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Pricing Strategy for Business Markets

Chapter 15

The Meaning Value


The Importance of Price Customer Value

Benefits

Business customers overall assessment of the utility of a relationship with a supplier based on benefits received and sacrifices made. Core benefits Add-on Benefits

Sacrifices

Three examples

Total Cost in Use


Acquisition Possession Usage

Value-Based Strategies

Pricing Process
1.

2.

3.

4.

5.

Set Strategic Pricing Objectives Estimate Demand and Price Elasticity of Demand Determine Costs and Relationship to Volume Examine Competitors Prices and Strategies Set the Price Level

Step 1: Set Strategic Pricing Objectives

Three goals
___________________ ___________________ ___________________

Dow v. DuPont

Step 2:
Estimate Demand and Price Elasticity of Demand

What to Look At Assessing Value


Isolate important attributes and perceptions Four strategies

Step 2:
Estimate Demand and Price Elasticity of Demand

Elasticity of Demand

What does it measure? Satisfied customers= Less price sensitivity Customized solution means higher price What increases price sensitivity?

Inelastic when price comprises large part of total cost Focus on end-use Value-based segmentation

Easy to shop around Easy price comparisons Buyers can switch without extra costs

Step 3:
Determine Costs and Relationship to Volume

Target costing
What is it?

Classifying costs
Three types

Direct traceable or attributable costs


Raw materials

Indirect traceable costs


General plant overhead

General costs
Administrative costs of sales districts

Step 4:
Examine Competitors Prices and Strategies

Is price the only thing customers look at? Hypercompetitive Rivalries


Characteristics First-movers

Advantages Advantages

Followers

Pricing Products in the Life Cycle

Analyze from __________ perspective Skimming


What is it? When to use it? Time segmentation What is it? When to use it?

Penetration

Product Line Consideration Legal Considerations


Robinson-Patman Act

Responding to Price Attacks

Evaluating the Threat


Is there a response that would cost you less than the preventable sales loss?

3 ways to decrease threat

If you respond, is the competitor willing and able to lower price again to restore difference?

Why are they focusing on price?

Responding to Price Attacks


Will multiple responses that maybe required to match a competitors prices still cost less than the available sales loss?

Allow them to win? Create barriers

Is your position in other markets at risk if the competitor gains marketshare? Does the value of all the markets at risk justify the cost of the strategy response?

Look at costs and benefits

Two general rules

Competitive Bidding

Two forms
Gain understanding of prices Reverse auctions

Closed bidding Open bidding


Online open bidding

Strategies
How to gain profitability?