Chapter 15 Strategic Pricing Method
Considerations For Setting Price Strategie
- Cost-Based Pricing
cost-based pricing uses manufacturing or production costs as its basis for pricing. The cost-based
pricing company uses its costs to find a price floor and a price ceiling. The floor and the ceiling
are the minimum and maximum prices for a specific product or service.
- Value-based pricing
Price of your product based on the value it creates for the customer. This is usually the most
profitable form of pricing, if you can achieve it. The most extreme variation on this is "pay for
performance" pricing for services.
- Competitive-based pricing
Competition-based pricing is the second-most-popular price-setting approach. a firm simply
checks out its competition's price and then sets the price of its own product at about the same
level, plus or minus a few percent. It's an easy way to make a pricing decision without having to
conduct any thorough market research.
Pricing Strategies
- Everyday low Pricing (EDLP)
Pricing strategy that promises consumers the lowest available price without coupon clipping,
waiting for discount promotions, or comparison shopping; also called value pricing. EDLP saves
retailers the time and expense of periodic price markdowns, saves manufacturers the cost of
distributing and processing coupons, and is believed to generate shopper loyalty.A manufacturer's
successful EDLP wholesale pricing strategy may reduce volatility in production and shipping
quantities and decrease the number of time-degraded product units that consumers receive.
- High-low pricing
High-low pricing is a type of pricing where a firm charges a high price for an item and later when
the item's popularity has passed, sell it to customers by giving discounts or through clearance
sales. The basic type of customers for the firms adopting high-low price will not have a clear idea
about what a product's price would typically be or must have a strong belief that "discount sales =
low price" or they must have strong preference in purchasing the products sold in this type or by
this certain firm.
- New Product Pricing Strategies
skimming Pricing : it is the strategy of establishing a high initial price for a product with a view to
“skimming the cream off the market” at the upper end of the demand curve. It is accompanied by
heavy expenditure on promotion. A skimming strategy may be recommended when the nature of
demand is uncertain, when a company has expended large sums of money on research and
development for a new product, when the competition is expected to develop and market a similar
product in the near future, or when the product is so innovative that the market is expected to
mature very slowly. Under these circumstances, a skimming strategy has several advantages
Penetration Pricing : it is the strategy of entering the market with a low initial price so that a
greater share of the market can be captured. The penetration strategy is used when an elite market
does not exist and demand seems to be elastic over the entire demand curve, even during early
stages of product introduction. High price elasticity of demand is probably the most important
reason for adopting a penetration strategy. The penetration strategy is also used to discourage
competitors from entering the market.
Pricing Tactics
- Mark downs
The velocity (rate of sale) of an article, typically for clearance at the end of a season, or to sell
off obsolete merchandise at the end of its life.
- Quantity Discounts
An incentive offered to a buyer that results in a decreased cost per unit of goods or materials
when purchased in greater numbers. A quantity discount is often offered by sellers to entice
buyers to purchase in larger quantities.
- Seasonal Discounts
Lower-than-normal price offered as incentive to buyers to make out-of-season purchases for
seasonal goods or services.
- Coupons
a coupon is a ticket or document that can be exchanged for financial discount or rebate when
purchasing a product.
- Rebates
A rebate is an amount paid by way of reduction, return, or refund on what has already been
paid or contributed. It is a type of sales promotion that marketers use primarily
as incentives or supplements to product sales.
- Leasing
Leasing is a process by which a firm can obtain the use of a certain fixed assets for which it
must pay a series of contractual, periodic, tax deductible payments. The lessee is the receiver
of the services or the assets under the lease contract and the lessor is the owner of the assets.
- Price Bundling
Price bundling is a strategy whereby a seller bundles together many different goods/items being sold and
offers the entire bundle at a single price.There are two forms of price bundling
- Leader Pricing
Leader pricing is a common pricing strategy used by retailers to attract customers. It involves
setting lower price points and reducing typical profit margins to introduce brands or stimulate
interest in the business as a whole or a particular product line.
Chapter 16 Supply Chain And Channel Management
Designing marketing channel
- Direct Channel Methods
Selling agents and Internet sales are two types of direct distribution channels. Selling agents
work for the company and market their products directly to consumers through mail order,
storefronts or other means. The Internet is an easy distribution channel because of the global
availability to consumers.
-
Indirect Channel Methods
Distributors, wholesalers and retailers are the primary indirect channels a company may use
when selling its products in the marketplace. Companies choose the indirect channel best
suited for their product to obtain the best market share; it also allows them to focus on
producing their goods.
Managing Marketing Channel And Supply Chain
-
A vertical marketing system (VMS) is one in which the main members of a distribution
channel-producer, wholesaler, and retailer-work together as a unified group in order to meet
consumer needs.
-
Horizontal marketing system - Joining of two or more corporations on the same level for the
purposes of pursuing a new marketing opportunity. Established so that the individual
members can combine resources to make the most out of the marketing situation. Products
from each member can be marketed and/or distributed together, such as a bottle
manufacturer combining with a producer of dehydrated salad dressing preparations.
Vertical Marketing System
A vertical marketing system (VMS) is one in which the main members of a distribution
channel—producer, wholesaler, and retailer—work together as a unified group in order to
meet consumer needs.
- Corporate Vertical Marketing System
A corporate vertical marketing system involves the ownership of all levels of the production or
distribution chain by a single company. An example of a corporate vertical marketing system
would be a company such as Apple, which has its own retail stores as well as designing and
creating the products to be sold in those retail stores.
- Contractual Vertical Marketing System
A contractual vertical marketing system involves a formal agreement between the various levels
of the distribution or production channel to coordinate the overall process. Franchising is a
common form of a contractual vertical marketing system.
- Administered Vertical Marketing System
An administered vertical marketing system is one in which one member of the production and
distribution chain is dominant and organizes the nature of the vertical marketing system
informally, due to its sheer size. An example of this type of system could include a large retailer
such as Wal-Mart dictating conditions to smaller product makers, such as producers of a generic
type of laundry detergent.