CHAPTER 9-CECILIA

10 1 2018-05-07

SUMMARY OF CHAPTER 9

<p>01</p><p>点击输入文字</p><p>点击输入文字</p><p>03</p><p>02</p><p>04</p><p>THANKS</p><p>Chapter 9 Pricing<br /></p><p>Cecilia<br />진군예 <br />2018711206</p><p> Contents<br />1.\tThe Role of Marketing Strategy in Pricing<br />2.\tPerceived Value<br /> i. A Framework<br /> ii. Price Elasticity<br /> iii. Calculating Customer Value<br /> iv.Using the Perceived Value Concept<br />3.\tCompetition and Pricing<br /> i.Competitors' Costs<br />4.\tThe Role of Costs</p><p>The Role of Marketing Strategy in Pricing</p><p>※ The need for consistency <br /> between price and the marketing strategy<br /></p><p>※ Chapter brief </p><p>※ Chapter brief </p><p>※ Chapter brief </p><p>3C of Pricing</p><p>Perceived Value</p><p>※ A major factor affecting price is the customer’s perceived value. </p><p>II.Perceived Value</p><p>Competition and Pricing</p><p>The Role of Costs</p><p> ※ It is important to understand the competitors’ cost structures as well as their past pricing practices.</p><p>Why pricing is important?<br /><br />The price is too high —— customers are will not to pay <br />If the product is priced too low —— loses potential profits.<br /><br />◇ Costs do matter in setting price <br />◇ The customer is also an important consideration,<br /><br />Customer value what a product or service is worth to the customer in monetary terms</p><p> also called perceived value <br /><br />Customer care whether the product delivers an appropriate amount of value for the price being paid, Thus, the purpose of price is not just to recover costs but to also capture the perceived value of the product in the mind of the customer.</p><p>The major factors affecting price are:<br /><br />1 Marketing Strategy<br /><br />2 Customer perceived value.<br />(A framework for price setting is developed in which the key <br />decision is determining how much of the gap between cost and customer value the firm can keep.)<br /><br />3 Competition<br />4 costs</p><p>☞ Why does such variation exist within product categories and even within the same tier?</p><p>Such variations within a category are calledPrice bands or tiers.</p><p>☞ An example of such price variation in a product category is shown in Figure </p><p>Reservation Price is the maximum price someone is willing to pay for a product or the price at which the product is eliminated from the customer’s budget<br /><br /> Price VS Perceived value or benefits <br />(psychological concept of customer) (derive from purchasing the product )</p><p>☞ Customers is the external dements affecting all decisions</p><p>☞ Perceived or customer value, refer to an average or typical value for a particular market segment or target market</p><p>II.Perceived Value</p><p>II.Perceived Value</p><p>II.Perceived Value</p><p>II-i. A Framework</p><p>II-ii.\tPrice Elasticity</p><p>☞ Price elasticities give a hint at how close to or how far you are from customer value.</p><p>The price elasticity of demand. <br /><br /> E = Percent change in demand/Percent change in price<br /><br />if demand 3%↑/ price 2% ↓ E = -1.5 ( |E| > 1.0, the category is price elastic.)<br /><br />if demand 2%↓/ price 3% ↑ E= -0.67 ( |E| < 1.0, the product category is called Price inelastic because the change in demand is less than the change in price.)<br /></p><p>II-ii.\tPrice Elasticity</p><p>◆If the product’s price is low so that there is a considerable amount of value left for the cus¬tomer (a good deal), a price increase or decrease will not have much impact.<br /><br />▲ As the price gets closer to customer value, price elasticity (sensitivity) increases as the point I at which the customer will not buy at all draws near. </p><p> ▲ Price elasticity increases as the firm captures more of the value for itself and leaves less for the customer. It is also likely that as price gets </p><p> closer to the value line, the asymmetry between price increases and decreases grows larger.</p><p>II-iii.\tCalculating Customer Value</p><p>① Value-in-Use (Economic-Based Approaches )<br /> A method of estimating customer value that puts the benefits of thi product in monetary terms, such as time savings, less use of materials, and less downtime. <br /></p><p>II-iii.\tCalculating Customer Value</p><p>II-iv.\tUsing the Perceived Value Concept</p><p>perceived value does not imply that customers are always looking for the lowest price, even in difficult economic times. In fact, during recessions, customers are particularly looking for products high in perceived value, that is, those that deliver excellent quality for the price.</p><p>for some product categories, perceived value may be a function of price. In this case, lowering price may not actually produce the increase or stabilization in share desired because the functional relationship will not change: a lower price results in lower perceived quality. In fact, increasing price may raise perceived quality. Even if the increase in perceived quality does not rise proportionately more than the increase in price, it will mean higher profits at the same market share level. </p><p>Market share = f (Perceived value/Price)</p><p> </p><p>II-iv.\tUsing the Perceived Value Concept</p><p>III. Competition and Pricing</p><p>III. Competition and Pricing</p><p>III. Competition and Pricing</p><p>III-iii. The experience curve phenomenon applies to certain products for which repetitive production of larger and larger amounts and concomitant investment in new manufacturing equipment systematically reduce unit costs over time. The conventional functional relationship assumed in experience curve economics is that unit costs (adjusted for inflation) are a decreasing function of accumulated experience, or production volume. </p><p>iv. The Role of Costs</p><p>iv. The Role of Costs</p><p>Example: Apple has used a premium pricing policy for the ipod and <br />a low-price penetration strategy for iTunes<br /><br />◇ Price is an observable component of the product that results in consumers purchasing or not, and at the same time it directly affects margin per unit sold.<br /><br />◇ Price most often makes or breaks the transaction.<br /><br />◇ The pricing decision is usually viewed as a way to recover costs. you must <br />determine what price to charge, beyond your costs of making the product or <br />delivering the service, in order to make a profit. </p><p>☞ Prices can also vary over segments if the products or services vary in quality</p><p>I. The Role of Marketing Strategy in Pricing</p><p> ☞ Price Discrimination: <br /> The target market decision affects price because prices can vary widely over <br />segments, which is charging different prices to segments according to their price elasticity or sensitivity.<br /> </p><p>i. Customers become loyal to certain products or suppliers and so they tend to rate price lower than other factors such as reliability and speed of delivery. This makes them less price-senstitive.<br /><br />ii. In some industries price visibility is low</p><p> the price charged is less transparent than it is at supermarkets or other retailers, where the price is marked on the item. For many industrial products, the list price is only the basis from which discounts that vary among customers are given. This method creates more transaction price variability. <br /><br />iii. Competitive intensity can vary among segments. The larger the number of suppliers, the narrower the price band because more competition implies greater convergence on a standard price. <br /><br />iv. Some categories have large numbers of product variants because many options are available or because the supplier wants to fill the channel and keep competitors from getting shelf space.<br /></p><p>I The Role of Marketing Strategy in Pricing</p><p>I The Role of Marketing Strategy in Pricing</p><p> According to this, the marketing manager has to understand<br />the price sensitivity of the different target markets to set <br />the appropriate price. Significant price variation even within a particular segment. The marketing strategy dictates pricing <br />policies that can be used at any given time, <br /></p><p>③\tPrice > Cost > Perceived Value<br /><br />This scenario clearly represents a failure. Usually, such products are weeded outin the new-product development process. If not, they are ultimately withdrawn <br />from the market.<br /></p><p>②\tPrice > Perceived Value > Cost <br /><br />☞ The manager has set a price that is higher than the target market is willing to pay. <br />The customer looks at this situation as a bad deal and, unless the company has a monopoly or <br />some other kind of market power, does not buy. Customers let you know that there is a <br />problem by not buying. <br /><br />☞ Waiting for customer reaction is an expensive form of marketing research, because the <br />customers may have bought another brand and are out of the market for some time. <br /><br />☞ Solution: Some kind of downward price adjustment or increase in customer value is necessary. <br />However, without knowing the perceived value or willingness to pay, you do not know how much <br />to lower the price. the competitor often serves as the reference point. Price reductions in responseto lower perceived value are common.<br /></p><p>☞ Case analysis:<br />The new pricing policy does a much better job accounting for customer value as newer and/or popular songs are valued more and priced accordingly. Less-valued songs are priced less, consistent with our pricing model.</p><p>☞ The cost used by the marketing manager as a basis for pricing is the floor of the gap</p><p> you would not price below that cost.<br /><br />☞ The target segment’s willingness to pay is the ceiling</p><p> you cannot price above that because the segment would not buy above that price. <br /><br />☞ Therefore, your task is to figure out how much of the difference between value and cost you want to keep for yourself or structure with a partner. </p><p>☞ It is important to realize that by understanding customer value, you can make this decision proactively. If you do not understand customer value, the market will help you make the calculation,often at great expense to you.</p><p> ☞ Price elasticity is thus an indirect measure of customer value in that a <br />manager can determine how close his or her brand is to the customer value <br />point through planned price experimentation or market reactions to price changes.</p><p> An attractive feature of this approach is that the analysis provides valuable information for the salesperson to use in trying to close the sale. In this case, the salesperson can explicitly quantify the incremental economic benefit to the customerand show that the company is willing to give a “discount” of $125 from the true economic value. Because industrial buyers like to be shown how they can make a greater profit by choosing one product over another, this information should be quite persuasive.<br /></p><p>☞ When economic-based approaches do not work, an alternative approach is to use survey- based methods to obtain willingness-to-pay information from customers.</p><p>②Survey-Based Methods<br /><br />☞ Dollarmetric method in estimating customer value, a method used in conjunction with surveybased methods that creates a scale that puts survey responses in monetary terms<br /><br />☞ Conjoint analysis a popular marketing research method in new product development that <br />uses theoretical profiles or concepts to determine how customers value different levels of <br />product attributes<br /><br /> ③ Field Experimental Methods<br />☞To try to obtain actual market data after manipulating price in different markets.<br />Assuming that the markets are comparable on a number of dimensions (sales, demographics, marketing effort), a marketing manager can get a more accurate read on the effects of <br />different prices than can be obtained from pencil-and-paper exercises.</p><p> ☞ Marketing managers can use the concept of perceived value by considering <br />a functional relationship among market share, perceived value, and price:<br /> Market share = f / (Perceived value/Price)<br /> <br /> ☞ Consider an observed decline in the market share of a product.<br /> Usually the immediate response is a decrease in the denominator, a price cut<br /> (through list price or a price promotion). <br />☞ Cutting the price is certainly one way to bring the relationship between perceived value and price back into balance.<br />☞ The cost of cutting price is substantial, particularly if the price cut is met by the competitors—leaving the market the same in terms of sales and share but at a lower price point, implying lost profits for all.</p><p>II-iv.\tUsing the Perceived Value Concept</p><p>☞ The cost of cutting price is substantial, <br />particularly if the price cut is met by the <br />competitors — leaving the market the same<br />in terms of sales and share but at a lower <br />price point, implying lost profits for all.<br /><br />☞ Across a variety of industries, the average dropin operating profit from a 1 percent price cut is 8percent, and it rises to as high as 23.7 percent <br />for food and drug stores. </p><p>☞ Even if the competitors do not match, there will be a profit loss if the volume <br />does not more than compensate for the price drop (if |E| < 1.0,) or if the competitors only partially decrease price.</p><p>Another alternative to cutting price —— Increase the perceived value of the product. <br /><br />☞ Method<br /><br />i.\t Improve the product itself by increasing actual quality or offering better service or longer warranty period.<br />ii. Invest in the brand through advertising.<br />iii. \tInstitute value-added services such as technical support or financing.<br />iv. \tImprove the sales effort by training the sales force to sell value rather than price.<br /><br />Note: Activities designed to raise perceived value can cost considerably less than the lost profits from cutting price.they are usually fixed costs that can be spread over a<br /> large volume, as opposed to per-unit reductions in margins.<br /></p><p>II-iv.\tUsing the Perceived Value Concept(要不要删除?</p><p>III-i. Competitiors' Costs</p><p> ☞ Critical element in pricing decisions is the Competition<br /><br />Competitors’ prices act as a reference point, either explicitly or implicitly, as a way<br />to assess the price of the product in question. Competitors’ prices do not necessarily <br />represent willingness to pay<br /><br /><br />To estimates of the actual costs of competitor, marketing manager should understand <br />the cost structure, it can help: <br /><br />☞ Assuming that no brand would be priced below variable cost, cost estimates provide <br />you with an idea of how low some competitors can price. This can be very useful in a <br />price battle in which prices are going down. <br />☞ Cost estimates give you some idea of the margins in the category or industry.<br />Using data on sales volume, which are usually easy to obtain, and information on <br />marketing program costs, you can then estimate toted profits. <br />It helps: <br />☞ Forecasting the likelihood that a product will stay in the market <br />☞ Estimating the amount of money a competitor has to put behind the brand’s <br /> marketing strategy.An </p><p>☞ Costs can act as a floor or lower limit for price<br />If you using costs to set price there has four different kinds of costs to consider:<br /><br />i. Development costs are expenses involved in bringing new products to market.<br /><br />ii. Overhead costs: such as the corporate jet and the president’s salary. <br /> These costs must ultimately be covered by revenues from individual products<br /><br />iii. Direct fixed costs: such as the marketing manager’s salary and product-related advertising and promotion, are associated with individual products but do not vary with sales volume. <br /><br />iv. Variable costs: the per-unit costs of making the product or delivering the service. Of course, these must be recovered by the price.</p><p>III-i. (A common approach for manufactured products is to use )Reverse engineering to analyze the cost structure. You should purchasecompetitors’ products and take them apart, <br />studying the costs of the components and <br />packaging. For many products, managers can readily identify components and their costs in the market <br /><br />III-ii. Use publicly available data on the competitors. Based on annual reports, 10K statements, andthe like, you can ascertain average margins. These can be assumed to apply directly to the cost estimation.</p><p>In conclusion<br />☞ Price should always be set greater than variable costs.However, cost-based pricing is difficult to implement because there are many kinds of costs (variable,direct fixed,indirect fixed,development).</p><p>How to use the perceived value concept to set a price?<br />☞ Relationship bewtten those factors, has three situations (price is greater than cost):<br /><br />①\tPerceived Value > Price > Cost<br /> <br />Value Pricing: Strategically pricing below customer value or attempting to provide an exceptionally good value to the customer. <br /><br />Pricing to Value: Which means setting a price at the level you have determined to represent the customer’s perceived value for your product.<br /><br />☞ Prices are set below customer value simply because the manager does not have <br />enough information. Without information about reservation prices or customer value, <br />pricing is like “shooting in the dark,” and when confronted with solid information on costs and competitors’ prices, managers often opt for simpler decision rules that are suboptimal </p><p></p>