How do buyers perceive and respond to pricing?
Pricing decisions can be complex and difficult, but they're also some of the most important marketing decision variables a manager faces. Companies that make profitable pricing decisions take what may be called a proactive pricing approach. By considering how pricing decisions affect the way buyers perceive prices and develop perceptions of value, these companies manage to leave less money on the table and successfully raise or reduce prices.
Eight Pricing Fallacies
Many companies continue to develop their pricing strategies and tactics naively and, consequently, don't get the results they expect. Tradition-bound solutions and outdated practices have helped perpetuate a number of pricing misconceptions that can cause problems for companies. We outline eight of the most common ones here.
1. Most companies have a serious pricing strategy based on serious pricing research. On the contrary. A recent study found that only about 8% of the companies surveyed could be classified as conducting serious pricing research to support developing an effective pricing strategy. In fact, 88% of them did little or no serious pricing research. McKinsey & Company's Pricing Benchmark Survey estimated that only about 15% of companies do serious pricing research. A 1997 Coopers & Lybrand study found that, in the previous year, 87% of the surveyed companies had changed prices. However, only 13% of the price changes came after a scheduled review of pricing strategy.
These numbers indicate that strategic pricing decisions tend to be made without an understanding of the likely buyer or competitive response. Further, it shows that managers often make tactical pricing decisions without reviewing how the...
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... or service is its price. Finally, understand that tactical pricing decisions concern the day-to-day management of the pricing process and must be made within the firm's overall pricing strategy. By mastering these three principles, management can leave behind reactive or stagnant pricing practices and fully embrace a new era of proactive pricing.
EXECUTIVE briefing
Some companies are starting to embrace a proactive pricing strategy, but many still cling to old misconceptions about markets and the entire pricing process. Understanding and overcoming the pricing fallacies that continually plague managers, the pricing process, and price perceptions among buyers requires a truly proactive pricing approach. Once managers understand these problems, they can better develop and implement a product and market strategy for the current economic and competitive environment.
Value based pricing was the pricing strategy we used to determine the current price point. Prior to our concept and design, we looked at the customers’ needs to
Their price must be one that is attainable and reasonable for the offerings. The Kotler & Keller text suggests that facilities analyze competitors and their offerings, estimate their own costs, and determine demand, in order to set the appropriate price.
A couple of Squares has a limited capacity for which to produce their products and smaller companies tend to have larger fixed costs than bigger companies. Therefore, A Couple of Squares must maximize profits in order to ensure that they will stay in business. A profit-oriented pricing objective is also useful because of A Couple of Squares’ increased sales goals. A Couple of Squares increased their sales goals due to recent financial troubles. Maximizing profits is the easiest way to meet these sales goals due to the fact that A Couple of Squares has limited production capacity. The last key consideration favors a profit-oriented pricing objective because A Couple of Squares offers a specialty product. A specialty product often has limited competition, therefore can be priced on customer value. Pricing at customer value will maximize profits as well as customer satisfaction. A Couple of Squares’ lack of production capacity, increased sales goals, and specialty product favor a profit-oriented pricing
Calculating the right price for a product can be difficult, mostly because it will affect Calibrated’s bottom line. Increasing the price of a product to maximize profit can induce several risks to a company. For example, making a change to the fixed or variable costs, the number of units sold will have an impact on the company’s profitability. Increasing the unit cost of a product and decreasing the number of units sold will have a negative impact on the
Pricing Strategy: We are going to take into consideration inflation, benchmarking and customer trade off. The pricing strategy for the new products/line extensions will be a penetration-pricing strategy to gain customers from other competitors and increase market share. Further, the volume discounts are going to be in the range of 25-40%. Taking into consideration Product lifecycle, those will be raised in the time where new products/line extension are launched.
As we learned from Chapter 12, price must be carefully determined and match with firm’s product, distribution, and communication strategies. (Hutt & Speh, 2012, p. 300) Therefore, there should be a strong market perspective in pricing. In order to build an effective pricing policy, marketers should focus on the value a customer places on a product or service. One of the most effective ways to do so is differentiating through value creation.
Atlantic Computer is a large manufacturer of servers and other high-tech products. They are known for providing premium high end servers. Atlantic Computer’s is in the process of introducing Tronn, a new basic server, which includes Performance Enhancing Server Accelerator (PESA) software. This software will allow Tronn to perform up to four times faster than its standard speed. Therefore these two new products were specifically designed to sell as a bundle or “Atlantic Bundle.” Jason Jowers, fresh off of his MBA degree is responsible for developing the pricing strategy for the “Atlantic Bundle. After much research Jowers narrowed down to four different routes on how the bundle can be priced: status quo, competitive, cost-plus, or value-in.
Setting prices too high would discourage purchasing and setting prices too low negatively affects revenue. While several pricing strategies exist, the use of a value-based pricing system, as implemented at Cabela’s, offers an optimal strategy that meet both customer expectations and company requirements.
Sheffet, Mary Jane. "The Supreme Court And Predatory Pricing." Journal Of Public Policy & Marketing 13.1 (1994): 163-167. Business Source Complete. Web. 15 Apr. 2014.
Pricing is an important aspect of every business. Chief Financial Officer’s (CFO) use pricing to create financial projections, establish a break-even point, and calculate profit and loss margins (Power Point, 2005). It is the only element in the marketing mix that produces revenue. Price is also one of the most flexible elements of the marketing mix as it can be changed very quickly. This is usually done to beat competitor prices in an attempt to fix the product’s market value position very low (Anderson & Bailey, 1998). After all, high prices make it difficult to become the market share leader. The leading US retailer, Wal-Mart, is an expert at low product pricing as evident in 2004 with $250 billion dollars in sales to their 138 million weekly shoppers. However, they are also responsible for reducing prices so low that it drives specialty stores out of business. This is the effect Wal-mart has had on many toy stores and has almost closed the doors of the famous toy store Toys “R” Us Inc.
Price strategy: This strategy includes the total costs that the audience will pay for adopting the desired behavior which will lead to potential
Suttle, R. (2013). Definition of Pricing Strategy. Retrieved November 16, 2013, from Houston Chronicle: http://smallbusiness.chron.com/definition-pricing-strategy-4686.html
When demand is elastic as with Coca Cola products price changes affect total revenue. When the price increases revenue decreases and when the price decreases revenue increases. For Coca Cola if they notice a decrease in revenue they would offer products at a discount to increase revenue. They do this quite often with sales such buy 2 20 oz. bottles for $3 instead of the normal $1.89 each price
Price is the values entirety that consumers trade for the advantages of having or utilizing the product or services. Different places and cultural have different spending culture. Therefore the price has to be relevant according to the product offer because it can reflect the image of a
Introduction In this essay I am going to analyse the workings and effectiveness of the price mechanism as a means of allocating and reallocating scarce resources. I am going to do this by comparing the free market economy with its alternatives and by looking at how government intervention allows the price mechanism to carry on working. I am also going to look at the role that we, as consumers, play in the workings of the price mechanism.