IBM Pricing PDF

IBM PRICING PRICE COMPETITION - Emphasize price as an issue and match or beating competitors prices - To be effective, firm should be the low-cost seller of the product - If competitors quickly match or beat a company’s price cuts, a price war may ensue. NONPRICE COMPETITION - Do not...

IBM PRICING PRICE COMPETITION - Emphasize price as an issue and match or beating competitors prices - To be effective, firm should be the low-cost seller of the product - If competitors quickly match or beat a company’s price cuts, a price war may ensue. NONPRICE COMPETITION - Do not focus on the price but on the product’s quality, excellent customer service, effective promotion, packing etc. PRICING OBJECTIVE - Describes what a firm wants to achieve through pricing - Developing pricing objectives is important because they form the basis of the decisions for other stages of the pricing process - Must be explicit and in measurable terms and should include a time frame for accomplishing them. - Must be consistent in the market - Marketers can use both long- and short-term pricing objectives and can employ one or multiple pricing objectives SURVIVAL: - This may generally involve temporarily setting prices low to attract more sales - Because price is a flexible ingredient in the marketing mix, a survival strategy can be useful in keeping a company afloat by increasing sales volume. PROFIT - The objective of profit maximization is rarely operational because it achievement is difficult to measure - Profit objectives tend to be set at levels that the owner and top-level decision makers view as satisfactory RETURN ON INVESTMENT - Pricing attain a specified rate of return on the company’s investment is a profit related pricing objective - Generally requires some trial and error, as it is unusual for all data and inputs for al dara and inprs required to determine the necessary ROI MARKET SHARE - A product’s sales in relation to total industry sales CASH FLOW - so, they can recover cash as quickly as possible - STATS QUO  - Focuses on several dimensions, such as maintaining certain market share, meeting competitors' prices, achieving price stability, or maintaining a favorable public image - Can reduce risks by stabilizing demand PRODUCT QUANTITY - Attaining a high level of product quality is generally more expensive for the firm, as the costs of materials, research, and development may be greater. - Products and brands that customers perceive to be of high quality are more likely to survive in a competitive marketplace Example: Dooney & Bourke offers high-quality handbags and prices them to reflect the high quality. ASSESSMENT OF THE TARGET MARKET’S EVALUATION OF PRICE The importance of price varies depending on the: - Type of product - Type of target market - Purchase situation Value combines a product’s price with quality attributes, which customers use to differentiate among competing brands. Consumers may perceive relatively expensive products to have great value if the products have desirable features or characteristics. Consumers are generally willing to pay a higher price for products that offer convenience and save time. EVALUATION OF COMPETITORS’ PRICES - Identifying competitors’ prices should be a regular part of marketing research. - Regardless of actual costs, a firm does not want to sell its product: – At a price that is significantly above competitors’ prices, because the products may not sell as well – At a price that is significantly below competitors’ prices, because customers may believe the product is of low quality - In some instances, an organization’s prices are designed to be slightly above competitors’ prices to lend an exclusive image and to signal product quality to consumers. Example: Apple set the price of its new iPhone X at $999, an astonishing price at the time, to establish an expectation of quality and creative design in consumers’ minds. SELECTION OF A BASIS FOR PRICING the three major dimensions on which prices can be based are COST, DEMAND, AND COMPETITION - Consider at least two o or all three dimensions Firms must weigh many different factors when setting prices, including: - COST - COMPETITION - CONSUMER BUYING BEHAVIOR AND PRICE SENSITIVITY - MANUFACTURING CAPACITY - PRODUCT LIFE CYCLE (introduction, interest, evaluation, testing and adaption) 5 COST-BASED PRICING Cost-based pricing – Adding a dollar amount or percentage to the cost of the product – Does not necessarily take into account the economic aspects of supply and demand, nor must it relate to just one pricing strategy or pricing objective COST-PLUS PRICING Cost-plus pricing – Adding a specified dollar amount or percentage to the seller’s cost MARKUP PRICING Markup pricing – Adding to the cost of the product a predetermined percentage of that cost – Can be stated as a percentage of cost of making the product or as a percentage of selling price: Demand-Based Pricing Demand-based pricing – Pricing based on the level of demand for the product – Customers pay a higher price when demand for the product is strong and a lower price when demand is weak. – Marketers must be able to estimate the quantity of a product consumers will demand at different times and how demand will be affected by changes in the price; the marketer then chooses the price that generates the highest total revenue.  – Appropriate for industries in which companies have a fixed amount of available resources that are perishable – Effectiveness depends on the marketer’s ability to estimate demand accurately Competition-Based Pricing Competition-based pricing – Pricing influenced primarily by competitors’ prices – A common method among producers of relatively homogeneous products, particularly when the target market considers price to be an important purchase consideration Firms may choose to set prices below competitors’ or at the same level TYPES OF PRICING STRATEGIES ❖ NEW PRODUCTS PRICE SKIMMING – highest price - Charging the highest possible price for the product the buyers who most desire the product will buy it nonetheless. BENEFIT - the firm will recover the high cost of research and development for the product and may hold down the demand for the product where the firm’s production capacity is limited DANGERS - Makes the product appear more lucrative than it’s potential competitors - Misjudge demand and face insufficient sales at higher price EX. PENETRATION PRICING – lowest price - Setting the price below those of its competing brands to penetrate the market and gain a significant market share ADVANTAGES - Stimulates sales, longer production process, and increases in economic scale  - Marketer gains a large market share quickly - Competitors may be discouraged to enter the market DISADVANTAGES - The firm can be in a less flexible pricing position - More difficult to raise prices than it is to lower them SINGLE PRICE – FIXED - Same fixed price for a product or service - Easily understood by both employees and customers ❖ DIFFERENTIAL PRICING 5 DIFFERENTIAL PRICING - Charging different prices to different buyers for the same quality and quality of product - Only effective when the market consists of multiple segments with different price sensitivities NEGOTIATED PRICING - Establishing a final price through bargaining between seller and customer SECONDARY-MARKET PRICING - Setting one price for the primary target market and a different price for another market PERIODIC DISCOUNTING - Temporary reduction of prices on patterned or systematic basis - Customers can predict when the reduction will occur and may delay their purchases - Less effective in an environment where consumers easily comparison shop for better deal online RANDOM DISCOUNTING - Temporary reduction of prices on an unsystematic basis  ❖ PSYCHOLOGICAL PRICING 5-6 PSYCHOLOGICAL PRICING Strategies that encourage purchases based on consumer’s emotional reponses. Rather than on economically rational ones - Used for consumer products ODD NUMBER PRICING - Prices using odd numbers that are slightly below whole dollar amounts - Not limited to low price items - Been subjected to psychological studies, NOT CONCLUSIVE MULTIPLE UNIT PRICING - Setting a single price for two or more units BUY 1 TAKE 1 - Encourages customers to purchase multiple unites they might otherwise have only purchased one at a time. REFERENCE PRICING - Pricing a product at a moderate level and positioning it next to a more exensive model or brand - Used in hope that consumer will compare the prices BUNDLE PRICING - Packaging together two or more complementary products and selling them for a single price EVERYDAY LOW PRICES - Setting a low price for products consistently - Set low to make customers feel like they have a good deal or the other way around CUSTOMARY PRICING - Pricing on the basis of tradition Ex. 25 cent gumball sold in gumball machines ❖ PRODUCT LINE PRICING - Establishing and adjusting prices of multiple product within a product line CAPTIVE PRICING - Pricing the basic product in a product line below and pricing related items on at a higher level PREMIUM PRICING - Pricing the highest quality or most versatile product higher than other models of product on a product line PRICING LINING - The strategy of selling goods only at a certain predetermined prices that reflect definite price breaks  ❖ PROMOTIONAL PRICING PRICE LEADERS - Products are priced below the usual markup, near cost or below cost - USED in supermarkets and restaurants to attract customer by offering them especially low prices on a few items with the expectation that they will purchase other items as well SPECIAL EVENT PRICING - Advertised sale or price cutting linked to a holiday, season, or event - Used to increase sales volume COMPARISON DISCOUNTING - Setting a price at a specific level and comparing it with a higher price - The higher price may be the product’s previous price, the price of a competing brand, the product’s price at another retail outlet, or a manufacturer’s suggested retail price.