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1、Pricing,Topics: Determinants of Pricing Strategy Cost Issues Competition Issues Customer Value and Pricing The Pricing Plan using Marketing-orientated pricing. Hansen (A) case,Positive direction “Dr Martens will remain a brand true to its heritage and deliver footwear of the highest quality. “The of
2、fshore strategy is the first step in moving the company and the brand forward in a positive direction.“ Paul Gates, general secretary of KFAT, said: “It may be cheaper in China, but this is an issue of added value and quality. “It does not matter if the boots are cheap if nobody is going to buy them
3、 (because of their poorer quality).“,Dr Martens moves to China,The makers of Dr Martens boots have announced the company is moving production to China with the loss of more than 1,000 jobs. A spokesman for the company said the decision was made because it was far cheaper to produce footwear in China
4、. It plans to cease all production in the UK, but will continue to employ a number of office and design staff.,Pricing methods,Ceiling and Floor of Price Pricings Black Box,Low Price No Possible Profit at this Price,High Price No Possible Demand at this Price,COMPETITOR PRICES,COSTS,USPs DIFFERENTIA
5、TION,Q2,Q1,P2,P1,Price,Quantity,The demand curve,Does the Demand Curve Always look like this?,What of Luxury Goods so called Giffen goods,What may cause an inelastic market/demand curve?,Determining the break even point,Cost-oriented Pricing,Direct Costs (per unit) 2 Fixed Costs 200,000 Expected Sal
6、es 100,000 Costs per Unit Direct Costs 2 Fixed Costs (200K/100K) 2 Full Costs 4 Mark-up (10%) 0.4 Price (costs + mark-up) 4.4,Costs are taken into account only when they are directly attributable to the production of a particular product. Fixed costs or overheads are not included in the marginal cos
7、t. Marginal cost for the example given: Fixed Costs 200,000 Expected Sales 100,000 Marginal Cost 2 Mark-up (10%) 0.2 Marginal Price 2.2,Full Cost Pricing,Direct (Marginal) Cost Pricing,Evaluating Cost-Plus Pricing,Benefits Cost-plus is easy and quick to evaluate. It is perceived by firms to be inexp
8、ensive. It might be required or desired by customers.,Evaluating Cost-Plus Pricing,Disadvantages Often delegated to inappropriate management levels. In the initial calculations, there are obvious difficulties in allocating appropriate figures for contribution to fixed costs. Such calculations are me
9、aningless if estimated volume levels are greatly above/below actual levels achieved. No consideration of competitive prices or response. Does not systematically evaluate demand. Logically corrupt. Uses estimate of volume to calculate price. In competitive markets price determines volume. Opportuniti
10、es to charge a higher price may be missed.,Competitor-oriented Pricing,Going-rate Pricing: With no product differentiation producers are forced to accept the going rate. In reality there is almost no situation in which no differentiation occurs. Competitive bidding: The supplier will price according
11、 to a specification drawn up by the purchaser. Usually the supplier will choose the lowest (most competitive) price tendered. Statistical modelling has resulted in the following basis for calculating expected profits. Expected profit = Profit X Probability of winning,Pricing Plans,Premise: Experienc
12、e of pricing decisions in a range of companies suggests that the biggest gains are likely to result not from additional knowledge or insights concerning specific aspects of pricing, but from a more consistent and rational application of what is already known. More specifically, there is a need to en
13、sure that the decisions that are taken concerning the many different aspects of a companys price structure form part of a coherent plan.,Marketing-orientated pricing,EVC Analysis,120000,120000,30000,50000,30000,EVC = 90000,100000,20000,EVC = 80000,40000 Added Value,Life Cycle Cost,Purchase Price,Sta
14、rt-up Costs,Post-Purchase Costs,Reference Product,New Product X,New Product Y,Nine Marketing-Mix Strategies on Price/Quality,1. Premium strategy,2. High-value strategy,3. Superb-value strategy,High,Medium,Low,Product Quality,4. Overcharging strategy,7. Rip-off strategy,5. Average strategy,8. False e
15、conomy strategy,6. Good value strategy,9. Economic strategy,High,Medium,Low,Price,Revenue,Time,0,Introduction stage,Growth stage,Maturity stage,Decline stage,The Product Life Cycle,New product launch strategy,Rapid skimming,High,Slow skimming,Rapid penetration,Slow penetration,Price,Low,Promotion,Hi
16、gh,Low,When To Use a Penetration or a Skimming Strategy for Pricing New Products,Source: Hise, R, Gillett, P and Ryans, J, (1979), Basic Marketing Concepts and Decisions, Winthrop Publishers, Cambridge, Massachusetts, p 450.,Initiating Price Changes,Initiating Price Changes,Initiating Price Changes,Reacting to Competitors Price Changes,Reacting to Competitors Price Changes,Reac
