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Chapter 7. Pricing strategies.

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Chapter 7

Pricing strategies


  • ‘Value’ may be one of the most overused and misused terms in marketing and pricing today. ‘Value pricing’ is too often misused as a synonym for low price or bundled price. The real essence of value revolves around the tradeoff between the benefits a customer receives from a product and the price he or she pays for it.

    • R. Leszinki & M.V. Marn, ‘Setting value, not price’,The McKinsey Quarterly, 1997 No. 1, pp.99–100.


Objectives
Objectives terms in marketing and pricing today. ‘Value pricing’ is too often misused as a synonym for low price or bundled price. The real essence of value revolves around the

At the end of this chapter, you will be able to develop realistic pricing strategies taking into account:

  • external considerations

  • internal factors

  • legal considerations.


The strategic m arketing planning process
The terms in marketing and pricing today. ‘Value pricing’ is too often misused as a synonym for low price or bundled price. The real essence of value revolves around the strategic marketing planning process

Situation

analysis

Problems &

opportunities

Marketing strategies – pricing strategies

Determination of pricing strategies, taking into account the external environment, internal factors and legal considerations.

Marketing

objectives

Marketing

strategies

Budget

Implementation

Evaluation &

control


A holistic process
A holistic process terms in marketing and pricing today. ‘Value pricing’ is too often misused as a synonym for low price or bundled price. The real essence of value revolves around the

  • Marketing strategies

  • Higher-level strategies

  • Business position

  • Product-market strategies

  • Marketing mix strategies

  • Target markets

  • Consumer positioning

  • Product strategies

  • Pricing strategies

  • Distribution strategies

  • IMC strategies + additional 3Ps for service providers

  • People, process management and physical asset strategies

  • Marketing objectives

  • Corporate objectives

    • Financial objectives

  • Marketing objectives

    • Performance

  • objectives


Developing pricing strategies (1) terms in marketing and pricing today. ‘Value pricing’ is too often misused as a synonym for low price or bundled price. The real essence of value revolves around the

  • Determining an effective pricing strategy involves three sets of considerations:

  • the external environment

  • internal factors

  • legal considerations.


Developing pricing strategies 2
Developing pricing strategies (2) terms in marketing and pricing today. ‘Value pricing’ is too often misused as a synonym for low price or bundled price. The real essence of value revolves around the

External environment

  • Market factors

  • Customer demand

    • price elasticity

    • price threshold

  • Competitive influences

    • price/quality position

    • price lining

Internal factors

Legal considerations


Developing pricing strategies 3
Developing pricing strategies (3) terms in marketing and pricing today. ‘Value pricing’ is too often misused as a synonym for low price or bundled price. The real essence of value revolves around the

  • Business positioning

  • Strategic position

  • Profit/ROI objectives

  • Internal capabilities (cost leadership)

  • For new products

  • Skimming v. penetration

  • For all products

  • Ensure pricing strategy is consistent with all other marketing mix strategies.

External environment

Internal factors

Legal considerations


Developing pricing strategies 4
Developing pricing strategies (4) terms in marketing and pricing today. ‘Value pricing’ is too often misused as a synonym for low price or bundled price. The real essence of value revolves around the

External environment

Compliance with provisions

in TPA and PSA particularly

TPA s.45 Anti-competitive

agreements, s.46 Misuse of

market power and s.48

Resale price maintenance.

Internal factors

Legal considerations


Decision making aids
Decision-making aids terms in marketing and pricing today. ‘Value pricing’ is too often misused as a synonym for low price or bundled price. The real essence of value revolves around the

As an aid for analysis and decision making, draw on tools such as:

  • the PLC and innovator theory

  • product portfolio models

  • models of competitive advantage

  • price elasticity and demand curve(Figure 7.1)

  • the price/quality positioning map (Figure 5.2).


Demand curve example

$3000 terms in marketing and pricing today. ‘Value pricing’ is too often misused as a synonym for low price or bundled price. The real essence of value revolves around the

$2800

$2600

$2400

$2200

$2000

500 2000 4000 6000

Units

Demand curve: Example

Demand for a hypothetical notebook computer at various price points


A price quality positioning map

Price terms in marketing and pricing today. ‘Value pricing’ is too often misused as a synonym for low price or bundled price. The real essence of value revolves around the

High

Low

XX

High

XX

Product

quality

XX

XX

XX

Low

XXX

A price/quality positioning map


Responding to a competitive pricing challenge
Responding to a competitive pricing challenge terms in marketing and pricing today. ‘Value pricing’ is too often misused as a synonym for low price or bundled price. The real essence of value revolves around the

1 Determine the motives for the price attacker and the capabilities of the competing organisation.

2 Attempt to achieve superior performance (cost leadership or differentiation) based on customer needs.

3 Show the competitor that the battle will not be easy.


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