceive higher-priced products as having higher quality.
•Consumers use price less when they can judge quality of a product.
Psychological Pricing
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Promotional Pricing Approaches:
- Special event pricing
- Low-interest financing
- Longer warranties
- Free maintenance
- Discounts
- Cash rebates
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Price based on the following:
–Zone pricing
–Freight-absorption pricing
Geographical Pricing
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Pricedepends on many factors, including:
–Economic conditions
–Competitive situations
–Laws and regulations
–Costs
International Pricing
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Initiating Price Changes
- Price Cuts
- Price Increases
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–Excess capacity.
–Falling market share.
–Dominate market through lower costs.
Price Cuts
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–Cost inflation.
–Over-demand.
–Cannot supply all customers’ needs.
Price Increases
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Responding to Competitor Price Changes
* When a competitor lowers prices:
- Reduce price to match the competitors’ price.
- Maintain price but increase the perceived value of the offer.
- Improve quality and raise price.
- Hold price and introduce a new brand at a higher price.
- Hold price and introduce a new brand at a lower price (fighting brand).
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