Pricing Strategies for the Asia Pacific

Asia-Pacific Marketing Federation Certified Professional Marketer

Copyright Marketing Institute of Singapore
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Outline Introduction Pricing strategies and process Reactions to price changes Impact on discounting Price wars Yield management
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Introduction We need to set price when we have a

new product, or when we enter a new market with an existing product How?

Need to decide what position you want

your product to be in (see quality-price relationshipnext slide)

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Price-Quality Strategies

Philip Kotler identified 9 price-quality

strategies
High Price High Quality Premium Over Charging Rip-off Low Quality High Value Mid Value Low Price Super Value Good Value

False Economy Economy

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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

Demand Analysis Measure the impact of price change on

total revenue Predicts unit sales volume and total revenue for various price levels Different customers have different price sensitivities and needs

Impact of Cost on Pricing Strategy Fixed and variable costs

rate-of-return pricing Variable-cost pricing

Full-Cost Pricing Markup pricing, break-even pricing and

3 types of relationships

Ratio of fixed costs to variable costs Economies of scales Cost structure

Discussion: Impact of Ethics on Pricing

How should you price if your product is

a life-saving drug? What are the ethical considerations?

Customers have no choice Need to pay for the research When cheaper options doesnt work Competition decides

Information Needed for Price Change Customers ability & willingness to buy;
customer lifestyle; benefits sought; characteristics of the product e.g.

When the kopi tiams, local coffee shops in

Singapore tried to raise the price of a cup of coffee by 10 cents in March 1994, the grassroot reaction was stormy When Starbucks Coffee and Spinellis raised their prices in the beginning of 1998 by a hefty 20%, nobody raised an eyelit 10

Information Needed for Price Change (contd) Need to know everything about the
competitors

How would competitors react to our price

change? (see following slide) In obtaining competitors information, remember the value of the information

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New-Product Pricing Strategies 1. Skimming pricing

Charging a high price initially and reducing the price over time Commonly used when introducing new & innovative products in the ASPAC region Charging a low price when entering the market to capture market share Used when competitors are closing in with 12 similar or better products

1. Penetration pricing

New-Product Pricing Strategies (contd) 3. Intermediate pricing

Pricing somewhere in between the skimming strategy and the penetration strategy

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Pricing Strategies for Established Products

Three strategic alternatives: Maintain the price if you are the leader e.g.

In 1999, Shell in Singapore maintained its price when

other petrol companies engaged in a price war until towards the end of the engagement

Reduce the price e.g. Increase the price

SIA regularly reduce its airfare in anticipation of the

developing market situations

during inflation, or if demand is expected to increase or

if you wish to harvest e.g. in Indonesia
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Price-Flexibility Strategy One-price policysetting one fixed

price for all markets Flexible-price policysetting different prices in different markets based on:

Geographic Location, Time of delivery, or The complexity of the product

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How much flexibility in price?

Depends on the Demand-Cost gap and

the influence of competition, social, legal and ethical considerations Example: Life-saving drugs

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Product-Line Pricing

When pricing products in different

lines, must take cross-elasticities of demand across the set of products into consideration The idea is to maximize the profits of the entire organization rather than that of a single product or a single line
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Leasing Strategy

Leasing is more common for

industrial goods e.g.

Singapore Airlines sold many of their

aircraft and lease them back for their operations

There is a growing trend toward

leasing consumer goods as well

e.g. Leasing of office equipment

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Reactions to Price Change Customers are more sensitive to

price changes if the products cost a lot and/or are bought frequently Competitors may see each of your price change as a fresh challenge and react according to its selfinterest at the time. Need to estimate each close competitors likely reaction

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Responding to Competitors Price Change If competitors lower price for

homogenous products

Try augmenting the product If it doesnt work or if it is not likely to work,

then meet the price cut head-on

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Responding to Competitors Price Change (contd) If competitors raise price

In a homogeneous market, follow if you
think the whole market is likely to follow In a non-homogeneous market, evaluate The reason for the competitor price change If the price increase is temporary The effect on your market share & profit The likely response(s) from the other competitors 21

When a Market Leader is Being Attacked on Price

Options available:

Maintain price Raise perceived quality Match competitors price Increase price and improve quality
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Impact of Discounting on Brand Equity Why discount? Problems emerging with discounts The value equation (V=Q/P)

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Price War
Price wars are frequent in industries where Cost differentiation opportunities exists Capital is intensive and products are homogeneous Examples: Airfares, ISP, Petrol, & Loans e.g.

The Home Loan price war in Singapore in

Sept 2000 involving OUB, UOB, DBS among others

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Yield Management What is it? Yield management goals Industries that benefited from yield
management Common variables

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