ini semua slide marketing strategik kelas sabtu ukm semester 1 2010/2011

2. rental, fee, interest, toll, premium,
commission, royalty, bribery……..

3. PRICE is directly
related to revenue
generating

4. Prices are difficult to
set
– to determine a
profitable but
justifiable (fair) price.

5. Ceiling Price
Floor Price

6. Ceiling Price
Perceived-Value
Floor Price
Cost

7. PRICING
1.Selecting Pricing Objective
2.Determining the Demand
3.Estimating Costs
4.Analyzing Competitor’s
Offerings, Costs, & Prices
5.Choosing A Pricing Approach
6.Determining Final Price

8. PRICING
1.Selecting Pricing Objective
Survival
Maximum
Market Share
Product Quality
Leadership
Maximize Current
Profit
Maximum
Market Skimming
Maximum Market
Penetration

9. PRICING
1.Selecting Pricing Objective
Survival Low Price
Cover all variable costs and part of fix
costs
Maximum
Market Share
Product Quality
Leadership
Maximize Current
Profit
Maximum
Market Skimming
Maximum Market
Penetration

10. PRICING
1.Selecting Pricing Objective
Survival Low Price
Cover all variable costs and part of fix
costs
Maximum
Market Share
Low Price
Mkt leader enjoys lower costs and
high profits in long run
Product Quality
Leadership
Maximize Current
Profit
Maximum
Market Skimming
Maximum Market
Penetration

11. PRICING
1.Selecting Pricing Objective
Survival Low Price
Cover all variable costs and part of fix
costs
Maximum
Market Share
Low Price
Mkt leader enjoys lower costs and
high profits in long run
Product Quality
Leadership
High Price
Maximize Current
Profit
Maximum
Market Skimming
Maximum Market
Penetration

12. PRICING
1.Selecting Pricing Objective
Survival Low Price
Cover all variable costs and part of fix
costs
Maximum
Market Share
Low Price
Mkt leader enjoys lower costs and
high profits in long run
Product Quality
Leadership
High Price
Maximize Current
Profit
Based on Demand and Costs
Maximum
Market Skimming
Maximum Market
Penetration

13. PRICING
1.Selecting Pricing Objective
Survival Low Price
Cover all variable costs and part of fix
costs
Maximum
Market Share
Low Price
Mkt leader enjoys lower costs and
high profits in long run
Product Quality
Leadership
High Price
Maximize Current
Profit
Based on Demand and Costs
Maximum
Market Skimming
High Introductory Price
Maximum Market
Penetration

14. PRICING
1.Selecting Pricing Objective
Survival Low Price
Cover all variable costs and part of fix
costs
Maximum
Market Share
Low Price
Mkt leader enjoys lower costs and
high profits in long run
Product Quality
Leadership
High Price
Maximize Current
Profit
Based on Demand and Costs
Maximum
Market Skimming
High Introductory Price
Maximum Market
Penetration
Low Introductory Price

15. PRICING
2.Determining the Demand
- Refer your economic papers
- Price sensitivity
Consumers are less price sensitive:
*distinctive products
*consumer not that aware of substitute
*products are used together with other
assets previously bought
*the product is assumed to have more
quality, prestige or exclusiveness

16. PRICING
2.Determining the Demand
Most are price-sensitive to
expensive or frequent-buy products

17. PRICING
3. Estimating Costs
Price should covers all
________, _______ and ______
costs as well as generates
reasonable _____ for the efforts
and risks involved.

18. PRICING
3. Estimating Costs
Price should covers all
production, distribution and selling
costs as well as generates
reasonable return for the efforts
and risks involved.

19. PRICING
4.Analyzing Competitor’s
Offerings, Costs, & Prices
If firm offers specific attributes
not offered by immediate
competitors, the value of the
attributes to consumers should
be assessed and be _____ to
the firm’s price.

20. PRICING
4.Analyzing Competitor’s
Offerings, Costs, & Prices
If firm offers specific attributes
not offered by immediate
competitors, the value of the
attributes to consumers should
be assessed and be added to
the firm’s price.

21. PRICING
4.Analyzing Competitor’s
Offerings, Costs, & Prices
If firm does not offer specific
attributes offered by immediate
competitors, the value of the
attributes to consumers should
be assessed and be _____ to
the firm’s price.

22. PRICING
4.Analyzing Competitor’s
Offerings, Costs, & Prices
If firm does not offer specific
attributes offered by immediate
competitors, the value of the
attributes to consumers should
be assessed and be deducted to
the firm’s price.

23. PRICING
5.Choosing A Pricing Approach

24. PRICING
5.Choosing A Pricing Approach
COST-BASED PRICING
- Mark-up Pricing
- Target-Return Pricing

25. Setting the Price
- Step 5: Choosing a Pricing Method
• MARKUP PRICING =
product’s cost + a standard markup
• Ignores demand, value & competition
• Why is is popular?
I. Costs easier to estimate than demand
II. Prices similar if all firms use method
III. Viewed as fair to both seller & buyer

26. PRICING
5.Choosing A Pricing Approach
- Mark-up Pricing
unit cost/(1- return on sale)
Variable cost per unit $10
Fixed cost $300,000
Expected unit sales 50,000
Desired return on sales 20%
Unit cost = Var cost + (fixed cost/unit sales)
= 10 + (300,000/50,000) = $16
Mark-up pricing:
= 16/(1-0.2)
= $20

27. Setting the Price
- Step 5: Choosing a Pricing Method
TARGET-RETURN PRICING:
• Firm determines the price that would yield its target rate
of return on investment (ROI)
• Ignores price elasticity & competitors’ prices
= RM 16 + 0.2 X 1,000,000
---------------------
50,000
= RM 20
What if sales do not reach 50,000 units?
Prepare a break-even chart to learn what happen to other sales levels.

28. Break-Even Chart for Determining
Target-Return Price and Break-Even Volume

29. Setting the Price
- Step 5: Choosing a Pricing Method
TARGET-RETURN PRICING:
RM 300,000
-------------------------- = 30,000
RM 20 – RM 10

30. PRICING
5.Choosing A Pricing Approach
VALUE-BASED PRICING
- High Value or Premium Pricing
high V or Q - high P
- Economy Pricing
low V or Q - low P
- Value Pricing: (i)EDLP and (ii)High-Low
Pricing
high V or Q - low P

31. VALUE PRICING:
• Fairly low price for high-quality offering
• Redo operations: low-cost, same-quality
• Everyday low pricing (EDLP): constant
low price with little/no promotions
• Constant promotions costly & erode
confidence in credibility of everyday prices

32. Setting the Price
- Step 5: Selecting a Pricing Method
• High-low pricing: high everyday prices
but frequent promotions where prices are
lower than EDLP

33. PRICING
5.Choosing A Pricing Approach
COMPETITION-BASED PRICING
- Going-rate Pricing
Setting a price based largely on following
competitors’ actual prices.
- Sealed-bid Pricing
Setting a price based on how the firm
thinks the competitors will price.

34. • Geographical Pricing
• Discounts and Allowances
• Promotional Pricing
• Differentiated Pricing

35. GEOGRAPHIC CONSIDERATIONS
FOB Pricing
FOB (Free on board) Plant or FOB Origin
Prices include no shipping charges
Buyers must pay all freight charges to
transport the product from the
manufacturer’s loading dock
Legal title and responsibility pass to buyer
after the seller’s employees load the
purchase and get a receipt
FOB Origin-freight Allowed or Freight
Absorbed
Permit buyers to subtract transportation
expenses from their bills.

36. Uniform-Delivered Pricing
All buyers are quoted the same price,
including transportation expenses
The price quoted includes a transportation
charge averaged over all the firm’s
customers.
Meaning that distant customers actually
pay a smaller share of shipping costs while
nearby customer pay what is known as
“phantom freight”
– the amount by which the average
transportation charge exceeds the actual
cost of shipping.

37. Zone Pricing
Market is divided into geographic regions
and a different price is set in each region
Basing-Point Pricing
Includes the list price at the factory plus
freight charges from the basing-point city
nearest the buyer
Specifies a location from which freight
charges are calculated – not necessarily
the point from which the goods are actually
shipped

38. Table 14.3 Price Discounts and Allowances

39. Adapting the Price
- Promotional Pricing
• Techniques to stimulate early purchase:
1.Loss-leader pricing
2.Special-event pricing
3.Cash rebates
4.Low-interest financing
5.Longer payment terms
6.Warranties and service contracts
7.Psychological discounting
• Promotional-pricing strategy: zero-sum game

40. Adapting the Price
- Differentiated Pricing
• Price discrimination: product/service sold at 2
or more prices that do not reflect proportional
difference in costs
• 1st-degree: separate price to each customer
depending on demand intensity
• 2nd-degree: charges less to buyers who buy a
larger volume
• 3rd-degree: charges different amounts to
different classes of buyers

41. Adapting the Price
- Differentiated Pricing
3rd-degree price
discrimination
• Customer-segment
• Product-form
• Image
• Channel
• Location
• Time
Yield pricing:
• discounted but
limited early
purchases,
• higher-priced late
purchases &
• lowest rates on
unsold inventory
just before it expires

42. Adapting the Price
- Differentiated Pricing
Conditions for Price Differentiation:
I. Market segmentable & each have different
demand intensities
II.Low-price segment cannot resell to high-price
III.Competitors cannot undersell in higher price
segment
IV.Segmenting costs not > extra revenue derived
Do not lead to customer resentment & ill will
V.Must not be illegal

43. • Product-Line Pricing
• Optional-Feature Pricing
• Captive Product Pricing
• Two-Part Pricing
• By-Product Pricing
• Product-Bundling Pricing

44. PRICING STRATEGIES:
1. Skimming Pricing Strategy
The intentional setting of a relatively high price
compared with the prices of competing
products
Commonly used for distinctive goods with little
or no initial competition
When the supply begins to exceed demand, or
when competition catches up, the high price is
dropped

45. 2. Penetration Pricing Strategy
Price products noticeably lower than
competing products when enter new industries
(with many competing products)
Once the product achieves some market
recognition through consumer trial purchases
stimulated by its low price, marketers may
increase the price to the level of competing
products
Everyday Low Pricing
- closely related to penetration pricing
- a strategy devoted to continuous low prices
as opposed to relying on short-term price-
cutting tactics

46. 3. Competitive Pricing Strategy
Matching other firms’ price
In industries with relatively homogeneous
products, competitors must match each other’s
price reduction to maintain market share and
remain competitive
When companies continually match each
other’s prices, prices can really drop

47. PRICING POLICIES
1. PSYCHOLOGICAL PRICING
based on the belief that certain prices or
price ranges make a good or service more
appealing than others to buyers
Odd Pricing
Set prices at odd numbers just under round
numbers.
Many people assume that a price of RM2.95
appeals more strongly to consumers than
RM3.00, supposedly because buyers
interpret it as RM2.00 plus.
RM499 instead of RM500

48. 2. PRODUCT-LINE PRICING
Setting a limited number of prices for a
selection of merchandise (in a product line)
TV Sony 12’, 14’, 19’, 29’, 31’
If the price difference between two model is
small, buyers will choose the more advanced
model and vice versa.
3. PROMOTIONAL PRICING
A lower than normal price is used as a
temporary ingredient in a firm’s marketing
strategy
To increase sales volume in short term such as
for special events
Loss Leader Pricing
Goods priced below cost to attract customers to
the outlets, with hopes that these buyers will
also buys other regular priced products.

49. COMPETITIVE BIDDING
Inviting potential suppliers to quote prices on
proposed purchases or contracts
Detailed specifications describe the good/service
that the organization wishes to acquire.
Set the price based on the assumptions of
competitor’s prices
If the price is set too high – might not get the
tender
If the price is set too low – might not be
profitable

50. DEVELOPING
Pricing Strategies &
Programs
Chapter
14

51. Setting the Price
- Step 1: Selecting the Pricing Objective
• Firm can pursue any of 5 objectives
through pricing:
1.SURVIVAL: when plagued with
overcapacity, intense competition or
changing consumer wants
2.MAXIMUM CURRENT PROFIT: choose
price that gives maximum profit or cash
flow

52. Setting the Price
- Step 1: Selecting the Pricing Objective
3. MAXIMUM MARKET SHARE: believe
that higher sales will lower costs &
higher profit - Set lowest price
– Conditions that favor low price
i. Market highly price sensitive
ii. Costs fall with more production
iii. Low price discourage competition

53. Setting the Price
- Step 1: Selecting the Pricing Objective
4. MAXIMUM MARKET SKIMMING:
usually favored by firms with a new
technology
 Price start high & lowered in time
 Conditions:
i. Sufficient buyers with high demand
ii. Unit costs of small volume not too high
iii. High price do not attract competitors
iv. High price indicates superior quality

54. Setting the Price
- Step 1: Selecting the Pricing Objective
5. PRODUCT-QUALITY LEADERSHIP:
aim to be product-quality leader
• High quality, taste, status with price that
is ‘affordable’
6. OTHER OBJECTIVES : non-profit &
public organizations may have partial or
full cost recovery objectives

55. Setting the Price
- Step 2: Determining Demand
• Demand is less elastic when:
I. Few or no substitutes or competitors
II. Buyers do not notice the higher price
III. Slow to change their buying habits
IV. Buyers think higher prices are justified

56. Setting the Price
- Step 3: Estimating Costs
TYPES OF COSTS & LEVELS OF
PRODUCTION:
1.Fixed costs: no change with production or
sales revenue
• Variable costs: vary with production
• Total costs = fixed + variable
• Average cost = cost per unit production
Price to cover total production costs
How costs vary with production levels

57. Setting the Price
- Step 5: Selecting a Pricing Method
• Figure 14.5 summarizes 3
major considerations in price
setting
• Companies select a pricing
method that includes one or
more of these 3 considerations
Figure 14.5 The Three Cs Model for
Price Setting

58. Setting the Price
- Step 5: Selecting a Pricing Method
GOING-RATE PRICING:
• Based price on competitors’ prices
• WHY popular?
• Where costs or competition uncertain,
going price reflect industry’s wisdom

59. Setting the Price
- Step 5: Selecting a Pricing Method
AUCTION-TYPE PRICING: 3 auction types:
I. English auctions (ascending bids)
i. One seller & many buyers. Top price
II. Dutch auctions (descending bids)
i. One seller & many buyers: start high price
slowly lowered
ii. One buyer & many sellers: lowest price
III. Sealed-bid auctions
i. one bid & other bids secret

60. Setting the Price
- Step 6: Selecting the Final Price
IMPACT OF OTHER MARKETING ACTIVITIES:
• Final price to reflect brand’s quality &
advertising relative to competition
– Average quality, high advertising - premium prices
– higher prices for known products than unknown
– high quality & advertising- highest price
– low quality & advertising- lowest price
• Price not as important as quality and other
benefits in the market offering

61. Adapting the Price
- Geographical Pricing (Cash Countertrade Barter)
• How products are priced to different
customers in different locations &
countries
• Higher prices to cover shipping costs?
• How to account for exchange rate?
• How to receive payment?
• Countertrade: Buyers offer items as
payment

62. Adapting the Price
- Geographical Pricing (Cash Countertrade Barter)
Forms of Countertrade:
• Barter
• Compensation deal
• Buyback arrangement
• Offset
• Public-private partnership

63. Adapting the Price
- Price Discounts & Allowances
• Companies adjust price & give discounts &
allowances for early payment, volume
purchases & off-season buying
• Higher income earners willing to pay
higher prices so discount is a mistake for a
strong brand
• Discounting useful if firm gets concessions
in return

64. Table 14.3 Price Discounts and Allowances

65. Adapting the Price
- Promotional Pricing
• Techniques to stimulate early purchase:
1.Loss-leader pricing
2.Special-event pricing
3.Cash rebates
4.Low-interest financing
5.Longer payment terms
6.Warranties and service contracts
7.Psychological discounting
• Promotional-pricing strategy: zero-sum game

66. Initiating & Responding to Price
Changes- Initiating Price Cuts
Circumstances that lead firm to cut prices:
1.excess plant capacity
2.drive to dominate the market through lower costs
A price-cutting strategy involves possible
traps:
1.Low-quality trap
2.Fragile-market-share trap
3.Shallow-pockets trap

67. Initiating & Responding to Price
Changes- Initiating Price Increases
• A successful price increase can raise
profits considerably; caused by:
1.Cost inflation
– anticipatory pricing: anticipation of further
inflation or government price controls
2.Overdemand

68. Initiating & Responding to Price
Changes- Initiating Price Increases
• Price can be increased in these
ways:
 Delayed quotation pricing
 Escalator clauses
 Unbundling
 Reduction of discounts

69. Initiating & Responding to Price
Changes- Initiating Price Increases
• In initiating price increase:
1.A company needs to decide
– Sharp price rise ONCE or
– Small price rises, several times
2.Avoid looking like a price gouger
3.Premiums of strong brands are not
excessive

70. Initiating & Responding to Price
Changes- Initiating Price Increases
Techniques to prevent sticker shock &
hostile reaction in customers:
 Fairness must surround price increase
 Give advance notice so they can forward
buy
 Sharp price increases explained
 Making low-visibility price moves

71. Initiating & Responding to Price
Changes- Reactions to Price Changes
CUSTOMER REACTIONS: Customers question
motivation behind price changes
• How a price cut can be interpreted?
1.Item about to be replaced by new model
2.Item is faulty & is not selling well
3.Firm is in financial trouble
4.Price will come down even further
5.Quality has been reduced

72. Initiating & Responding to Price
Changes- Reactions to Price Changes
CUSTOMER REACTIONS: Customers
question motivation behind price changes
• How price increase can be interpreted?
1.Normally deter sales
2.The item is “hot” & represents an
unusually good value

73. Initiating & Responding to Price
Changes- Reactions to Price Changes
COMPETITOR REACTIONS:
• React when firms are few, product is
homogeneous & buyers highly informed
• How firm anticipate competitor’s
reactions?
1.They react in set way to price changes
2.They treat price change as fresh challenge
& react according to self-interest at the
time

74. Initiating & Responding to Price
Changes- Reactions to Price Changes
• Different competitor interpretations on a
price cut:
1.Company is trying to steal market, doing
poorly & try to boost its sales, or
2.Company wants whole industry to reduce
prices to stimulate total demand

75. Initiating & Responding to Price Changes
- Responding to Competitors’ Price Changes
• Price cut in homogenous market?
1.Enhance augmented product
2.Reduce price
• Price hike in homogenous market?
1.Other firms might not match it unless
increase benefits industry as a whole

76. Initiating & Responding to Price Changes
- Responding to Competitors’ Price Changes
• Non-homogenous market?
1.Why competitor change price?
2.Planned price change temporary/permanent?
3.What happen to company’s market share &
profits if it does not respond?
4.What are competitor’s & other firms’ responses
to each possible reaction?
• Market leaders frequently face aggressive price
cutting by smaller firms trying to build market
share

77. Initiating & Responding to Price Changes
- Responding to Competitors’ Price Changes
• When faced with lower-priced brands,
brand leader can:
1.Maintain price
2.Maintain price and add value
3.Reduce price
4.Increase price and improve quality
5.Launch a low-price fighter line

78. Figure 14.7 Price-Reaction Program for Meeting a
Competitor’s Price Cut