Pricing Strategies for the Asia Pacific

AsiaAsia-Pacific Marketing Federation Certified Professional Marketer

Copyright Marketing Institute of Singapore
1

Outline  Introduction  Pricing strategies and process  Reactions to price changes  Impact on discounting  Price wars  Yield management
2

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 qualityrelationship next slide)

PricePrice-Quality Strategies

 Philip Kotler identified 9 price-quality pricestrategies

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

False Economy Economy

4

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
5

Possible Pricing Objectives  Profit objectives e.g.

 Targeted profit return

 Volume objectives e.g.

 Dollar or unit sales growth  Market share growth

 Other objectives e.g.

 Match competitors price  Non-price competition Non6

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

 Full-Cost Pricing FullMarkup pricing, break-even pricing and breakrate-ofrate-of-return pricing  Variable-cost pricing Variable-

 3 types of relationships
 Ratio of fixed costs to variable costs  Economies of scales  Cost structure
8

Discussion: Impact of Ethics on Pricing

 How should you price if your product is

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

 Customers have no choice  Need to pay for the research  When cheaper options doesn t work  Competition decides
9

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 tiams,

Singapore tried to raise the price of a cup of coffee by 10 cents in March 1994, the grassgrassroot reaction was stormy  When Starbucks Coffee and Spinelli s 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

11

NewNew-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

2. Penetration pricing

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


Pricing somewhere in between the skimming strategy and the penetration strategy

13

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.

 SIA regularly reduce its airfare in anticipation of the
developing market situations

 Increase the price

 during inflation, or if demand is expected to increase
or if you wish to harvest e.g. in Indonesia
14

PricePrice-Flexibility Strategy  One-price policy Onesetting one fixed price for all markets  Flexible-price policy setting different Flexibleprices in different markets based on:

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

15

How much flexibility in price?

 Depends on the Demand-Cost gap and Demandthe influence of competition, social, legal and ethical considerations  Example: Life-saving drugs Life-

16

ProductProduct-Line Pricing

 When pricing products in different

lines, must take cross-elasticities of crossdemand 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
17

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

18

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 self-interest at selfthe time. Need to estimate each close competitor s likely reaction
19

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 doesn

work, then meet the price cut head-on head-

20

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 nonThe 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
22

Impact of Discounting on Brand Equity  Why discount?  Problems emerging with discounts  The value equation (V=Q/P)

23

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

 The Home Loan price war in Singapore in

Sept 2000 involving OUB, UOB, DBS among others

24

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

25