Price Strategies 2024-2025 PDF

MARKETING Unit 5 : PRICE STRATEGIES 2024-2025 [email protected] Ve más allá  4´P IN MARKETING © Copyright Universidad Europea. Todos los derechos reservados 2 © Copyright Universidad Europea. Todos los derechos reservados 3...

MARKETING Unit 5 : PRICE STRATEGIES 2024-2025 [email protected] Ve más allá  4´P IN MARKETING © Copyright Universidad Europea. Todos los derechos reservados 2 © Copyright Universidad Europea. Todos los derechos reservados 3  CHEAP OR EXPENSIVE? TRAYS TRAYS+IN+IKEA © Copyright Universidad Europea. Todos los derechos reservados 4  HOW MUCH DOES IT COST? - CAR - T SHIRT - BACKPACK - HAMBURGUER - BEER - ICE-CREAM - JEANS - DRESS - MOVILE - COMPUTER © Copyright Universidad Europea. Todos los derechos reservados 5  PRICE: DEFINITION The monetary value of a product/service that a consumer is prepared to pay © Copyright Universidad Europea. Todos los derechos reservados 6  PRICING STRATEGY Pricing is one of the most important elements of the marketing mix, as it is the only mix, which generates a turnover for the organisation. The remaining 3p’s are the variable cost for the organisation. It costs to produce and design a product, it costs to distribute a product and costs to promote it. Price must support these elements of the mix. Pricing is difficult and must reflect supply and demand relationship. Pricing a product too high or too low could mean a loss of sales for the organisation. © Copyright Universidad Europea. Todos los derechos reservados 7  - Price is the only element of marketing that generates revenue; all other components represent costs. - Price is also one of the most flexible elements of marketing. Unlike product or distribution, it can be adjusted quickly. - Pricing represents the number one challenge in marketing, as many companies struggle to manage it effectively. - However, businesses that approach pricing as a key strategic tool can leverage it to create and capture value for customers. © Copyright Universidad Europea. Todos los derechos reservados 8  Prices have a direct impact on a company’s financial statements. Even a small percentage increase in price can result in a significant boost to profitability. As part of the company’s overall value proposition, price plays a crucial role in value creation and in building customer relationships. © Copyright Universidad Europea. Todos los derechos reservados 9  PRICE IN MARKETING Fixed and variable Competition Company objetives costs Target group and Proposed positioning willingness to pay strategies © Copyright Universidad Europea. Todos los derechos reservados 10  MAIN PRICING STRATEGIES Setting the right price is one of the most challenging tasks for a marketer. Several factors come into play, but identifying and implementing the correct pricing strategy is crucial for success. Considerations in Pricing - If customers perceive that the price of a product exceeds its value, they will not purchase it. - If a company sets product prices below its costs, profits will be lost. The "perfect" pricing strategy lies between these two extremes. It is one that provides value to the customer while ensuring profitability for the company. © Copyright Universidad Europea. Todos los derechos reservados 11 CLASSIFICA TION OF PRICING STRATEGIES © Copyright Universidad Europea. Todos los derechos reservados 12  EXERCISE 5.1: DISCUSSION AT CLASS - - Is there any difference between Price for a new product or for an exinting one? Why? - - Positioning, branding and Price strategies. - - Are the strategies different depending on markets? - - Is it posible to have different strategies the same Brand in diffenrent countries? Why? © Copyright Universidad Europea. Todos los derechos reservados 13  PRICING STRATEGIES Skimming High price Market pricing Penetration pricing Low price © Copyright Universidad Europea. Todos los derechos reservados 14  PRICING STRATEGIES A high price is charged to “skim the cream” from the top end of the market, with the objetive of achieving the highest possible SKIMMING contribution in a short time. Examples: Mercedes, LVMH,.... The final customer price is based on competitive prices, if similar products already exists in the target market. MARKET PRICING From the price that customers are willing to pay it is possible to make a so-called retrograde calculation where the firm uses a “reversed” price escalation to calculate backwards (from market price ) to the necesary ( exworks) net price. It is used to stimulate market growth and capture market shares by deliberately offering products at low prices. It requires mass PENETRATION PRICING markets, price-sensitive customers and reduction in unit cost. Examples: Japanese companies: cars, electronic components,... © Copyright Universidad Europea. Todos los derechos reservados 15  PRICING STRATEGIES 1. Cost-Based pricing Description: Pricing is determined by calculating the cost of production and adding a markup to ensure profitability. Example: § A local bakery calculates the cost of ingredients, labor, and utilities for a cake to be $10. They add a 50% markup, setting the price at $15. Advantages: Simple and ensures covering costs. Drawbacks: Ignores customer willingness to pay or competitor pricing. © Copyright Universidad Europea. Todos los derechos reservados 16  PRICING STRATEGIES 2.- Value-Based pricing Description: Pricing is based on the perceived value of the product to the customer, not just production costs. Example: § Apple charges premium prices for iPhones because customers perceive them as high-quality, innovative, and status-enhancing, even though production costs may not justify the high price. Advantages: Aligns price with customer willingness to pay. Drawbacks: Requires a deep understanding of customer perception and preferences. © Copyright Universidad Europea. Todos los derechos reservados 17  PRICING STRATEGIES 3.- Competition-based pricing Description: Prices are set based on competitor pricing rather than costs or customer value. Example: § A coffee shop opens near Starbucks and sets its latte prices slightly lower to attract price-sensitive customers. Advantages: Useful in highly competitive markets. Drawbacks: Can lead to price wars or reduced margins. © Copyright Universidad Europea. Todos los derechos reservados 18  PRICING STRATEGIES 4.- Penetration pricing Description: Setting a low price initially to enter the market and attract customers, then gradually increasing it once a customer base is established. Example: § Spotify offers a free trial or a $0.99/month for the first three months to encourage subscriptions before moving to a regular price of $9.99/month. Advantages: Builds market share quickly. Drawbacks: Risks devaluing the brand or losing customers when prices rise. © Copyright Universidad Europea. Todos los derechos reservados 19  PRICING STRATEGIES 5.- Skimming pricing Description: Setting a high initial price for a new or innovative product and lowering it over time as competition grows or demand decreases. Example: § Sony launches a new PlayStation console at a high price to attract early adopters, then reduces the price after a year to reach a broader market. Advantages: Maximizes revenue from early adopters. Drawbacks: Can deter price-sensitive customers early on. © Copyright Universidad Europea. Todos los derechos reservados 20  PRICING STRATEGIES 6.- Psychological pricing Description: Setting prices to make them seem more attractive, often using numbers like $9.99 instead of $10. Example: § A retailer prices items at $49.99 rather than $50 because customers perceive it as significantly cheaper. Advantages: Influences customer perception of value. Drawbacks: Can seem manipulative if overused. © Copyright Universidad Europea. Todos los derechos reservados 21  PRICING STRATEGIES 7.- Bundle pricing Description: Selling multiple products or services together at a single, discounted price. Example: § McDonald's offers a value meal (burger, fries, and drink) for $6.99, which is cheaper than buying each item separately. Advantages: Encourages customers to buy more. Drawbacks: Can reduce perceived value of individual items. © Copyright Universidad Europea. Todos los derechos reservados 22  PRICING STRATEGIES 8.- Dynamic pricing Description: Adjusting prices based on demand, time, or customer segments in real time. Example: § Airlines and hotels charge higher prices during peak travel seasons and lower prices during off-peak periods. Advantages: Maximizes revenue by adapting to market conditions. Drawbacks: Can frustrate customers if perceived as unfair. © Copyright Universidad Europea. Todos los derechos reservados 23  PRICING STRATEGIES 9. -Freemium pricing Description: Offering a basic version of a product for free and charging for premium features. Example: § Apps like Zoom allow free access with limited features but charge for advanced features like increased participant capacity. Advantages: Attracts users easily. Drawbacks: Monetization depends on converting free users to paying customers. © Copyright Universidad Europea. Todos los derechos reservados 24  PRICING STRATEGIES 10.- Pay What You Want (PWYW) Description: Customers choose the price they are willing to pay. Example: § Radiohead released an album with a PWYW model, allowing fans to pay any amount, including zero. Advantages: Builds goodwill and attracts attention. Drawbacks: May not generate consistent revenue. © Copyright Universidad Europea. Todos los derechos reservados 25  NEW PRODUCTS Companies introducing a new product face the challenge of setting prices for the first time. They can choose among some general strategies: Price Skimming Market Penetration Pricing Psychological or Acceptable Pricing © Copyright Universidad Europea. Todos los derechos reservados 26  MARKETING IN THE GLOBAL FIRM Process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services across national borders to create exchanges that satisfy individual and organizational objectives. It involves understanding and adapting to different cultural, economic, and legal environments to successfully market products and services in multiple countries. © Copyright Universidad Europea. Todos los derechos reservados 27  INTERNATIONAL PRICE: ELEMENTS Export Credit Direct Labour Bank Charges Insurance Commisions to International Direct Cost overseas Agents Promotion Activities Direct Material INCOTERM © Copyright Universidad Europea. Todos los derechos reservados 28  INTERNATIONAL PRICING STRATEGIES Pricing strategies differ significantly between domestic markets and international markets, as businesses face unique challenges and considerations when selling in other countries. © Copyright Universidad Europea. Todos los derechos reservados 29  EXPORT PRICING CALCULATION SYSTEMS From origin to Variable cost + additional cost destination + contribution marging = price From destination to Market Price – additionsl cost – origin variable cost = contribution marging © Copyright Universidad Europea. Todos los derechos reservados 30  INTERNATIONAL PRICING STRATEGIES 1.- Variations in Costs Reason: Operating in international markets often involves additional costs such as tariffs, shipping, taxes, compliance with local regulations, and exchange rate fluctuations. These factors affect the final price. Example: § IKEA adjusts its prices for the same furniture pieces across different countries to account for shipping costs, tariffs, and local labor expenses. 2.- Differences in Purchasing Power Reason: Average income levels and purchasing power vary between countries, which can dictate how much customers are willing to pay for a product. Pricing must align with the target market's affordability. Example: § Apple iPhones are priced differently across regions. In high-income countries like the US or Germany, prices are higher, whereas in emerging markets like India, the company may offer discounts or older models to make the product more affordable. © Copyright Universidad Europea. Todos los derechos reservados 31  INTERNATIONAL PRICING STRATEGIES 3.- Competitive Landscape Reason: The level of competition varies across markets. A product priced competitively in one country might be considered expensive in another due to different market dynamics or the presence of strong local competitors. Example: § Coca-Cola competes with local soda brands in developing countries, often using penetration pricing to gain market share. However, in its home market, the brand relies on value-based pricing tied to its strong reputation. 4. Cultural and Psychological Factors Reason: Cultural preferences and customer perception of value can impact pricing decisions. In some markets, a high price may indicate superior quality, while in others, affordability is more important. Example: § Luxury brands like Louis Vuitton or Rolex often set even higher prices in countries like China, where customers associate high prices with exclusivity and prestige. Conversely, in price-sensitive markets, they may introduce entry-level products. © Copyright Universidad Europea. Todos los derechos reservados 32  INTERNATIONAL PRICING STRATEGIES 5.-Exchange Rates and Currency Fluctuations Reason: Businesses selling internationally must consider exchange rates, which can impact the profitability of a fixed price in a foreign currency. Example: § Amazon adjusts its prices frequently in international markets to account for fluctuating exchange rates, ensuring consistent profit margins. 6. Legal and Tax Considerations Reason: Tax policies, import duties, and local regulations vary across countries and must be factored into the final price. Example: § Pharmaceutical companies often price drugs higher in countries with strict patent laws but must lower prices in markets with stringent government controls on medication pricing. © Copyright Universidad Europea. Todos los derechos reservados 33  INTERNATIONAL PRICING STRATEGIES 7.-Market Entry Strategies Reason: Companies often adopt different pricing strategies when entering a new market to build a customer base or adapt to local market conditions. Example: § Netflix used penetration pricing when it entered India, offering significantly lower subscription fees than in the US to attract subscribers in a price-sensitive market. 8. Brand Positioning and Perception Reason: A company’s pricing strategy in international markets can depend on whether it wants to position itself as a premium or affordable brand. Example: § Toyota prices its cars as mid-range in the US but positions Lexus, its luxury division, at a premium level globally to cater to high-end consumers. © Copyright Universidad Europea. Todos los derechos reservados 34  EXERCISE 5.2: DISCUSSION AT CLASS Thinking about your company Define your PRICING STRATEGY. Justify your position. How do you match your pricing strategy with your positioning and your Brand ? © Copyright Universidad Europea. Todos los derechos reservados 35  VIDEOS Pricing strategies Pricing strategies:0 © Copyright Universidad Europea. Todos los derechos reservados 36  Gracias ! 2024-2025 [email protected] Ve más allá © Copyright Universidad Europea. Todos los derechos reservados