Chap 011

CRAVENS PIERCY8/e McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 11-2 Chapter Eleven Pricing Strategy and Management McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. PRICING STRATEGY AND MANAGEMENT  Strategic Role of Price  Analyzing the Pricing Situation  Selecting the Pricing Strategy  Determining Specific Prices and Policies 11-3 .  Intense price competition on supermarket chains by Wal. automobile producers to retain market share. 11-4 .  Pressures on drug companies to reduce prices.S.  Threats to strong brands by counterfeit products.  Aggressive discounting by U.Mart and Costco.Pricing Decisions are Creating Major Challenges for Many Companies Examples Include:  Threats to major airlines by discount carriers. We think that we must design products. and a method of distribution before we have something to price. T. communications plans. We then use pricing tactically to capture whatever value we can. Marketing News. . 11/9/98.STRATEGIC ROLE OF PRICE Part of the reason that pricing is misused and poorly understood is the common practice of making it the last marketing 11-5 decision. 4.Nagle. Marketing News. Airlines’ complicated service packages with arcane restrictions. 4. Nagle. . and their multiple channels of distribution must support pricing that reflects different values of the service to different segments. airlines would capture a much smaller portion of the value they have the potential to create. T. Without such a strategy. 11/9/98.11-6 Pricing Strategically …requires that we put pricing at the beginning of the process. For example. a multi-part marketing strategy usually is required in valuebased pricing. How Price Fits into the Positioning Strategy Target market and objectives 11-7 Positioning Strategy Product strategy Value-Chain strategy Pricing strategy Promotion strategy . 11-8 Pricing Situations New product pricing Life cycle pricing Positioning strategy change Countering competitive threats     . Role of Price in Positioning Strategy Signal to the Buyer Marketing Program Considerations Instrument of Competition 11-9 Improving Financial Performance . 11-10 Pricing Strategy for New and Existing Products Set Pricing Objectives Analyze the Pricing Situation Select Pricing Strategy Determine Specific Prices and Policies . 11-11 Examples of Pricing Objectives  Gain market position  Achieve financial performance  Product positioning demand competition  Stimulate  Influence . ANALYZING THE PRICING SITUATION Customer Price Sensitivity 11-12 Legal and Ethical Constraints Analyzing the Pricing Situation Product Costs Competitors’ Likely Responses . What are the market segments and what market target strategy is to be used? 3. How important are nonprice factors. How sensitive is demand in the segment(s) to changes in price? 4. How large is the product-market in terms of buying potential? 2. such as features and performance? 5. What are the estimated sales at different price levels? .11-13 Customer Price Sensitivity 1. 11-14 Buyers’ Perceptions of Value Offerings of Brands A-E Perceived Value Superior Value Zone D A B E C Inferior Value Zone Perceived Price . 11-15 Guide to Cost Analysis A Determine cost structure Analyze cost and volume relationships B C Analyze competitive advantage D Estimate the effect of experience on costs E Determine the extent of control over costs . 11-16 Competitor Analysis  Which firms represent the most direct competition Competitor’s positioning on a relative price basis How active is price in their marketing strategies Competitors’ success with their pricing strategies Competitors’ probable responses to alternative price strategies     . 2003. September 1. “Dell Price Cuts Put a Squeeze on Rival H-P. Gary McWilliams and Pui-Wing Tam.Pricing Pressures in the Personal Computer Market 11-17 The personal computer market offers an interesting look at the effects of intense competition. Inc. The pricing pressure on rivals is one of the reasons that led to the merger between Compaq Computer and H-P. The aggressive price competition resulted in H-P’s PC unit reporting a loss in 3rd Quarter 2003.” The Wall Street Journal. A major competitive hurdle for H-P is Dell’s low-cost direct-sales business model. which has had a negative effect on companies such as Hewlett-Packard Co. Dell. . Sources: “A Nasty Surprise from HP.” Business Week. continually looks to lower its operating expenses in an effort to pass savings to customers. August 21. 2003. B1 and B7. The result over time has enabled Dell to profitably grow at a multiple of the industry. 11-18 Legal and Ethical Considerations What are the legal and ethical factors that may affect the choice of a price strategy? . 11-19 SELECTING THE PRICING STRATEGY  How much flexibility exists? How to position price relative to costs? How visible to make the price of the product?   . Determinants of Pricing Flexibility 11-20 Demand Competition Demand-Cost Gap Legal and Ethical Influences Costs . no profit possible . little or no demand Price Ceiling Range of feasible prices  Nature of demand in target market      Business and marketing strategy Product differentiation Competitors’ prices Prices of substitutes Product costs Price Floor Price too low.11-21 How Much Flexibility Exists? Price too high. Price Positioning Above Competition 11-22 Skim strategy Neutral strategy (same as competition) Below Competition Penetration strategy . 2. No. Vol. 1. Nagle. . “Price Competition.11-23 Diplomacy rather than force Select competitive confrontations Competitive Pricing Issues Target segments instead of volume Signaling Source: Thomas T.” Marketing Management. 38-45. 11-24 Illustrative Price Strategies Active strategy Lowactive strategy Highactive strategy Low relative price Lowpassive strategy Highpassive strategy High relative price Passive strategy . DETERMINING SPECIFIC PRICES AND POLICIES  11-25 Determining Specific Prices Policies to Manage Pricing Strategy Special Pricing Issues   . 11-26 Pricing in Action Basis of Determining Specific Prices Cost Demand Competition . returns.Establishing Pricing Policy and Structure Policy 11-27 Discounts. and other operating guidelines Pricing Structure Product mix and line pricing relationships How individual items in the line are priced in relation to one another . allowances. Special Pricing Situations Price Segmentation Value Chain (Distribution) Channel Pricing 11-28 Price Flexibility Product Life Cycle Pricing Counterfeit Products .