Pricing - @@ Home - KKU Web Hosting

Pricing - @@ Home - KKU Web Hosting

Pricing What Is a Price? The amount of money charged for a product or service, or the sum of the values that custo mers exchange for the benefits of having or us ing the product or service. Pricing: the only part of the marketing mix that is revenue generating, all the others are c osts. FACTORS TO CONSIDER WHEN

SETTING PRICES CUSTOMER PERCEPTIONS OF VALUE Considerations in Setting Price Other Other internal internal & & external external considerations

considerations Customer Customer perception perception of of value value Price ceiling No demand above this price

---------------------------------------------------------------------------------------------------- Marketing Marketing strategy, strategy, objectives, objectives, and and mix mix Nature

Nature of of the the market market and and demand demand Competitors Competitors strategies strategies and and

prices prices Product Product costs costs Price floor No profits below this price

Value-Based Pricing Versus Based Pricing Cost- Cost-based pricing Not that good way

Design a good product Determine product costs Set price based on cost Convince buyers of products

value Setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk. Value-based pricing Good pricing starts with customer

Assess customer needs & value perceptions Set target price to match customer perceived value Determine costs that can be

incurred Setting price based on buyers perceptions of value rather than on sellers cost. Design product to deliver desired value at target price GOOD VALUE = LOW PRICE ?

Value-based Pricing 2 types of value-based pricing: Good value pricing Offering just the right combination of quality and good service at a fair price to match with changing economic c onditions and consumer price perception. Value-added pricing Attaching value-added features and services to differentiate a companys offer and charging higher price s to increase companys pricing power.

Type of good-value pricing in the retail level Everyday Low Pricing (EDLP) involves charging a constant, everyday low price with few or no temporary price discounts. High-low pricing involves charging higher prices on an everyday basis but running frequ ent promotions to lower prices temporarily on selected items.

COMPANY & PRODUCT COSTS Company & Product Costs Types of Costs Fixed costs (overhead) Costs that do not vary with production or sales level e.g. each months bills for rent, interest, employee salaries. Variable costs Costs that vary directly with the level of production e.g. raw materials are needed in production process. Total costs = Fixed costs + Variable costs The sum of the fixed and variable costs for any given level of production.

Pricing Method Cost-plus pricing Adding a standard markup to the cost of the product. Cost-plus pricing (Markup Pricing) Suppose a toaster manufacturer had the following costs and expected sales: Variable cost $10

Fixed costs $300,000 Expected unit sales 50,000 Unit Cost Then the manufacturers cost per toaster is given by the following: Unit cost costs = Variable Cost Fixed

+ Unit Sales Unit Cost Then the manufacturers cost per toaster is given by the following: Unit cost costs = Variable Cost Fixed +

Unit Sales = $10 + = $16 $300,000 50,000 Markup Price Suppose the manufacturer wants to earn a 20% markup on sales. The manufacturers markup price is

given by the following: Markup Price = Unit Cost (1 Desired Return on Sales) Markup Price Suppose the manufacturer wants to earn a 20% markup on sales. The manufacturers markup price is given by the follo wing: Markup Price = Unit Cost

(1 Desired Return on Sales) = $16 (1 - 0.2) = $20 The manufacturer would charge dealers $20 per toaster and make profit of $4 ($20 - $16) per unit. Pricing Method (cont)

Break-Even Pricing (Target Profit Pricing) Setting price to break even on the costs of making and marketing product, or setting pric e to make a target profit. (No pai n, no gain) Break-Even Volume = Fixed Cost Price Variable Cost

Break-Even Volume Break-Even Volume = Fixed Cost Price Variable Cost = $300,000 $20-$10 = 30,000 If the company wants to make a target profit, it must s ell more than 30,000 units at $20 each.

In-class Assignment (pair work) You are opening a Chicken Rice Restaurant Unit sales 6,000 serves/month Price (per serve) Bht 20 Raw materials cost

Bht 6,000/1,000 serves Costs (per month) Renting Bht 5,000 Tables + Chairs + Utensils Bht 500 Waiter wages Bht 4,500 Calculate *Suppose you open restaurant everyday (30 days a month) Total cost (per month) Profit (per month)

Break even volume (per month) Fixed Cost Price Variable Cost If theres a new location has cheaper renting (Bht 2,000 per month) but can sell only 100 serves a day, is it worth enough to move to this new location compare to the cur rent one? Total Costs (TC) = TFC + TVC TFC = Renting+Equipments+Wages = 5,000 +

500+ 4,500 = Bht 10,000 ----- 1 VC = Raw materials = 6,000/1,000 = Bht 6 TVC = 6,000*6 = Bht 36,000 ----- 2 TC = 10,000 + 36,000 = Bht 46,000 ----- 3 Profit = Total Sales Total Costs Total Sales = Unit Sales*Price = 6,000*20 = Bht 120,000 ---- 4 Profits = 120,000 46,000 = Bht 74,000 Break-Even Volume =

Fixed Cost Price Variable Cost = 10,000/ (20-6) = 714.29 = 715 serves New Location New Renting = Bht 2,000 (currently is Bht 5,000) New TFC = 2,000 + 500 + 4,500 = Bht 7,000 New Unit Sales = 100 serves a day

= 100*30 = 3,000 serves a months New TVC = Unit Sales*VC = 3,000*6 = Bhts 18,000 New Total Sales = Unit Sales*Price = 3,000*20 = Bht 60,000 ---- 1 New TC = New TFC + New TVC = 7,000 + 18,000 = Bhts 25,000 ---- 2 New profit = 1 2 = 60,000 -25,000 = Bht 35,000 Pricing Strategies

New-Product Marketing Strategies The major strategies for pricing imitative and new products. Market-Skimming Pricing Market-Penetration Pricing Market-Skimming Pricing Setting a high price for a new product to skim maximum revenues layer by layer from the se gments willing to pay the high price; the comp any makes fewer but more profitable sales.

Sony HDTV New movie or audio CD Christian Louboutin Spring/Summer 2011 Market-Penetration Pricing Setting a low price for a new product in order to attract a large number of buyers and a large

market share quickly and deeply. BTS sky train in BKK Dell selling high-quality computer products through lower-cost direct channels once it entered the PC market. Product Mix Pricing Strategies

How companies find a set of prices that maximizes the profits from the total product mix. 1. Product Line Pricing 2. Optional-Product Pricing 3. Captive-Product Pricing 4. By-Product Pricing 5. Product Bundle Pricing 1.Product Line Pricing Setting the price steps between various products in a product line based on cost differ

ences between the products, customer evalua tions of different features, and competitors pr ices. 2.Optional-Product Pricing The pricing of optional or accessory products along with a main product. When you order a new PC, you can select your own hard drives, software options, service plans, and carrying cases.

3.Captive-Product Pricing Setting a price for products that must be used along with a main product, such as blades for razor and S D card for a digital camera. + + 4.By-Product Pricing Setting a price for by-products in order to make the main products price more competiti

ve. MeadWestvaco, papermaker company, turned what was once considered chemical waste of wood-processing activities into profit-making products in paving industry. 5.Product Bundle Pricing Combining several products and offering the bundle at a reduced price. Burger King Whopper Combo

Price-Adjustment Strategies How companies adjust their prices to take into account different types of customers and situations. 1. 2. 3. 4. 5. 6. 7.

Discount and Allowance Pricing Segmented Pricing Psychological Pricing Promotional Pricing Geographical Pricing Dynamic Pricing International Pricing 1.Discount and Allowance Pricing Discount: a straight reduction in price on

purchases during a stated period of time. Forms of Discounts Cash discount: a price reduction to buyers who pay their bills promptly Quantity discount: a price reduction to buyers who buy large volumes Functional discount (trade discount): is offered by the seller to trade-channel members who perform certain functions, such as selling, storing, and record keeping Seasonal discount: a price reduction to buyers who

buy merchandise or services out of season Samples of Discounts Cash discount: 2/10, net 30 means the payment is due within 30 days, the buyer can deduct 2% if t he bill is paid within 10 days. Quantity discount: if you buy Bht 50,000-100,000, youll get 1% off. Bht 100,001-200,000 => 2% off. Functional discount (trade discount): producer give 10% discount to wholesalers. Then, wholesalers give 5% discount to retailers.

Seasonal discount: the beach hotels give 50% discount for customers who reserve the room on Mon-Thurs. 1.Discount and Allowance Pricing Allowance: promotional money paid by manufacturers to retailers in return for an agre ement to feature the manufacturers products in some way. Sample of Promotional Allowance ThaiNamThip Company give a financial

support of publishing Carrefours brochure to i ts customer & give 10% discount for 1,000 box es of Coca Cola to use for discount promotion at Carrefour. 2.Segmented Pricing Selling a product or service at 2 or more prices, where the difference in prices is not based on differences in costs but on differenc es in customers, products, or locations.

Bus charges lower for students and senior citizens 5-ounce aerosol can = $11.39 1 liter bottle = $1.59 3.Psychological Pricing

A pricing approach that considers the psychology of prices and not simply the economics; the price is used to say something about the product. Smirnoff BEFORE Wolfschmidt AFTER ($1 higher)

Smirnoff Relska (Same price) Popov ($1 cheaper) ($1 cheaper) Reference prices: price that buyers carry in

their minds and refer to when they look at a gi ven product Sales sign Now 2 for only! Price ending in 9 4.Promotional Pricing Temporarily pricing products below the list price, and sometimes even below cost, to incr ease short-run sales. 5.Geographical Pricing

Setting prices for customers located in different parts of the country or world. FOB-origin pricing: customers pays the freight from the factory to the destination Uniform-delivered pricing: company charges the same price plus freight to all customers Zone pricing: customers in different zones pay for different prices Basing-point pricing: sellers selects some city as a basing point & charges all customers the freight cost from that city to the custo mer Freight-absorption pricing: sellers absorbs all or part of the

freight charges in order to get the desired business 6.Dynamic Pricing Adjusting prices continually to meet the characteristics and needs of individual custom ers and situations. 7.International Pricing Adjusting prices for international markets to reflect local market conditions and cost consi derations depending on economic conditions,

competitive situations, law & regulations, and development of the wholesaling & retailing sys tem. $140 in Milan, Italy $240 in Brazil

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