B2BM

Lecture – 7 and 8
Prof. Priyanka Sharma
Marketing, IIM Lucknow
Make a PPT with following slides
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Agenda is to be

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Pricing

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Pricing example
Pricing example
Optimality
Differentiating Through value-creation

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A Value-Based Approach for Pricing

Define the key market segments

Isolate the most significant drivers of value

in customers’ business

Quantify the impact of your product or service

on each value driver in customers’ business

Estimate the incremental value created by your product

or service, particularly for those features that are
unique and different from competitors’ offerings

Develop pricing strategy and marketing plan

SOURCE: Adapted from Gerald E. Smith and Thomas T. Nagle, “How Much Are Customers Willing to Pay,”
Marketing Research 14 (winter 2002): pp. 20-25.
Cost Concept Analysis

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Understanding Costs Helps to Understand Pricing

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Followers vs. Pioneers
Pricing study

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When to use Price Skimming ?

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When to use Penetration pricing ?

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When is Pricing based on competition?

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Evaluating a Competitive Threat

• When a PRICE WAR occurs, what should you do?

• Should you:
• Lower your price?
• Ignore it?
• Raise it?

• That is what a competitive threat is all about.

 Evaluating A Competitive Threat
Competitive
price or “low
cost” product
entry

If you
respond, is
Is your
Is there a response competition
No position in No Yes No
Accommodate that would cost less willing and
other Respond
or Ignore than the preventable able to
markets at
sales lost? reestablish
risk?
the price
difference?
Yes

Does the
value of the Yes
No markets at
risk justify Will the multiple responses
the cost of No required to match a
response? competitions cost less than
the preventable sales loss?
Yes Yes

Respond
Respond

Source: Figure from “How to Manage an Aggressive Competitor” by George E. Cressman, Jr. and
Thomas T. Nagle from BUSINESS HORIZONS 45 (March-April 2002): p. 25. Reprinted with permission from Elsevier.
Case