Barter = direct exchange of goods
with no money & no 3rd party
Most efficient firm in the industry &
marketing expertise
Buyers request a formal bid with no
later opp to change e.g gvt
Set bid price using an expected
value model - E(X) = P(X)Z(X)
Internet will make sealed bidding
obselete
1. Indutrial engineering methods
2. Overall estimates of customer
value
3. Decomposition Approaches
4. Compositional approach
5. Importance ratings
Assessing customer value by
assessing Value in use
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Customers expect a Customary price for
some products e.g candy bars
Price lining - selling all products in a
category at one price level - each price
line represents a diff quality
Odd pricing = e.g R29.95 better thsn R30
Psychological pricing - Customers use
price as an indication of quality
Promotional pricing - familiar sale
reduced price on product for limited time
Add a std markup to the cost of
the product - Cost plus or markup
pricing
Doesn't consider price sensitivity
/ assumes level of sales before
price is set
Unit cost = Variable cost + (Fixed
cost / expected unit sales)
Markup price = Unit cost / (1-
desired per cent markup on retail)
Rate of return / Target return
pricing - more sophisticated than
markup pricing in that it brings
the cost of capital tied up in
producing & distributing the
Cost orientated pricing
product into the equation
Target Return Price = Unit cost +
(Desired % return x Capital
invested / Unit sales)
Breakeven Volume = Fixed cost /
Price - variable ciost
Go ingrate / Competitive parity -
try to maintain prices equal to those
of major competitor
Price leader
Discount / Premium price policies
Competition orientated
- reflect differences in positioning
strategies e.g Ryan air
Sealed bidding
Methods for estimating perceived
customer value: Demand or customer orientated
Other Perceptual Pricing issues
Economies of scale
Customers are less price sensitive Experience curve
w hen they perceive the product to
provide unique benefits - no
substitutes
Unique value add effect
Customers are less price sensitive
w hen they perceive the product to
offer high quality & prestige
Price-quality effect
Customers are less price sensitive
when they perceive the product to
offer high quality & prestige
Substitute-awareness effect
Customers are less price sensitive
when it is difficult to compare
objectively the quality of alternative
brands Difficult comparison effect
Customers are less price sensitive
w hen the the purchase is necessary
Sunk-investment effect
to gain full benefit from assets
previously bought
Customers are less price sensitive
when their expenditure is a relatively
low portion of total income
Customers are less price sensitive
when their expenditure is a relatively
small preportion of end product
(indutrial buyers)
Customers are less price sensitive
when part of the cost is borne by
another party
Customers are less price sensitive
w hen they cannot store large
quantities as a hedge against future
price increases
Quantity Discounts
Price off Promotions
Coupons, rebates & refunds
Prices adjusted seasonally
Priced diff at various locations
5. Select a method for calculating
price
4. Analysing competitors costs
and prices
Fixed costs & variable costs
Measuring costs using Activity
based costing systems
Cost - Volume realtionships
Buyers perceptions &
preferences
Buyers awareness of & attitude
towards alternatives
Total-expenditure effect
End-benefit effect
Shared-cost effect
Inventory effect
involved Occurs in international transactions
where potential customers lacks
Compensation deals - seller agrees
to take some % in cash & rest in sufficient hard currency to pay for
FOB Origin pricing - manufacturer
goods purchases places the goods "free" on board a
trsnporation carrier - each customer
Buy back Arrangement - seller picks up its own costs
offers a plant etc to a customer &
agrees to accept as partial payment
Freight Absorption pricing - seller
of product manufactured. Low price strategy (penetration
Countertrade picks up all freight costs
Offsets - seller is compensated in strategy) to w in new customers &
Product market is in intro or growth
cash but agrees to spend a Uniform delivered pricing - capture market share
stage of life cycle
substantial amount of that cash with Global adjustments average of freight costs allocated
Risk of low price strategy = If market
Trade discounts the customer across customers - cool for distance
conditions change, future profits may Low prices may discourage potential
customers but locals pay more not be realised
competitors from entering market
Zone pricing - falls betw een FOB &
Uniform pricing - divides country into Production & distribution costs per
6. Set a price level zones unit are likely to fall substabntialy
Cash discounts
with increasing volume
Discounts and allowances
1. Maximise sales growth &
Allowances penetration Conditions where most appropriate:
The firm's costs are low compared to
competitors
Target customers are sensitive to
price
Competition orientated Product market is in growth or
maturity stage of life cycle
When form has strong competitve
position based on superior product
quality or customer service
Time pricing 2. Maintain quality of service asks Premium price: needs revenue
differentiation for R&D & advertising costs to
Differential Pricing (Discriminatory
Pricing) maintain position & Customers are
Location pricing
wiling to pay for more superior
offering
Conditions where most appropriate
Firm is Pursuing defender strategy
Customer segment pricing
Risk = there are limits to what
Charge diff prices according to
customers are willing to pay
market segment e.g student / senior
rates e.g Businessman flying Business for
better service even though
overpriced
Should reflect what the firm
hopes to acomplish with the Product market is in Intro or early
1. Set Strategic pricing objectives product in its target market. growth stage of life cycle
Price is set very high to appeal to
most price insensitive customer
A process for making Pricing segment.
Decisions Small market as large market attracts
competition
Reverse engineering to analyse
Skimming
Firm has limited capacity
Conditions where most appropriate
Firm is Pursuing Prospector strategy
3. Maximise current profit
Product market is in late maturity or
decline phase of life cycle
Module 12 Seeks to maximise short term profits
before demand disaapears
High price to maintain margins &
Pricing Decisions profits whilst reducing internal
processes/costs
Harvesting Product is cash cow funding growth
in other product markets
Conditions w here most appropriate
Firm is Pursuing Deferentiated
3. Estimating costs defender strategy
Product market is in growth or
4. Survival maturity stage of life cycle
Weak competitive position
Conditions w here most appropriate Needs to buy time to make
adjustments
Low price to attract enough demand -
enough to cover variable costs and
contribute to fixed costs
2. estimating demand and
Perceived value 5. Social Objectives
Firm is not for profit org
The higher the price the less
Demand Curve people want to buy Costs are subsidised by tax revenues
Conditions where most appropriate and contributions
factors affecting customers price Typical demand curve has
One or more sements need the
sensitivity negative or downward curve
product or serbvice but are unwilling
/ unable to pay for it
Elastic
Set low price - perhaps below total
E = % change in quantity demand / cost
% change in price Inelastic
Price elasticity of demand
Unitary
Buyers ability to pay