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    Bem102 7

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    Mellisa Andile
    The document discusses 6 steps for pricing strategies: 1) establish objectives, 2) analyze demand, 3) consider costs, 4) examine competitors' pricing, 5) choose a pricing method like cost-plus or value-based, and 6) select the final price. It then describes strategies like price skimming, penetration pricing, and premium pricing. Factors that influence pricing choices are also summarized such as competition, perceived product value, costs, economic conditions, and demand.

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    Bem102 7

    Uploaded by

    Mellisa Andile
    18 views22 pages
    The document discusses 6 steps for pricing strategies: 1) establish objectives, 2) analyze demand, 3) consider costs, 4) examine competitors' pricing, 5) choose a pricing method like cost-plus or value-based, and 6) select the final price. It then describes strategies like price skimming, penetration pricing, and premium pricing. Factors that influence pricing choices are also summarized such as competition, perceived product value, costs, economic conditions, and demand.

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    The document discusses 6 steps for pricing strategies: 1) establish objectives, 2) analyze demand, 3) consider costs, 4) examine competitors' pricing, 5) choose a pricing method like cost-plus or value-based, and 6) select the final price. It then describes strategies like price skimming, penetration pricing, and premium pricing. Factors that influence pricing choices are also summarized such as competition, perceived product value, costs, economic conditions, and demand.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    18 views22 pages

    Bem102 7

    Uploaded by

    Mellisa Andile
    The document discusses 6 steps for pricing strategies: 1) establish objectives, 2) analyze demand, 3) consider costs, 4) examine competitors' pricing, 5) choose a pricing method like cost-plus or value-based, and 6) select the final price. It then describes strategies like price skimming, penetration pricing, and premium pricing. Factors that influence pricing choices are also summarized such as competition, perceived product value, costs, economic conditions, and demand.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 22

    Pricing Strategies-7

    By
    MS CHIFURA AND MISS MANOKORE
    Price determination
    SIX-STEP PRICING METHOD
    1. Establish marketing objectives e.g. survival (short
    term) ,profit maximisation, revenue maximisation,
    growth maximisation, market skimming and
    product-quality leadership
    2.Demand schedule: elastic versus inelastic demand issues
    (price line) Percent change in quantity demanded relative
    to the percent change in price. Elastic demand is sensitive
    to price than inelastic demand.
     Elastic demand greater than 1
     Inelastic demand it is less than -1
    3. Cost issues: different levels of product, economies of
    scale, fixed/variable, break even issues, marginal
    analysis.
    a)marginal analysis: What happens to the costs and
    revenues as production increases by one unit. This will
    determine at which point profit will be maximized. Total
    Cost = (AFC+AVC)*QTTY
    Continued…
    Marginal cost = the extra cost to the firm for
    producing one more unit.
    Marginal revenue = the extra revenue with the sale of
    one additional unit.
    MR - MC tells us if it is profitable to produce one more
    unit.
    Profit maximization at MR = MC
    Continued…
    4. Competitors pricing
    5.Pricing method:
    Cost Plus :Guarantees contribution ,simple to
    calculate and not optimal
    Competition ,par with market ,price war implications
    and not optimal
    Value optimal and difficult to determine
    6. Final price selection: life cycle pricing issues,
    segmentation and price changing issues
    Pricing Strategies
    The discussion above was looking at how
    organisations/marketers arrive at a price for their
    products
    The following section looks at the various strategies
    that marketers/organisations may use to get
    customers/gain market share
    Price skimming
    This is a pricing strategy whereby
    an organization charges the
    highest prices that customer will
    pay.
    This strategy aims at gaining
    maximum revenue at the
    introduction of a product before
    other players start bringing a
    similar product onto the market.
    E.g. Apple Products
    R22,000
    Factors favouring price skimming
    There are enough prospective customers willing to
    buy the product at the high price.
    Demand is expected to be relatively
    inelastic/customers are not highly price sensitive
    The high price does not attract competitors.
    Lowering the price would have only a minor effect on
    increasing sales volume and reducing unit costs.
    The company does not have the resources to finance the
    large capital expenditures necessary for high volume
    production with initially low profit margins.
    The high price is interpreted as a sign of high quality.
    Large cost savings are not expected at high volumes, or
    it is difficult to predict the cost savings that would be
    achieved at high volume.
    Limitations
    High prices may not evoke quick sales.
    As very few people buy the product, the brand loyalty
    of the product may suffer.
    In the long run, people may shift their loyalty to low
    priced goods.
    High profit margins lure competitors selling similar
    products.
    Due to low demand for the product, economies of
    large scale production are not realizable.
    Penetration pricing
    A penetration pricing strategy
    is designed to capture market
    share by entering the market
    with a low price relative to the
    competition to attract buyers.
    The idea is that the business
    will be able to raise awareness
    and get people to try the
    product, eg. FastJet
    Factors favouring penetration

    Demand is expected to be highly elastic; that is,


    customers are price sensitive and the quantity
    demanded will increase significantly as price declines.
    Large decreases in cost are expected as cumulative
    volume increases.
    The product is of the nature of something that can
    gain mass appeal fairly quickly.
    There is a threat of impending competition.
    Limitations
    Discuss the limitations of price penetration strategy
    Premium Pricing

    Premium pricing strategy


    establishes a price higher than
    the competitors.
    It's a strategy that can be
    effectively used when there is
    something unique about the
    product or when the product is
    first to market , eg. Rolex

    R66,000
    Value based pricing: This entails setting a price based
    on the value perceived by customers
    Cost based Pricing strategies: According to Kotler and
    Keller (2010) This is when a company calculates its cost
    and adds a mark-up to come up with a price
    Continued…
    Competitive pricing: Setting a price based on what the
    competition charges.
    Competitive pricing is usually followed when products
    are homogeneous e.g. oil, gas and telecommunications
    Continued…
    Psychological Pricing: Psychological pricing strategy
    is commonly used by marketers in the prices they
    establish for their products. For instance, $99 is
    psychologically "less" in the minds of consumers than
    $100.
    Factors influencing Firm’s Strategy
    Choice
    Intensity of industry competition: the more intense
    the competition the lower the prices in the industry.
    Cost leadership strategies become the norm
     Perceived value of your product: how do customer’s
    value your product? Apple vs. Samsung
    Continued…
    Product development cost: the total amount invested
    in product develop
    Economic trends: Economic factors such as taxation
    rate, labour cost, inflation rate, and currency exchange
    rate, government’s fiscal and monetary policy influence
    adopted product pricing strategy
    Continued…

    Demographics: customer’s level of education; income


    levels customer’s location, etc.
    Class of targeted customers: The class of customers
    targeted will greatly influence the pricing of your
    product.
    Continued…

    Level of market demand: the greater the demand the


    higher the price-Laws of demand and supply

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