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Colgate-Palmolive. 1.What changes are taking place in the toothbrush category ? Assess Colgate-Palmolive’s competitive position. 2. How is the tooth brush market segmented? 3.What are the arguments for launching precision as: A. niche product ? B. A mass market product?

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Colgate palmolive

Colgate-Palmolive

1.What changes are taking place in the toothbrush category ? Assess Colgate-Palmolive’s competitive position.

2. How is the tooth brush market segmented?

3.What are the arguments for launching precision as:

  • A. niche product ?

  • B. A mass market product?

    4. What should they do?


Price and pricing strategies

PRICE AND PRICING STRATEGIES

What is the Role of Price?

1. cover costs

2. positioning variable (cue to quality)

3. incentive to channel members

4. barrier/gateway to entry

5. demand manager


Figure 8 2 pricing strategy process template

Figure 8-2 Pricing Strategy Process Template


Figure 8 3 pricing orientations

Figure 8-3 Pricing Orientations


Cost based strategies

Cost Based Strategies

  • Cost plus

  • Break-even

  • Target return

  • Floor Pricing

  • Penetration Pricing

  • Low-Cost Leader Pricing

  • Competitive Bid Pricing

  • Harvest Pricing


Competitor based

Competitor-based

market structure

price leadership


Demand based strategies

Demand-basedStrategies

- demand backward

- marginal cost = marginal revenue

 % Δ Quantity

elasticity = -----------------

% Δ Price


Elasticity estimation

Elasticity Estimation:

- test marketing

- consumer surveys

- awareness

- market structure

  • product importance

  • conjoint analysis


Forces that shape price elasticity

Ease of Customer Switching

Product Differentiation

Cost of Switching Suppliers

Customer Loyalty

Ease of Switching Index

Forces that Shape Price Elasticity

  • Supply/Demand Conditions

    • Supply Conditions

    • Demand Conditions

    • Substitutes

    • Supply/Demand Index


Price elasticity and performance

Price Elasticity and Performance


Market based pricing strategies

Market-Based Pricing Strategies

  • Skim Pricing

  • Value-in-Use Pricing

  • Market-Based Value Pricing

  • Segment Pricing

  • Strategic Account Pricing

    • Most favored customer


Pricing strategies and the product life cycle

Pricing Strategies and the Product Life Cycle


Price quantity discounts

Price-Quantity Discounts

QuantityPrice

1 - 195,795

20 - 495,095

50 - 994,095 

price for 18 units = $ 104,310 

price for 20 units = $ 101,900

price for 45 units = $ 229,275 

price for 50 units = $ 204,750


Break even analysis

Break-even Analysis

  • Determines the number of units that need to be sold in order to break even Breakeven volume is the volume needed to cover fixed expenses on the basis of a particular margin per unit

  • Break-even Volume = Fixed Expenses/ Margin per Unit


Price to a consumer

List Price

Less: Discounts

Quantity

Seasonal

Cash

Less: Allowances

Trade-ins

Damaged goods

Product:

Physical

Service

Assurance of quality

Repair facilities

Packaging

Credit

Premiums

Place / availability

Price to a consumer

Price equals Something


Price in the channel

List Price

Less: Discounts

Quantity

Seasonal

Cash

Trade /functional

Less: Allowances

Advertising

Push money

Damaged goods

Product:

Branded

Guaranteed

Warranted

Repair facilities

Convenient Packaging

Place

availability

Margin (Price)

Promotion

Aimed at consumers

Price in the Channel

Price equals Something


Channel pricing

Channel pricing

Manufacturer

Cost = $ 21.60 = 90%

Markup = $ 2.40 = 10%

Selling Price = $24.00 = 100%


Channel pricing1

Channel pricing

Wholesaler

Cost = $ 24.00 = 80%

Markup = $ 6.00 = 20%

Selling Price = $30.00 = 100%


Channel pricing2

Channel pricing

Retailer

Cost = $ 30.00 = 60%

Markup = $ 20.00 = 40%

Selling Price = $50.00 = 100%


Taxonomy of strategies

Taxonomy of Strategies

Objective of Firm


Segments and search costs

Segments and Search Costs

  • Random Discounting

    • Maintain high price regularly

    • Randomly cut price

    • The uninformed will buy randomly –usually high

    • The informed will wait

    • Hence, we don’t lose either


Segments and low reservation

Segments and low reservation

  • Periodic Discounting

    • Start at high price

    • Lower price (predictably) over time

    • High reservation folks buy early

    • Low reservation people buy later


Segments and transaction costs

Segments and transaction costs

  • Second market Discounting

    • Requires excess capacity over regular market

    • Fixed costs covered in original market

    • Generics

    • Store brand

    • dumping


Competition search costs

Competition & search costs

  • Price signaling

    • Goods are produced at two quality levels

    • Experience or credence search properties

    • Three strategies

      • Produce low quality – sell low price

      • Produce high quality – sell high price

      • Produce low quality – sell high price


Competition and reservation

Competition and reservation

  • Penetration / experience pricing

    • No threat of immediate entry

    • Gains from high volume

    • Amass market share


Competition and transaction costs

Competition and Transaction costs

  • Geographic pricing

    • A combination of second market discounting and penetration

    • Usually the same price in two separate markets even though the costs differ.


Product line and search

Product Line and Search

  • Image Pricing

    • Bring out an identical product to first but with different name and higher price

    • Price signals quality to high search cost group

    • Use excess profits to subsidize other version of the product whose price can be lowered.


Product line and reservation

Product line and reservation

  • Price bundling

    • Perishable products (no periodic discounting)

    • Can’t discriminate

    • Theater 1 Theater 2

    • Movie 11218

    • Movie 22510

    • Charge 18 for movie 1; 25 for movie 2

    • 28 for both


Product line and reservation1

Product line and reservation

  • Premium Pricing

    • Two versions of product

      • Make money on premium

      • Lose money on standard

      • Take advantage of economies


Product line and special transaction costs

Product Line and Special Transaction costs

  • Complementary Pricing

    • Captive pricing (razor and razor blades)

    • Two-Part Pricing (same as captive but for services) Mickey Mouse pricing

    • Loss leader pricing – reduces special transaction costs for many other products


Break even market share

Break-even Market Share

  • Framework for judging potential profit and risk

  • Break-even Market Share = Break-even Volume * 100/ Market Demand


Figure 8 13 break even volume

Figure 8-13 Break-even Volume


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