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Outline Introduction Pricing strategies and process Reactions to price changes Impact on discounting
Price-Quality Strategies
Pricing Process 1. Set Pricing Objectives (see next slide) 2. Analyze demand 3. Draw conclusions from competitive
intelligence 4. Select pricing strategy appropriate to the political, social, legal and economical environment 5. Determine specific prices
Possible Pricing Objectives Profit objectives e.g. Volume objectives e.g. Other objectives e.g.
Targeted profit return
Dollar or unit sales growth Market share growth Match competitors price Non-price competition
Customers have no choice Need to pay for the research When cheaper options doesnt work Competition decides
1. Penetration pricing
Pricing somewhere in between the skimming strategy and the penetration strategy
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Pricing Strategies
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Pricing Strategies
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Penetration Pricing
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Market Skimming
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Value Pricing
Companies may be able to set prices Companies may be able to set prices according to perceived value. according to perceived value. 17
Loss Leader
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Psychological Pricing
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Tender Pricing
A European consortium led by Airbus recently won a contract to supply refuelling services to the RAF priced at 13 billion!
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Price Discrimination
Prices for rail travel differ for the same journey at different times of the day
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Microsoft have been accused of predatory pricing strategies in offering free software as part of their operating system Internet Explorer and Windows Media Player - forcing competitors like Netscape and Real Player out of the market.
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Example:
Aircraft flying from Bristol to Edinburgh Total Cost (including normal profit) = 15,000 of which 13,000 is fixed cost* Number of seats = 160, average price = 93.75 MC of each passenger = 2000/160 = 12.50 If flight not full, better to offer passengers chance of flying at 12.50 and fill the seat than not fill it at all!
*All figures are estimates only
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Contribution Pricing
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Target Pricing
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Cost-Plus Pricing
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Influence of Elasticity
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PRICE DISCRIMINATION
Price discrimination is not possible when a
good is sold in a competitive market since there are many firms all selling at the market price. In order to price discriminate, the firm must have some market power. Perfect Price Discrimination
when the monopolist knows exactly the willingness to pay of each customer and can charge each customer a different price.
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TREND PROJECTION METHOD This method is essentially concerned with the study of movement of variables through time. The use of this method requires a long & reliable time series data There are 3 techniques of trend projection based on timeseries data Graphical method Fitting trend eqn./ least square method Box-Jenkins method.
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Long-Run Increase or Decrease in Data Long-Run Cycles of Expansion and Regularly Occurring Fluctuations
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3. Seasonal Movements /Seasonal variations: refers to identical which a time series appears to fallow during corresponding months of successive years
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Estimation of trend Method of least squares Free hand method Moving average method Method of semi averages Estimation of seasonal variations Average percentage method percentage trend/ ratio to trend method Percentage moving average
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Perfect
Large no. of firms Financial markets and some none with identical farm products products
Imperfect Monopolistic Many firms with real or perceived product differentiation Manufacturing: tea,toothpastes,TV sets, shoes, refrigerators etc., None Competitive advertising, quality rivalry Competitive advertising, quality rivalry
Oligopoly
Little or no product Aluminum, steel, differentiation cigratees,cars, etc, A single producer, Public utilities: telephones, without close electricity etc., substitute
Some
Monopoly
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Economics of scale
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Internal economics: are those arise from the expansion of the plant-size of the firm and are internalizes.this means that internal economics are exclusively available to the expanding firm. Internal economics may be classified under the following categories Economics in production Economics in marketing Managerial Economics Economics in transport and storage
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External / pecuniary economics of scale Accrue to the expanding firms from the advantages arising outside the firm. E.g. input markets Large scale purchase of raw material Large scale acquisition of external finance Massive advertisement campaigns Large scale hiring of means of transport and warehouses etc.,
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Diseconomies of scale Are disadvantages that arise to the expansion of production scale and lead to a rise in the cost of production Reasons Internal diseconomies Managerial inefficiency Labour inefficiency External diseconomies
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