Pricing Strategies Overview

Pricing

• Price is the amount of money charged for a product or service.
• Pricing decisions determine a firm's market share and profitability, and generate revenue.

Pricing Strategies

• Pricing strategies consider external factors like competitors, and internal factors like customer value perceptions and company costs.
• Pricing strategies include value-based pricing, cost-based pricing and competition-based pricing.
• Value-based pricing focuses on a customer's perception of value.
• Cost-based pricing involves setting prices based on the costs of producing, distributing, and selling the product, plus a return on investment.
• Fixed costs are stable and don't change, such as building costs, executive salaries, and equipment maintenance.
• Variable costs change with the number of units produced, like labor and materials.
• Total cost is the sum of fixed and variable costs.
• Competition-based pricing compares prices to those of competitors. Companies can price goods above, below, or at parity with competitor pricing.
• Pricing decisions should be related to market position and strategy.

Overall Marketing Strategy & Objectives

• Pricing decisions should align with the overall marketing strategy and positioning.
• Target costing starts with the desired price and then seeks to reduce costs to match that price.
• Nonprice factors can be used to differentiate the product.

Demand Curve

• The demand curve shows the relationship between price and the resulting level of demand.
• The price and resulting demand usually have an inverse relationship: as price increases, demand decreases.
• Each potential price level leads to a unique demand level.

Economy and Pricing

• Economic factors (boom, recession, inflation, interest rates) impact pricing strategies.
• Responses to post-recessionary consumer behavior often involve lowered prices, more affordable items and redefined value propositions.

New Product Pricing Strategies

• Market-skimming pricing sets a high price initially to maximize revenue from segments willing to pay high prices.
• Market-penetration pricing uses a low initial price to capture a large market share.
• Head-to-head pricing sets prices on par with competing products.

Promotional and Psychological Pricing

• Promotional pricing temporarily lowers prices to increase short-term sales.
• Forms of promotional pricing include discounts, special events, limited-time offers, longer warranties or free maintenance.
• Psychological pricing considers buyer psychology, recognizing that price can signal product quality.
• Reference pricing involves the buyer carrying prices in their minds as a benchmark for comparison to a product's price.

International Pricing

• International price decisions may standardize a price globally or adjust it based on local market conditions and cost considerations.
• Many factors impact pricing, such as economic conditions, competition, local laws and regulations, and consumer preferences.

Initiating Price Changes

• Reasons for price cuts include excess capacity, falling demand, and market domination attempts.
• Reasons for price increases include cost inflation and a higher demand.

Buyer and Competitor Perspectives

• Buyers tend to view price increases as the company being greedy.
• Buyers tend to view price cuts as the product or company offering a better deal, a better quality or a reduction in quality.
• Competitors often cut prices to grab market share or improve sales. They are also likely to cut prices to spur competitors to reduce prices to increase total demand

Responding to Competitors' Price Changes

• Carefully assess the potential negative impacts on market share and profits before matching a competitive price cut through a response.
• Options include raising the perceived value, improving quality, or creating a new segment via lower-priced or "fighter" brands.

Public Policy and Pricing

• Government regulations impact pricing practices in Canada (Competition Act).
• Pricing practices like price fixing, predatory pricing, price discrimination, functional discounts, deceptive pricing, scanner fraud and price confusion issues are outlawed in Canada.

Pricing Strategy Group Work

• Questions for analysis cover topics like product differentiation, competitive pricing, pricing relative to the competition, justifying higher or lower price strategies.
• Macro and micro economic considerations have to be analyzed when formulating the best pricing strategy.

This quiz covers the fundamental concepts of pricing and its strategies. You'll learn about various approaches like value-based, cost-based, and competition-based pricing, as well as the importance of fixed and variable costs. This knowledge is essential for understanding market share and profitability.