MARKETING Session 15

Value offer the price

AGENDA

A. Introduction and definition B. Price and demand 1. Elasticity 2. Sensitivity C. Pricing reference points D. Additional issues

AGENDA

A. Introduction and definition B. Price and demand 1. Elasticity 2. Sensitivity C. Pricing reference points D. Additional issues

A. Price from a Marketing Perspective

The price is the monetary value in the exchange of a product and corresponds to its exchange value. This exchange value is determined by the utility and satisfaction derived from the purchase and use or consumption of the product. Price is a key competitive tool, because it defines the generic strategy of a business (cost leadership or differentiation) and it contributes to define its positioning (within perceptual maps).

A. Price from a Marketing Perspective

Price has strong impact on revenues and profits (directly and indirectly, because of its impact on demand). Price elasticity is very strong Price is the most flexible tool in the marketing mix

MM elasticities

Price elasticity Price promotion elasticity

- 2.6 - 3.6

Advertising elasticity 0.12 +30% advertising investment = -1% price cut Personal selling elasticity 0.35

Pricing - objectives
Survival Status quo Positioning

strategic

Maximize sales volumes (and MS) Maximize profits (and/or ROI) Communicate product quality Increase penetration in distribution

econ.

tactic

Pricing - strategies
Skimming
Pursue differentiation strategies Segment the market Exploit temporary monopoly Conditions High quality, image Small production Low competition

Penetration
Pursue cost leadership strategies Mass Market Exploit market share Conditions High price sensitivity Economies of scale High actual or potential competition

AGENDA

A. Introduction and definition B. Price and demand 1. Elasticity 2. Sensitivity C. Pricing reference points D. Additional issues

B.1. Price and demand

elasticity (behavior)

Elasticity measure that shows the responsiveness of the quantity demanded of a good or service to a change in its price = the percentage change in quantity demanded in response to a one percent change in price % change Quantity = % change Price

Demand elasticity - methods

Longitudinal analysis Changes in price over time; check changes in demand Cross-sectional analysis Changes in price across micro-markets (geographical area, shops); check changes in demand (price differential, MS differential)

B.2. Price and demand

sensitivity (attitude)

Sensitivity measure that shows the responsiveness of the

attitude towards buying a good or to a change in its price Would you buy this product if the price was__? And if it was__? ...
Price 80 150 1.Surely I would buy 2. 3.Likely I would buy 4. 5.Likely I wouldnt buy 6. 7.Surely I wouldnt buy 4% -7% 1% 22% 2% 65% 5% -14% 2% 24% 2% 54%

40 15% 2% 30% 4% 18% 1% 30%

Van Westendorp analysis

At what price would you consider the product to be so expensive that you would not consider buying it? (Too expensive) At what price would you consider the product to be priced so low that you would feel the quality couldnt be very good? (Too cheap) At what price would you consider the product starting to get expensive, so that it is not out of the question, but you would have to give some thought to buying it? (Expensive/High Side) At what price would you consider the product to be a bargaina great buy for the money? (Cheap/Good Value)

AGENDA

A. Introduction and definition B. Price and demand 1. Elasticity 2. Sensitivity C. Pricing reference points D. Additional issues

C. Pricing methods
1. Cost-based (Company)
Identify costs (variable, fixed) Forecast sales level Based on objectives, choose price (base, technical, target ) Analyze elasticity and sensitivity of demand Assess perceived value (composition/ decomposition) Choose price Monitor competitors prices Based on competitive position, choose price

2. Value-based (Customers))

3. Competition-based (Competitors)

Conceptual Orientation to Price

Demand factors (Price ceiling)

Value to buyers

Competitive factors
Final pricing discretion Initial pricing discretion

Corporate objectives and regulatory constraints Direct variable costs

(Price floor)

AGENDA

A. Introduction and definition B. Price and demand 1. Elasticity 2. Sensitivity C. Pricing reference points D. Additional issues

D. Additional issues

Price discrimination different prices in different markets Yield management dynamic management of price and demand free clients/ products management of network externalities or dual markets