Pricing Strategies For Market Leaders

11 Key excerpts on "Pricing Strategies For Market Leaders"

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  eBook - ePub

  Pricing Done Right

  The Pricing Framework Proven Successful by the World's Most Profitable Companies

  • Tim J. Smith(Author)
  • 2016(Publication Date)
  • Wiley

    (Publisher)

  CHAPTER 4 Pricing Strategy

  There are four pricing decisions that senior executives face in the strategic pricing area. These strategic pricing decisions require executive attention because, as an input, the actual pricing strategies chosen need to be aligned with the chosen business strategy to exploit or enable the development of the firm’s relative competitive advantage, and, as an output, the information gathered in developing these pricing strategies informs the range of business strategies that may be successful.

  These four pricing strategy issues are:

  1. Price positioning
  2. Price segmentation
  3. Competitive price reaction strategy
  4. Pricing capability

  Each of these strategic pricing decisions is directly dependent on and influences the firm’s business strategy including the customers it serves, its competitive engagement, and its company strength. As such, they deserve senior executive—if not boardroom—attention and should engage the entire executive suite. Rather than having pricing reactions drive their business, leading firms are using their business strategy to proactively drive their pricing strategy.

  Price positioning directly reflects the firm’s customer acquisition strategy in light of its competitive and company strategy. Price segmentation drills down into the firm’s customer strategy while also reflecting its corporate capabilities. Competitive price reaction strategy is a direct consequence of the firm’s competitive strengths. And pricing capabilities and their development are a direct consequence of the firm’s company strategy aligned to all other strategic business issues.

  There are many other pricing questions of merit, such as the specific prices to put on specific offers or the pricing of specific transactions. These managerial pricing decisions are extremely important, but they should be made to align with the above pricing strategy decisions rather than having a pricing strategy that is determined by individual managerial pricing decisions made on a daily ad hoc basis.

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  Strategic Marketing Management in Asia

  Case Studies and Lessons across Industries

  • Syed Saad Andaleeb, Khalid Hasan(Authors)
  • 2016(Publication Date)
  • Emerald Group Publishing Limited

    (Publisher)

  If this were to happen, how many customers would HCL ’ s offering have? Probably not too many. Successful tapping of high-volume markets requires that marketers adopt innovative pricing strategies to suit local conditions, as opposed to a global pricing strategy that many marketers seem to be adopting today. What do you think? Have you seen other successful examples of different pricing strategies for different markets? Source : Business Week b b. http://www.bloomberg.com/bw/stories/2008-01-22/a-pricing-strategy-for-the-indian-marketbusinessweek-business-news-stock-market-and-financial-advice Pricing Strategy 391 Steps in Pricing Pricing procedure is the actual activity or process of deciding the price using one or many combinations of methods. The usual steps involved are as below: • The target customer segments have to be identified first and their profiles prepared. • The company has to decide the market position and price image for its brand. • Price elasticity of demand of the product is to be assessed along with the extent of price sensitivity of the target custo-mer groups. • The product ’ s life cycle is to be considered. • Competitor ’ s prices are to be analyzed. • The pricing method to be adopted is to be chosen considering all the above factors. • The final price is determined. • The price, pricing method, and the pricing procedure are to be reviewed periodically. Sony ’ s Unilateral Pricing When a company ’ s sales aren ’ t quite as high as originally projected, there are a few routes that the company can take to boost profits. Unilateral price fixing is one such route. While this type of price fixing isn ’ t unheard of, it ’ s risky none-theless. Recently, Sony announced that the company would be fixing prices across the board, and it looks like Sony has already put this plan into action.

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  eBook - ePub

  Management of Marketing

  • Paul Reynolds, Geoff Lancaster(Authors)
  • 2005(Publication Date)
  • Routledge

    (Publisher)

  Marketing management should devise a pricing strategy that is compatible with strategies attached to other elements of the marketing mix. It is not always possible to set a price and apply this rigidly to all customers in all market situations. A pricing strategy denotes how a company will price its products at particular periods of time or particular market conditions. Demand-orientated pricing sets a base price that the company must endeavour to achieve, but it assumes that price be modified in line with changes in demand. Manufacturers must realise that customers are not the same. Some will purchase greater quantities than others, or be situated in areas that are more costly to reach.

  If a target-return-on-investment price is set, this may only be appropriate during the maturity stage of the product life cycle that was explained in the last chapter. During introduction or growth, it is often necessary to employ a pricing strategy that will enable the target return to be achieved over the long term.

  A company’s ability and willingness to formulate pricing strategies is a reflection of its willingness to adapt and modify price according to the needs of customers and market conditions.

  7.6.1 Discounting

  The discount structure a company employs is a major element of pricing strategy and an indicator of the firm’s flexibility. If customers buy products in large quantities, they may reasonably expect to be charged a lower price than that charged to smaller purchasers. The seller may also offer discounts voluntarily in order to encourage large orders that facilitate economies of scale and assist effective production planning. Such quantity-related discounts can refer to individual orders or be based on an estimated off-take that is planned over a given period. In certain markets, price discounting is important. Day and Ryans (1988 ) say that if used with imagination and creativity they can provide a firm with a strong competitive advantage.

  Manufacturers can offer discounts to encourage sales of a new product or accelerate demand for a product whose stocks are high, owing to seasonal or cyclical demand variations. In the production context, it is desirable that a constant rate of output is maintained. If market conditions are not conducive to this, a price modification by means of discounting might encourage sales sufficiently to counteract variations in levels of demand.

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  Wiley Pathways Small Business Management

  • Richard M. Hodgetts, Donald F. Kuratko, Margaret Burlingame, Don Gulbrandsen(Authors)
  • 2015(Publication Date)
  • Wiley

    (Publisher)

  Discount A reduction in the list price of a product or service. Geographic pricing A pricing strategy whereby a company charges customers based on where they live. Leader pricing The marking down of a popular product in order to attract more customers. Market A group of consumers who behave in a similar way. Marketing The process of promoting and selling products or services. Market niche A focused, targetable segment of the market; for a small business, a group of potential customers. Marketing research A systematic study of the factors that affect a business’s sales for the purpose of increasing profit. Monopolistic competition A market with many firms, each producing a small share of the output demanded. Monopoly A market with only one seller or producer and no substitutes for its products or services. 304 UNDERSTANDING MARKETS AND PRICING Odd pricing A pricing strategy of setting a price just below a round number, such as 99 cents rather than $1. Oligopoly A market where a few dominant firms account for most of the industry sales. Penetration pricing A strategy of using a low price that is competi- tive and designed both to stimulate demand and to discourage competition. Price lining The process of offering merchandise in several different price ranges. Primary research The collection of information previously unavailable. Pure competition A market with many independent sellers, each offering standardized products in the same basic way; the products are virtually identical, and buyers are indifferent as to which they purchase. Relevant price range The price that is neither above what current customers will pay nor below these levels; also, the price range that is not below the level where the business owner can sell at a profit. Return on investment control The process of reviewing product lines’ rev- enues and costs and keeping only those lines that deliver a reasonable return on investment.

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  Contemporary Business

  • Louis E. Boone, David L. Kurtz, Brahm Canzer(Authors)
  • 2021(Publication Date)
  • Wiley

    (Publisher)

  A skimming strategy can help marketers set a price that distinguishes a company’s high-end product from those of competitors. It can also help a company recover its product development costs before competitors enter the field. This is often the case with prescription drugs. Penetration Pricing By contrast, a penetration pricing strategy sets a low price as a major marketing weapon. Businesses may price new products noticeably lower than compet- ing offerings when they enter new industries characterized by dozens of competing brands. Once the new product achieves some market recognition through consumer trial purchases stimulated by its low price, marketers may increase the price to the level of competing prod- ucts. However, stiff competition might prevent the price increase. Another type of pricing strat- egy, loss leader pricing, is an aggressive pricing strategy in which a store sells selected goods below cost with hopes of attracting customers who will make up for the losses on those prod- ucts with additional purchases of more profitable goods. Everyday Low Pricing and Discount Pricing Everyday low pricing (EDLP) is a strategy devoted to maintaining continuous low prices rather than relying on short-term price-cutting tactics such as cents-off coupons, rebates, and special sales. This strategy has been used successfully by retailers such as Walmart and Lowe’s to consistently offer low prices to consumers; manufacturers also use EDLP to set stable prices for retailers. With discount pricing, businesses hope to attract customers by dropping prices for a set period of time. Automakers usually offer consumers special discounts on most or all of their vehicles during the holiday shopping season. After the holidays, prices usually rebound. But experts warn that discounting must be done carefully, or profits can disap- pear.

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  Contemporary Business

  • Louis E. Boone, David L. Kurtz, Michael H. Khan, Brahm Canzer, Rosalie Harms, Peter Moreira(Authors)
  • 2023(Publication Date)
  • Wiley

    (Publisher)

  It can also help a firm recover its product development costs before competitors enter the field. This strategy is often used with prescription drugs. Penetration Pricing A penetration pricing strategy sets a low price as a major marketing tactic. Businesses may price new products much lower than competing products when they enter new industries that have dozens of competing brands. Once the new product achieves some market success, through purchases encouraged by its low price, marketers may increase the price to the level of competing products. But stiff competition can prevent the price increase. Another type of pricing strategy, loss leader pricing, is an aggressive pricing strategy in which a store sells selected goods below cost with hopes of attracting customers skimming pricing a strategy that sets an intentionally high price relative to the prices of competing products. penetration pricing a strategy that sets a low price as a major marketing tactic. 14.6 Pricing Strategies 423 who will make up for the losses on those products with additional purchases of more profit- able goods. Everyday Low Pricing and Discount Pricing Everyday low pricing (EDLP) is a strategy of maintaining continuous low prices instead of using short‐term price‐cutting tactics such as cents‐off coupons, rebates, and special sales. This strategy has been used suc- cessfully by retailers such as Walmart (see Figure 14.13) and GNC to consistently offer low prices to consumers; manufacturers also use EDLP to set stable prices for retailers. Businesses that use discount pricing hope to attract customers by dropping prices for a set period of time. Automakers usually offer consumers special discounts on most or all of their vehicles during the holiday shopping season. After the holidays, prices usually rise again. Experts warn that discounting must be done carefully, or profits can disappear.

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  Essentials of Marketing Management

  • Geoffrey Lancaster, Lester Massingham(Authors)
  • 2017(Publication Date)
  • Routledge

    (Publisher)

  3 We can also see that, according to the precise objectives, we might arrive at very different prices for our product and services. Where a company has multiple objectives, pricing strategies may need to consider tradeoffs between different possible price levels, such that these different objectives are met.

  In addition to these broader corporate objectives, pricing decisions must also reflect and support specific marketing strategies. In particular, pricing strategies need to be in line with market targeting and positioning strategies, which were outlined in Chapter 3 . Clearly, if a company produces a high-quality product or service aimed at the prestige end of the market it would not be sensible to set a low price even if cost efficiency allowed this. Pricing, therefore, must be consistent with the other elements of the marketing mix and the selected positioning strategy. Effectively, the selection of company and market objectives, market targets and the formulation of a positioning strategy constrain or delineate the range of pricing strategies and specific price levels.

  An example of how price must reflect and support the overall positioning strategy of the company is the price set for the Aston Martin DBS. The car is positioned at the top end of the market and with just 500 made in the UK for sales worldwide the emphasis is on exclusivity. Many people still associate Aston Martin with the character James Bond, emphasizing the racy and prestigious image intended. Prices start at £160,000.

  Demand considerations

  A key parameter affecting pricing decisions is customer based. The upper limit to the price to be charged is set by the market, unless the customer must purchase the product and we are the sole supplier. In competitive markets, demand – that is, the price customers are willing and able to pay – is a major consideration in the selection of pricing strategies and levels. It is in the analysis and interpretation of demand and demand schedules

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  Applied Marketing

  • Daniel Padgett, Andrew Loos(Authors)
  • 2023(Publication Date)
  • Wiley

    (Publisher)

  It can also be difficult for businesses to accurately estimate the cost of providing a product or service under this model, as it depends on the extent to which the agreed- upon performance or outcome is achieved. 10.3 Concept Check 1. How do pricing strategy options differ between new and existing products, and what specific strategies can be used for each scenario? 2. What is the difference between skimming and penetration pricing, and what are the conditions for using each? 3. What is the difference between cost-based and value-based pricing strategy, and what are the advan- tages and disadvantages of each? 10.4 Price-Setting Steps LEARNING OBJECTIVE List and describe the six steps used to set a price, and describe the most common adjustments to arrive at a final price. Understanding the strategy for setting price is important, but managers have to decide the specific price they will charge customers for each item. There are six steps in the price-setting process. We can use the software example from Section 10.6 to help present the sequence and outline the process in more detail (see Table 10.1). Setting a Base Price 1. Set pricing objectives. 2. Estimate demand and revenue. 3. Determine cost, volume, and profit relationship for different price points. 4. Analyze competitors’ prices, offers, and value propositions. 5. Set initial base price. 6. Adjust to set final price. The base price provides the initial price that should account for company costs, customer value perceptions, and competitive offerings. However, this price might often not be the final price a customer sees on the shelf. Managers often adjust prices to achieve specific market- ing goals. Next, we discuss some of the most common adjustments to price and their uses in practice. Listen to Author Podcast 228 CHAPTER 10 Managing Price and Customer Cost Perceptions TABLE 10.1 Steps in the Price-Setting Process (for details on calculating prices, see Section 10.6) Step Description Example 1.

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  Visionary Pricing

  Reflections and Advances in Honor of Dan Nimer

  • Gerald E. Smith, Arch G. Woodside(Authors)
  • 2012(Publication Date)
  • Emerald Group Publishing Limited

    (Publisher)

  101 Incorporating Competitive Strategy in Pricing Strategy EMERGENT PRICING STRATEGY Gerald E. Smith ABSTRACT Advances in technology, operations research, and data driven pricing and marketing are leading pricing strategy into new and untested waters toward dynamic pricing, and variable pricing strategies, which ultimately require changes in how we view pricing strategy. The dominant view of pricing strategy is that pricing goals, objectives, and strategies should be formulated a priori, and should be consistent with marketing and corpo-rate strategies deliberate pricing strategy. This chapter argues that firms need to develop new strategic pricing skills that lead to more improvisational, innovative, or adaptive pricing strategies. I call this type of price strategy-making emergent pricing strategy. Innovative pricing strategies that the organization judges, or senses to be effective, are repeated, shared, expanded, and refined into successful pricing patterns that, over time and across situations, become pricing strategy. Thus, rather than specifically designing pricing strategy to achieve a goal, here the organization acts upon a price innovation that seems to make sense for this customer, this market segment, this setting, and this situation, then interprets the outcomes, signals, and reactions that seem to flow from the pricing action, and shares and encourages adoption Visionary Pricing: Reflections and Advances in Honor of Dan Nimer Advances in Business Marketing & Purchasing, Volume 19, 103 126 Copyright r 2012 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1069-0964/doi:10.1108/S1069-0964(2012)0000019011 103 and adaption by others in the organization. Emergent pricing strategy is particularly useful in unstable, turbulent, and complex product and mar-ket environments in which price-sensitive buyers wield significant power and influence.

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  MBA Marketing

  • Malcolm McDonald, Ailsa Kolsaker(Authors)
  • 2017(Publication Date)
  • Red Globe Press

    (Publisher)

  The rationale behind each of these options can be demonstrated by the use of the experience curve concept. As we have seen, it is usually the case that penetration strategies are more appropriate where the opportunity for cost reduction is greatest – that is, rapid movement down a steeply sloping experience curve can be achieved. 208 CHAPTER 11 – PRICING STRATEGY High Low Low Opportunity for cost reduction Opportunity for value enhancement High Skimming strategy Price leadership ‘Follow my leader’ Penetration strategy Figure 11.6 Appropriate pricing strategies On the other hand, a skimming strategy is more likely to be appropriate where rapid cost reductions are unlikely – that is, the experience curve is less steep. Figure 11.7 outlines the logic of each of the four pricing options. Ultimately, however, neither a skimming nor a penetration policy will lead to a position of substantial market leadership unless the benefit price ratio is maintained at a higher level than that of the competition. The achievement of a favourite ratio is obviously not down to pricing strategy alone but can only come about through a total focus of the marketing mix on differentiation while managing the operations of the business to provide a cost advantage. RELATIONSHIP PRICING It has sometimes been suggested that we have entered the era of the ‘value-driven’ customer. This customer seeks even greater delivered benefits but at lower cost. Customers such as these can be found in every type of market, be it business-to-business or end-user. Price sensitivity seems to be as high as it has ever been, and customers are often quite willing to move from one supplier to another if the price–value equation does not appeal to them. To counteract this tendency, companies such as Procter & Gamble have developed a philosophy of value-based pricing.

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  Pricing for Profitability

  Activity-Based Pricing for Competitive Advantage

  • John L. Daly(Author)
  • 2002(Publication Date)
  • Wiley

    (Publisher)

  187. 5. Ibid. 6. Norman Schwartzkoff, Cable News Network, January 15, 1991. 7. Robin Cooper, When Lean Enterprises Collide (Boston: Harvard Business School Press, 1995), p. 14. 8. For background about the Model T and its effect on competitors, see Ed Cray, Chrome Colossus—General Motors and Its Times (New York: McGraw-Hill, 1980), pp. 195– 208. NOTES 59 60 COMPETITIVE STRATEGY AND PRICING 9. All airfares mentioned here are from www.Travelocity.com, September 23, 2000. 10. Charles Darwin, The Origin of Species (1859, reprinted by Prometheus Books, New York). 11. As quoted by Tom Peters, Lessons in Leadership Conference at Dearborn, Michigan, January 21, 1997. 12. Robin Cooper, When Lean Enterprises Collide (Boston: Harvard Business School Press, 1995). 4 UNDERSTANDING PRICING STRATEGY Smart companies that are not in a cost leadership position pursue some type of differentiation strategy. STRATEGY CONSIDERATIONS The economic laws of supply and demand would suggest that a company should charge as high a price for its products as the market will bear. This strategy might be particularly tempting when the company has a new, unique product that is avail- able from no one else. The trouble with this strategy is that in the absence of bar- riers to entry, other companies will also be motivated to enter the market, seeking to earn high profits on any product that can be produced and sold at a high pre- mium over cost. Many strategic considerations come into play in determining price. These in- clude: • Customers • Customer perceptions of value • Elasticity of demand • Cost • Cost structure • Effect of volume on cost • Expected learning curve effects • Competition • Current competition • Potential for future competition 62 UNDERSTANDING PRICING STRATEGY • Substitutes for the product • Features and usefulness of substitutes • Pricing of substitutes • Legal and ethical constraints Pricing strategies are situation specific.

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