42405 - PRINCIPLES OF MARKETING: PRICING STRATEGY

Course Overview Principles of Marketing: Pricing Strategy offers the student an overview of the information required to identify the role pricing plays in the marketing mix, to select appropriate objectives for pricing strategies, and to choose common methods to determine pricing. In addition, the program details the issues to consider when establishing a pricing strategy, the legal constraints that can affect pricing decisions, and the steps of the pricing process. Learn To Identify the objectives your pricing strategy might achieve. Apply the correct terminology when developing a pricing strategy. Choose options to establish different prices for different buyers. Identify pricing strategies. Sequence the steps of the pricing process. Apply the appropriate steps of the pricing process. Audience Managers, supervisors, and executives who can influence the marketing and strategic goals of their organization. It is recommended that individuals take the first four courses in the series or have equivalent knowledge. Program Level Basic Deployment Options Self-Study Accreditation CPE credits: 2.5 CPE CEU credits: 0.30 CEUs Language Options German, Thai, French, US English Total Learning Time 2 to 4 hours Objectives Unit 1: Defining the Role of Pricing Identify the role pricing plays in the marketing mix. Identify the objectives your pricing strategy might achieve. Identify the appropriate life cycle stage and pricing strategy for a given product. Select the legal constraints that can affect your pricing decisions. Simulation Overview: In this simulation, you will meet with Bruce Madison and Elizabeth Williams to brainstorm about next year's pricing strategies for two video camera products. The purpose of the meeting is to develop initial recommendations to present to the Vice President of Marketing, Brian Smith. You will need to use your knowledge of pricing strategies and objectives to create recommendations. Unit 2: Determining Price Choose the options to establish different prices for different buyers. Utilize pricing policies to create a flexible pricing system. Identify pricing strategies. Select the common methods for determining pricing. Use the appropriate pricing formula in a given situation. Simulation Overview: In this simulation, you will meet with Paul White, Director of Sales, and Ronald Spear, Product Manager, to discuss a price for the Icon HSX-450, a top-of-the-line audio receiver. You will need to use your knowledge of pricing policies, strategies, and methods to develop a price recommendation to give to senior management. Unit 3: Establishing a Pricing Strategy Select common issues to consider when establishing a pricing strategy. Sequence the steps of the pricing process. Apply the appropriate steps of the pricing process. Simulation Overview: In this simulation, you will meet with John Cunningham and Robin Carlson, two members of the Audio Products Marketing Department, to discuss a pricing strategy for the HTX-5 speaker system. The HTX-5 has only one main competitor, the Vici Sonic System. Icon salespeople have heard rumors from their customers that Vici is considering

dropping the price on the Sonic System. During this meeting, you will need to address common issues and follow the appropriate steps for establishing the pricing process.

PRICING IN WIKIPEDIA

Pricing is one of the four p's of the marketing mix. The other three aspects are product management, promotion, and place. It is also a key variable in microeconomic price allocation theory. Pricing is the manual or automatic process of applying prices to purchase and sales orders, based on factors such as: a fixed amount, quantity break, promotion or sales campaign, specific vendor quote, price prevailing on entry, shipment or invoice date, combination of multiple orders or lines, and many others. Automated systems require more setup and maintenance but may prevent pricing errors.
Contents
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1 Questions involved in pricing 2 What a price should do 3 Definitions

4 See also
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Questions involved in pricing

Pricing involves asking questions like:

How much to charge for a product or service? This question is a typical starting point for discussions about pricing, however, a better question for a

vendor to ask is - How much do customers value the products, services, and other intangibles that the vendor provides.

What are the pricing objectives? Do we use profit maximization pricing? How to set the price?: (cost-plus pricing, demand based or value-based pricing, rate of return pricing, or competitor indexing) Should there be a single price or multiple pricing? Should prices change in various geographical areas, referred to as zone pricing? Should there be quantity discounts? What prices are competitors charging? Do you use a price skimming strategy or a penetration pricing strategy? What image do you want the price to convey? Do you use psychological pricing? How important are customer price sensitivity (e.g. "sticker shock") and elasticity issues? Can real-time pricing be used? Is price discrimination or yield management appropriate? Are there legal restrictions on retail price maintenance, price collusion, or price discrimination? Do price points already exist for the product category? How flexible can we be in pricing? : The more competitive the industry, the less flexibility we have.

The price floor is determined by production factors like costs (often only variable costs are taken into account), economies of scale, marginal cost, and degree of operating leverage

The price ceiling is determined by demand factors like price elasticity and price points Are there transfer pricing considerations? What is the chance of getting involved in a price war?

How visible should the price be? - Should the price be neutral? (ie.: not an important differentiating factor), should it be highly visible? (to help promote a low priced economy product, or to reinforce the prestige image of a quality product), or should it be hidden? (so as to allow marketers to generate interest in the product unhindered by price considerations). Are there joint product pricing considerations? What are the non-price costs of purchasing the product? (eg.: travel time to the store, wait time in the store, dissagreeable elements associated with the product purchase - dentist -> pain, fishmarket -> smells) What sort of payments should be accepted? (cash, cheque, credit card,
barter)

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What a price should do

achieve the financial goals of the firm (eg.: profitability) fit the realities of the marketplace (will customers buy at that price?)

A well chosen price should do three things :

support a product's positioning and be consistent with the other variables in the marketing mix

price is influenced by the type of distribution channel used, the type of promotions used, and the quality of the product

price will usually need to be relatively high if manufacturing is expensive, distribution is exclusive, and the product is supported by extensive advertising and promotional campaigns a low price can be a viable substitute for product quality, effective promotions, or an energetic selling effort by distributors

From the marketers point of view, an efficient price is a price that is very close to the maximum that customers are prepared to pay. In economic terms, it is a price that shifts most of the consumer surplus to the producer. [edit]

Definitions

The effective price is the price the company receives after accounting for discounts, promotions, and other incentives. Price lining is the use of a limited number of prices for all your product offerings. This is a tradition started in the old five and dime stores in which everything cost either 5 or 10 cents. Its underlying rationale is that these amounts are seen as suitable price points for a whole range of products by prospective customers. It has the advantage of ease of administering, but the disadvantage of inflexibility, particularly in times of inflation or unstable prices. A loss leader is a product that has a price set below the operating margin. This results in a loss to the enterprise on that particular item, but this is done in the hope that it will draw customers into the store and that some of those customers will buy other, higher margin items. Promotional pricing refers to an instance where pricing is the key element of the marketing mix. The price/quality relationship refers to the perception by most consumers that a relatively high price is a sign of good quality. The belief in this relationship is most important with complex products that are hard to test, and experiential products that cannot be tested until used (such as most services). The greater the uncertainty surrounding a product, the more consumers depend on the price/quality hypothesis and the more of a premium they are prepared to pay. The classic example of this is the pricing of the snack cake Twinkies, which were perceived as low quality when the price was lowered. Note, however, that excessive reliance on the price/quantity relationship by consumers may lead to the raising of prices on all products and services, even those of low quality, which in turn causes the price/quality relationship to no longer apply. Premium pricing (also called prestige pricing) is the strategy of pricing at, or near, the high end of the possible price range. People will buy a premium priced product because:

1. They believe the high price is an indication of good quality; 2. They believe it to be a sign of self worth - "They are worth it" - It authenticates their success and status - It is a signal to others that they are a member of an exclusive group; and 3. They require flawless performance in this application - The cost of product malfunction is too high to buy anything but the best - example : heart pacemaker The term Goldilocks pricing is commonly used to describe the practice of providing a "gold-plated" version of a product at a premium price in order to make the nextlower priced option look more reasonably priced; for example, encouraging customers to see business-class airline seats as good value for money by offering an even higher priced first-class option.[citation needed] Similarly, third-class railway carriages in Victorian England are said to have been built without windows, not so much to punish third-class customers (for which there was no economic incentive), as to motivate those who could afford second-class seats to pay for them instead of taking the cheaper option.[citation needed] This is also known as a potential result of price discrimination. The name derives from the Goldilocks story, in which Goldilocks chose neither the hottest nor the coldest porridge, but instead the one that was "just right". More technically, this form of pricing exploits the general cognitive bias of aversion to extremes. Demand-based pricing is any pricing method that uses consumer demand - based on perceived value - as the central element. These include : price skimming, price discrimination and yield management, price points, psychological pricing, bundle pricing, penetration pricing, price lining, value-based pricing, geo and premium pricing.

PRICING STRATEGY; PRICING STRATEGIES

4/24/2007 12:34:04 AM

Without question, this is an incredible and powerful marketing tool. I regard this as a true breakthrough that will forever change the competitive landscape both on and off the Internet. Alex Mandossian, Managing Director Heritage House Worldwide, Inc. Pricing Strategy; Pricing Strategies Software is a solution to a nagging problem all businesses are plagued with ... how to properly price your product for optimal return. It is incredibly fast, ingenious and accurate. Craig Hane - TWI, Inc. Knowing the exact right price you should charge means the difference between financial losses, mediocre sales, or huge increases in revenue. Internet Research data shows that charging the wrong price online can easily drop total revenues by 50%, or more, and cause e-commerce failures. Pricing Strategy; Pricing Strategies defined: The reason why so many products fail or produce such poor returns online and offline is because business owners, corporations and marketers do not know the exact right price to charge before a launch, after a launch, or what to change the price to years later when there are many new competitors and the competition is stiff. Harness the strategic power of picking the exact price right now. With Pricing Strategy; Pricing Strategies Software, you will be able to determine the exact right prices that generate the most revenues, or the greatest number of customers. How many sales do you think you have lost because Internet and offline shoppers have price expectations that are dramatically different than what you are charging? How do you find out the exact price Internet prospects were willing to pay just before they decided to click past you to another site that met their expectations? What net-shoppers expect to pay for your product or service when buying online is one of the most critical success issues facing ebusinesses and entrepreneurs. Internet pricing research shows that net-shoppers generally expect at least a 10% to 20% discount for buying your product or service on the Internet. Expected discounts for information products are even higher, ranging from 10% to 100% of the conventional offline retail price depending on the topic and type of information. Additionally, research shows that charging the wrong

price online can easily drop total revenues by 50% or more, and cause e-commerce failures. Down deep you know that a perfect website with perfect copy, and the wrong price will produce dismal sales. Just think about how price intensively you shop on the Internet. Isn't finding the best price one of your main objectives when surfing? Isn't finding the best price one of the main benefits net-shoppers are looking for? If you are ignoring their price expectations, they are ignoring your product or service offering. Dramatic profit increases are achieved by those who use Pricing Strategy; Pricing Strategies Software. A national direct marketing company and publisher recently achieved a 43.6% increase in profits by optimizing his price to his target market. As this case history points out, the old conventional price testing method he was using robbed him of tens of thousands of dollars. In 1998, he did a conventional three-way price test and based on his results, was sure he had the winning price. His conventional price strategies test yielded the following results: Prices tested conventionally: $29 $59 $100 Sales generated: $1,160 $767 $400 Number of orders: 40 13 4 Gross Profit after Cost of Goods of $16: $520 $559 $336 One year later, a price test using Pricing Strategy; Pricing Strategies Software showed that the exact best price (accurate to within one dollar) was none of the above. The actual price that generated the highest revenue was $30 more ($89) and a surprised client generated 43.6% more gross profit than at the old $59 price as seen below: His old price: Pricing Strategy; Pricing Strategies Software Price: Before & After Prices: $59 $89 Sales generated: $767 $979 Number of orders: 13 11 Gross Profit after Cost of Goods of $16: $559 $803 A profit increase of $244, or 43.6%. Getting a sale Online or Offline is about pricing strategies... setting the exact, right price that matches your market's willingness and ability to spend.

Let's face it, most people you know are dismally disappointed with Internet revenues. Most honest website owners will privately tell you that the net has simply been a deep black hole that they have been dumping their money into. Even Amazon.com with all their deep discounts, has not made a dime. If you were trying to support your family with Amazons profits, you would be living in a cold dark alley. They can afford to run at a loss in order to capture the market after all they can use venture capital and investor's money; you cant. Learning the exact right price to charge that matches your market's willingness to spend will be the most important offline and online strategy that you will ever implement. Pricing Strategy; Pricing Strategies Software is not just an exact pricing strategy process that tells you your increase or decrease in revenues for every dollar your price changes, but it is also an easy to use pricing strategy software application and process and comes with an incredible two tape audio set. The first tape is a seminar-on-tape and workbook on: "Strategic Online, and Offline Pricing: How To Determine The Exact Price That Will Generate The Most Buyers or Revenue." Your second tape comes with documentation and walks you through how to Use Pricing Strategy; Pricing Strategies Software and think like a strategic pricing expert. With Pricing Strategy; Pricing Strategies Software, not only will you be able to price accurately, but 1. Offline, you will be able to test faster and at a fraction of the cost. 2. Price testing using the Pricing Strategy; Pricing Strategies Software process will cost you 88% to 90% less than conventional methods. 3. You will be able to pin-point exactly what will happen to your total sales volume at each different price you might charge within $1 increments if you desire. 4. If you want to conduct your price test using the Internet, you can do it for free,and have your answers and complete pricing study results in 48 hours. 5. You can use it with your favorite brand of computer: Macintosh or PC Versions of Pricing Strategy; Pricing Strategies Software are available. (Requires Microsoft Excel) Three pricing strategy questions you should ask yourself, and know

the answers to: Question #1: How much revenue have I lost on my existing products, services, and new product launches during the past year because my pricing was totally wrong, or not optimized for maximum revenue generation? Question #2: How much is the investment to have my own copy of Pricing Strategy; Pricing Strategies Software? In all likely-hood, you will receive a multiple return on your investment the very first time you use it. Question #3: What is my downside risk if I buy a copy of Pricing Strategy; Pricing Strategies Software? Answer Zero. Pricing Strategy; Pricing Strategies Software comes with a 100% money back guarantee for a whole year. If you are even mildly dissatisfied with your breakthrough results, simply call our special no questions asked number at 1-405-842-0163. You will receive a full refund. Another super-powerful benefit when you use Pricing Strategy; Pricing Strategies Software You will learn, by using one special rating-question, who will buy your product or service after you finish your price test. Simply remail these specially coded prospects with your offer and your exact right price ... and you will make enough sales to pay for your entire test and maybe even have leftover profits! As many of you know, we have generated 2 billion dollars in Joint Venture Sales and Product Revenues in the last 13 years. Having been involved in these successes, I can emphatically say that Pricing Strategy; Pricing Strategies Software has been one of the single most important tools behind our successes. For one of our joint ventures, it was the single, most important driving reason why they went from near bankruptcy to number 1 in their market niche. I truly believe that Pricing Strategy; Pricing Strategies Software can empower you more than anything youve ever done, and as you will learn in our audio tape course (that comes with Pricing Strategy; Pricing Strategies Software) it can be the basis for developing competitive strategies that will demolish the competition. See the attached brochure about Pricing Strategy; Pricing Strategies Software so you can see how powerful and easy it is to use first hand. Wishing you every success,

Tim Cohn President Advanced Marketing Consultants, Inc. Imagine what would happen if you knew the exact right price to charge for a product or service ... and by knowing this information you could choose the one price that would generate thousands of dollars of increased revenues, or have the ability to choose the one price that would generate less revenue but thousands of additional customers. This incredible price modelling process will pin point what happens to your sales volume in relationship to the different prices you could charge, and it will also allow you to project buying interest for different markets or lists that you test. It is called Pricing Strategy; Pricing Strategies Software, and it's aneasy-to use process that only requires sending out as few as 500 test questionnaires to your prospects offline and sometimes as few as 100 online. The questionnaire has only 5 questions that prospects are asked, and once you enter the answers from only 40 to 60 people into the Pricing Strategy; Pricing Strategies Software spreadsheet ... it automatically generates and prints all the strategic pricing information and charts needed to make dramatic profit increasing changes. The first chart produced by Pricing Strategy; Pricing Strategies Software tells you the critical high-low resistance price range. Prices higher or lower than the range result in significant drops in gross revenues. The chart (to the right) shows the min-max range for a software product. At less than $1,900 prospects doubted its quality, and at over $2,900 they considered it too expensive. An introductory pricing strategy was adopted at $2,000 to gain initial users. The price was then moved up to $2,900 during the campaign. This resulted in $870,000 in sales during a nine month period and number one position in the market niche. The Secret To Doubling Your Sales Revenue or Number of Customers The second critical chart generated by Pricing Strategy; Pricing Strategies Software will show you the gross revenue differential that occurs due to every increase in price. The price curve below for a "How-To-Manual" shows that at $29.99, maximum revenues of

$1,500 (A) will be generated. At $35.99, just $6.00 more (B), gross revenues experience a drop to $820. Knowing that total revenue will drop 55% when charging $35.99 empowers you to maximize gross profits for all your products or services. The price drop differential of 55%, extended over a large campaign would mean earning only $82,000 instead of a possible $150,000. Lack of precise pricing information from one's market is one of the key reasons why business owner's fail to make adequate profits. Maximizing profits allows you to generate healthy cash flows resulting in the capability to self fund future corporate growth. Along with this chart, Pricing Strategy; Pricing Strategies Software generates the chart (to the left) which tells you the exact price points for the previous chart, and the percentage of prospects still willing to buy at each price point. Column 3 indicates that percentage for every price point you selected. Your final chart tells you the buying and non-buying interest of your market, selected market niches, or new lists that you want to test. This information will allow you to make "go, no-go" decisions before you ever invest a dime in developing a product, and know for sure exactly what the buying interest level is as a percent of the total prospect market. Knowing this valuable information for your product or service can make an enormous difference in your gross profits. Pricing Strategy; Pricing Strategies Software is probably the single most important marketing tool on the market today. With it, you can see exactly what price will dramatically increase your profits and customers. And, Pricing Strategy; Pricing Strategies Software comes as a complete package with a 1 hour Audio-Tape-Seminar and Workbook entitled: "The Strategic Online & Offline Pricing Seminar". This tape will not only teach you pricing, but also how to strategically change prices as a product or service moves through its maturity curve. Tape two with its manual, will show you how quick and easy it is to use Pricing Strategy; Pricing Strategies Software. More importantly, we discuss how to use your charts to become a strategic pricing expert. We also discuss high power marketing strategies that are possible as a result of the information on your price charts.

STRATEGIC PRICING
Creatinga PricingStrategyfor IncreasedProfits Are you searching for ways to improve your profit margin? Is it time to increase prices? How do you avoid or minimize a price squeeze? Attend this executive level course to develop or improve your organization's pricing strategy. You'll learn to assess your pricing opportunities; utilize tools to measure value; understand the implications of product and market life cycles; and determine when and how to increase price or stem price erosion. In two days, you will have new ideas and tools that you can immediately apply to your business. Majortopicscoveredinclude: Understanding how costs, competition, and customer values influence the price you choose Determining how customer values drive segmentation decisions, which in turn affect the benefits they seek and the price they are willing to pay Using tools to conduct break-even analysis, measuring price elasticity, and evaluating features/price trade-offs through relationship analysis Identifying lifecycles to establish prices for current and future market conditions Deciding when and how to raise prices Addressing price erosion situations

Strategic Pricing will help you determinethe appropriatepriceto capturethe valueyou provideto your customers. You and other executives will be immersed in a learning environment that integrates fast-paced lectures, intensive group discussion, and application workshops to solve real business issues. You will leave with tools you can immediately use to improve your company's performance. This course is well-suited for team learning and decision making. Bring your core management team to complete your strategic pricing plan and gain a shared understanding of the strategic implications of your pricing options. StrategicPricing:The Importanceof a ValueBasedApproach Linking pricing to strategy and the significance of segmentation The 3C's of pricingcustomer value, competitors' prices, and your costs Creating a framework to evaluate where to set price: based on customer value, costs, the differential advantage (competitors), and the companys strategic objectives

ImprovingPricingDecisions:WhyYouMustRelateBenefitsand CustomerValueto Price

Measuring customer valuetools that rely on managerial judgment and formal market research Distinguishing between attributes, benefits, and values for effective pricing Segmenting based on customer dimensionthe foundation for effective pricing

UsingToolsto MeasureValue Conducting a perceived value analysis Evaluating the perceived value map to develop strategic pricing options Measuring price elasticity Conducting a break-even analysis Performing trade-off analysis Conducting a pricing study with market research tools

PricingThroughthe Productor ServiceLife Cycle Determining your position on the product or technology life cycle Pricing new technologies and new product introductions Pricing during competitive turbulence Pricing for mature markets

IncreasingPrices Assessing your leadership in the market Understanding the link between pricing, strategy, and segmentation Determining pricing latitude relative to elasticity Evaluating other pricing influences

StemmingPriceErosion:Howto Evaluatea PricingProblem Evaluating your differentiation Assessing the impact of branding and loyalty Identifying switching costs Determining if you have a pricing problem

IntegratingStrategicPricingInto YourCorporateEnvironment Creating a culture for effective pricing Linking pricing to your corporate objectives

PricingWorkshop The application workshop helps you to: measure customer values, segment based on these values, determine the best price, and assess price sensitivity. Participants will determine: What customers value versus the features and benefits we provide How customers perceive value How our offer compares with those of competitors What strategic pricing options they may consider

PRICING BY MARKETING TEACHER

There are many ways to price a product. Let's have a look at some of them and try to understand the best policy/strategy in various situations. See also eMarketing Price.

Premium Pricing.

Use a high price where there is a uniqueness about the product or service. This approach is used where a a

substantial competitive advantage exists. Such high prices are charge for luxuries such as Cunard Cruises, Savoy Hotel rooms, and Concorde flights.

Penetration Pricing.

The price charged for products and services is set artificially low in order to gain market share. Once this is achieved, the price is increased. This approach was used by France Telecom in order to

Economy Pricing.

This is a no frills low price. The cost of marketing and manufacture are kept at a minimum. Supermarkets often have economy brands for soups, spaghetti, etc.

Price Skimming.

Charge a high price because you have a substantial competitive advantage. However, the advantage is not sustainable. The high price tends to attract new competitors into the market, and the price inevitably falls due to increased supply. Manufacturers of digital watches used a skimming approach in the 1970s. Once other manufacturers were tempted into the market and the watches were produced at a lower unit cost, other marketing strategies and pricing approaches are implemented. Premium pricing, penetration pricing, economy pricing, and price skimming are the four main pricing policies/strategies. They form the bases for the exercise. However there are other important approaches to pricing.

Psychological Pricing.

This approach is used when the marketer wants the consumer to respond on an emotional, rather than rational basis. For example 'price point perspective' 99 cents not one dollar.

Product Line Pricing.

Where there is a range of product or services the pricing reflect the benefits of parts of the range. For example car washes. Basic wash could be $2, wash and wax $4, and the whole package $6.

Optional Product Pricing.

Companies will attempt to increase the amount customer spend once they start to buy. Optional 'extras' increase the overall price of the product or service. For example airlines will charge for optional extras such as guaranteeing a window

seat or reserving a row of seats next to each other.

Captive Product Pricing

Where products have complements, companies will charge a premium price where the consumer is captured. For example a razor manufacturer will charge a low price and recoup its margin (and more) from the sale of the only design of blades which fit the razor.

Product Bundle Pricing.

Here sellers combine several products in the same package. This also serves to move old stock. Videos and CDs are often sold using the bundle approach.

Promotional Pricing.

Pricing to promote a product is a very common application. There are many examples of promotional pricing including approaches such as BOGOF (Buy One Get One Free).

Geographical Pricing.

Geographical pricing is evident where there are variations in price in different parts of the world. For example rarity value, or where shipping costs increase price.

Value Pricing.

This approach is used where external factors such as recession or increased competition force companies to provide 'value' products and services to retain sales e.g. value meals at McDonalds.