### Part 5: Pricing Strategy

```Part Five:
Pricing Strategy
( Chapter10-Charpter11)
1
Price Defined (P.307)
• Price :The amount of money charged for a
product or service,or the sum of the values
that consumers exchange for the benefits of
having or using the product or service.
• Dynamic pricing: Charging different prices
depending on individual customers and
situations.
2
Factors affecting price decisions (P.309)
•
Internal
factors
Marketing
objectives;
Marketing
mix strategy;
Costs;
Organizational
considerations
Pricing
decision
External factors
Nature of the
market and
demand;
Competitors;
Other
environment
factors(economy,
reseller, government)
3
• Type of Cost : （P.313)
Fixed cost
Variable
cost
Total
cost
4
• Pricing in different types of markets
Monopolistic
competition
Pure competition
Pricing
Oligopolistic
competition
Pure monopoly
5
• Demand curve (P.354)
•
•
•
•
P2
P2
P1
P1
Q2 Q1
A. Inelastic demand
Q2
Q1
B. Elastic demand
6
• Price elasticity of demand (P.382)
%Change in Quantity Demanded
Price Elasticity =
of demand
%Change in price
7
General pricing approaches (P.320)
Product
Costs
Price floor
No profits below
this price
Competitors’ prices and other
Internal and external factors
Consumer
perceptions
of value
Price ceiling
No demand above
this price
8
Cost -Based Pricing（成本导向定价）
• Cost - plus pricing（成本加成定价）(P.320)
e.g:
Variable cost
\$10
Fixed cost
\$300,000
Expected unit sales 50,000
9
Fixed Costs
Unit cost = Variable Cost +
Unit Sales
300000
= \$10 +
= \$16
50000
Unit Cost
Markup Price =
\$16
=
(1-- Desired return on sales)
=\$20
1--0.2
10
Breakeven Volume Pricing (target profit pricing)
（目标利润定价）(P.321)
•
\$
• 1200
Total Revenue
• 1000
Target Profit(\$20000)
• 800
Total Cost
• 600
• 400
• 200
Fixed Cost
•
0
•
10000 20000 30000 40000 50000
Q
11
Breakeven volume and profits at different prices
•
(1)
(2)
price
Unit
demand
needed
\$14
16
18
20
22
75000
50000
37500
30000
25000
(3)
(4)
Expected
Total
unit
Revenue
demand (1)*(3)
71000
67000
60000
42000
23000
\$994000
1072000
1080000
840000
506000
(5)
Total
cost
(6)
Profit
(4)-(5)
1100000
970000
900000
720000
530000
-\$32000
102000
180000
120000
-24000
12
• Value- Based Pricing （认知价值定价）(322)
Cost based pricing
Product
Cost
Price
value
Customer
Cost
Product
Value-based pricing
Customer
Value
Price
13
Competition -Based Pricing（竞争导向定价）

Sealed-bid
pricing
Going-rate
pricing
•
BID
PROFIT
ASSUMED
•
•
•
•
•
EXPECTED
PROFIT
\$9,500
10000
10500
11000
\$ 100
600
1100
1600
81%
36%
9%
1%
\$81
216
99
16
•
14
New-product Pricing Strategies (P.333)
Market-Skimming
Pricing
1、High quality and
2、Cost is not high for
smaller volume；
3、Competitors hardly
enter the market。
Market-Penetration
Pricing
1、Market is high
price sensitive；
2、Cost is falling as
sales volume increase；
3、Low price can keep
out the competition。
15
Product-Mix Pricing Strategies
STRATEGY
Product line pricing
（系列定价）
Optional-product pricing
（附件定价）
Captive-product pricing
（诱饵定价）
By-product pricing
（副产品定价）
Product-bundle pricing
（捆绑定价）
DESCRIPTION
Setting price steps between product
line items。
Pricing optional or accessory products
sold with the main product。
Pricing products that must be used
with the main product。
Pricing low-value by-products to get
rid of them。
Pricing bundles of products sold
together。
16
STRATEGY
Discount and allowance
pricing
Segmented pricing
Psychological pricing
Promotional pricing
Value pricing
Geographical pricing
DESCRIPTION
Reducing prices to reward customer
responses such as paying early or
promoting the product。
Adjust prices to allow for differences
in customer，products，or locations。
Temporarily reducing prices to
increase short-run sales。
Adjust prices to offer the right
combination at a fair price。
Adjust prices to account for location。
17
Price Changes
• Initiating Price Cuts;
• Initiating Price Increases;
• Buyer Reactions to Price Changes;
• Competitor Reactions to Price Changes.
18
Assessing and responding to competition’s price
changes ( P.347)
Has competitor
cut price?
No
Hold current price;
Continue to monitor
Competitor’s price
Yes
Will low price
No
negatively affect out
market share & profit?
Yes
Can/should effective
action be taken?
Reduce price
No
Raise perceived
quality
Yes
Improve quality
& increase price
Launch low-price
“fighting brand”
19
```