Pricing strategies in marketing by philip kotler flipkart,website promotion ads,example marketing plan presentation download,marketing communication plan table of content - PDF 2016

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You’ll be joining the 130,000 Smart Insights members from 80 countries who trust our advice to Plan, Manage and Optimize their marketing. This model relating pricing for a product or service to the quality delivered may not be as familiar as some other marketing models we have covered in our classic marketing model series, although it was created by author Philip Kotler. You can use the Price - Quality Strategy Model to review competitors’ products and services and review their strategies.
This is the High value strategy, where a higher quality product is provided and more expensive components are used.
This is a similar low price strategy involving setting a low initial price to capture market share initially, then when the market grows and costs decrease, costs are reduced further.
When they introduce a new product, such as fans and heaters, these follow the same premium pricing strategy. The objective was for maximum profit, so when Apple iPhones were the first smartphone in the marketplace they could set high prices before other players entered. The objective was product-quality leadership which was followed by Dyson Vacuum cleaners, They design and manufacture quality products, based on years of research, testing and significant investment into patents. Waitrose's objective was more than survival but to recapture customers, or stop them switching. For maximum sales growth, Subway sandwiches offer a lower price lunchtime snack and now have more outlets across the UK than MacDonald.
If you’re developing products and changing the quality, perhaps saving money and reducing one element of the process, review the price too, or you could fall into False Economy or Rip-Off strategies. In our free, illustrated guide to 15 classic planning models diagrams we explain what they are and give examples of why and how to apply them in business. In the overall marketing mix, price is the most important item that can affect a company's profitability. If market constraints force development of sub optimal short-term strategies, how can we minimize the impact on positioning? Traditionally, marketing's role in developing pricing strategy has been to understand market acceptance of price changes to new and existing products and services. Pricing research typically focuses on a customer's preference for a specific offering and reports findings in terms of percentages. Many organizations make pricing decisions based on secondary or syndicated data sources, internal costs, or competitive factors. While internal costs have a major impact on profitability, not linking them to market input on competitive pricing and customer willingness to pay can affect profits. Effective pricing strategy is best developed through a profitability model that incorporates market input on a competitive marketplace, current market conditions, and impact of advertising and promotions.
The first step is to develop the market sensitivities associated with price, brand, features, channel, and packaging-shown in the "Modeling of Market Input" section. The last step in the model is to tie other marketing-mix items into the market response tool.
An extremely important part of the model of pricing strategy is getting meaningful market input by collecting information in a way that parallels a customer's normal buying experience.
Properly designing a discrete choice exercise that allows a survey to match the customer's actual purchasing experience is probably the single most important part of extracting market input to develop a model of strategic pricing. In general, the key components of the design involve multiple price levels for the company's and key competitor offerings, along with testing of certain products and services both in and out of the marketplace.
It's important to understand how the market values the different components of an offering.
Once the survey has been properly designed and executed, market sensitivities need to be derived from customer input.
To increase the accuracy of the survey model, and to link market shares to total units in the marketplace, the market response tool derives a base case that reflects current prices and availability of products and services.
If only market shares are considered, and a new offering completely cannibalizes from the existing company set of products and services, then a decision might be made not to launch. Consider Exhibits 2 and 3, which show the impact that changes in a company's price have on share, sales, and contribution. Not only does optimization based on contribution increase overall profitability, but these strategies will be more stable over time compared to those developed based on sales.
To enhance the results from modeling market input, management must be able to adjust forecasts based on assumptions of levels of advertising and promotion. In many cases, ascertaining the relationship between advertising and promotion and their market responses might require comprehensive studies. In addition to integrating marketing-mix items into the model of pricing strategy, certain internal and marketplace constraints might affect pricing strategy. These are integrated into the model through the addition of secondary optimization criteria. This case study involves a leading pharmaceutical product that was approaching the end of its patent protection.
To meet the research objectives, the modeling of market input was based on a two-step procedure. The modeling of market input provided measures of price sensitivity, affinity for prescribing a generic, and preference for prescribing new products with higher safety claims. Because the client had no prior experience with a private label, a relatively simple relationship was developed to forecast what percent of the generic market the client's private label offering would achieve. Interest in the new products with higher safety claims was very high, and the client's offering was projected to be twice the size of the other entrants.
A five-year planning tool was integrated into the market response tool that allowed entry of assumptions associated with each of the six items mentioned here.
To overcome these difficulties and develop a model of strategic pricing, it's important to communicate the benefits of this model so everyone shares a similar goal in terms of pricing strategy. Pricing strategies may be cost based or market-orientated: Differential pricing this gives different prices for different groups or types of customers. Below are external web links provided by Parcelforce Worldwide in relation to their business activities. Subscribe to our newsletter for current business news including lesson plans and activity ideas. If you learnt more about Using the marketing mix to drive change from this Parcelforce Worldwide case study, why not share it with others? This page and contents, ©2016 Business Case Studies, is intended to be viewed online and may not be printed. Pricing Strategies Pricing Strategies Additional Considerations Chapter 11 Priciples of Marketing by Philip Kotler and Gary Armstrong PEARSON. 3 Price-Adjustment Strategies Discuss how companies adjust their prices to take into account different types of customers and situations.
5 Public Policy and Marketing Overview the social and legal issues that affect pricing decisions. New-Product Pricing Strategies Pricing strategies usually change as the product passes through its life cycle. Market-Skimming Pricing Market-skimming pricing (or price skimming) set a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price; the company makes fewer but more profitable sales. Market-Penetration Pricing Market-penetration pricing sets a low price for a new product in order to attract a large number of buyers and a large market share. Product Mix Pricing Strategies The strategy for setting a product’s price often has to be changed when the product is part of a product mix. Product Line Pricing Product line pricing sets the price steps between various products in a product line based on cost differences between the products, customer evaluations of different features, and competitors’ prices. Optional Product Pricing Many companies use optional product pricing - offering to sell optional or accessory products along with the main product. Captive Product Pricing Captive-product pricing sets a price for products that must be used along with a main product, such as blades for razor and games for a video-games console. By-Product Pricing Using by-product pricing, the company seeks a market for these by-products to help offset the costs of disposing of them and help make the price of the main product more competitive.
Product Bundle Pricing Using product bundle pricing, sellers often several products and offer the bundle at a reduced price. Price Adjustment Strategies Companies usually adjust their basic prices to account for various customer differences and changing situations. Discount and Allowance Pricing Discount is a straight reduction in price on purchases during a stated period of time or in larger quantities.
Discount and Allowance Pricing Allowance is promotional money paid by manufacturers to retailers in return for an agreement to feature the manufacturer’s products in some way.
Segmented Pricing In segmented pricing, the company sells a product or service at two or more prices, even though the difference in prices is not based on differences in costs. Psychological Pricing In using psychological pricing, sellers consider the psychology of prices, not simply the economics.
Promotional Pricing With promotional pricing, companies will temporarily price their products below list price - and sometimes even below cost - to create buying excitement and urgency. Geographical Pricing Geographical pricing sets prices for customers located in different parts of the country or world.
Dynamic and Internet Pricing They are using dynamic pricing - adjusting prices continually to meet the characteristics and needs of individual customers and situations.
International Pricing Companies that market their products internationally must decide what prices to charge in different countries.


Price Changes After developing their pricing structures and strategies, companies often face situations in which they must initiate price changes or respond to price changes by competitors. Initiating Price Changes In some cases, the company may find it desirable to initiate either a price cut or a price increase.
Buyer Reactions to Price Changes A price increase, which would normally lower sales, may have some positive meanings for buyers.
Competitor Reactions to Price Changes The competitor can interpret a company price cut in many ways. If the company decides that effective action can and should be taken, it might make any of four responses.
Pricing within Channel Levels Price-fixing states that sellers must set prices without talking to competitors. Pricing across Channel Levels Robinson-Patman Act seeks to prevents unfair price discrimination by ensuring that sellers offer the same price terms to customers at a given level of trade.
Typically, there are few competitors and a strong brand driving demand, so a higher price can be set. The cost-plus pricing model has long gone as we expect goods and services to be appropriately priced. Their Essential range was launched as the UK hit the recession to re-capture shoppers buying from discount stores, so they reduced the prices of their basic food. How to set prices and measure their impact on a company's business model, however, is less clear. Through the use of conjoint-type studies, researchers have learned about the trade-offs between brand, price, and features and leveraged customer value to develop pricing strategies.
Given the lack of a complete set of competitive offerings of all products, services, and prices in the marketplace, it's hard to integrate preference measures to current market conditions and then accurately project changes in the marketing mix, especially in financial terms. While each of these items needs to be considered, profit potential and product equity can erode significantly with strategies based on these items alone. It's unwise to develop a pricing strategy based on a reaction to customers leveraging one supplier over another to get the best possible price or a reaction to competitive price changes, internal sales goals, and inventory levels. The results from this type of model will give specific direction on which new and existing offerings should be in the marketplace, how they should be packaged and priced, and how marketing investment should be allocated between advertising and promotion. The top half of the exhibit shows the model inputs of the customer and current market levels, and the bottom half represents the marketplace and the items a company has control over to optimize their offering.
These sensitivities relate to how the marketplace will react to changes in new and existing company and competitive offerings. This step converts market shares to total dollars in the market by using industry sales from the current market.
This step involves developing relationships that relate advertising and marketing expenditures to market levels of awareness and distribution.
The critical step in this process is to review with management all possible scenarios they'd want to consider in the marketplace and then designing the study to allow testing for these different scenarios.
Products and services are tested in and out of the marketplace to determine which offerings will lose share when a new product or service is added as well as which offerings will gain share when a product or service is no longer in the market. For certain studies, part of the design needs to include options for de-bundling an offering, as well as the combination of multiple products and services combined in a package offering. As indicated in Exhibit 1, the modeling of market input must analyze the choices the respondents gave to specific market conditions and convert them into measures of price sensitivity, brand loyalty, feature affinity, channel, and packaging preference. It's then compared to known market shares and market sizes at the same prices and availabilities. However, if the new offering has a higher profit contribution, then it may be beneficial to launch it. Unless the offering is priced so low that customers question its quality, the lowest price will always produce the highest share.
The price that maximizes company contribution is $27, which projects a contribution of $7.7 million. To begin with, just redirecting the focus of the marketing program to maximize contribution vs. Some measures that need to be considered include (1) level of advertising and its impact on awareness, (2) level of distribution and its impact on volume, and (3) level of dealer incentives and promotions and its impact on channel response. Whether these relationships exist or not, the pricing model must allow management to at least be able to enter assumptions as to how the market will react to changes in their advertising and promotion.
Types of constraints that might need to be considered include (1) supply constraints, (2) impact of major price changes on competitive responses, (3) difficulty in changing current prices in marketplace, (4) order of entry for new products, and (5) external regulation. In most cases, the primary optimization is associated with overall company profitability in the category.
Besides the potential for generics to come into the market, there were some safety concerns fueling new product development.
First, the survey collected prescribing behavior based on a market with and without a generic at different prices for the key products in the market. Through comparison of base cases with no generic, initial shares for all products in the market were calibrated to match known market shares. A straight-line relationship emerged between two price points: A low price that would ensure the client private label would get 100% of the generic market and a high price so expensive the client private label wouldn't get any part of the generic market. In addition, if generics are introduced in the marketplace, then they'll be priced as a percent of the client's branded product.
Before making a decision on moving ahead with the new product offering, management needed to consider the following items: (1) impact on market size due to introduction of product with safer product claim, (2) impact of DTC advertising, (3) impact on cannibalization on current branded product, (4) cost to develop and test new product, (5) impact of generic and branded product pricing, and (6) impact of competitive responses. These include market share, competition, material costs or how the customer sees the value of the product. Parcelforce Worldwide is able to negotiate prices with business customers (B2B and B2C) based on their exact sending profile (for example, volumes, weights, destinations). 2 Product Mix Pricing Strategies Explain how companies find a set of prices that maximizes the profits from the total product mix.
4 Price Changes Discuss the key issues related to initiating and responding to price changes. In this case, the firm looks for a set of prices that maximizes its profits on the total product mix. In product line pricing, management must determine the price steps to set between the various products in a line. And when you order a new computer, you can select from a bewildering array of processors, hard drives, docking systems, software options, and service plans.
Another aspect of psychological pricing is reference prices - prices that buyers carry in their minds and refer to when looking at a given product. We will look at five geographical pricing strategies for the following hypothetical situation.
The price that a company should charge in a specific country depends on many factors, including economic conditions, competitive situations, laws and regulations, and the nature of the wholesaling and retailing system. It might think the company is trying to grab a larger market share or that it’s doing poorly and trying to boost its sales. Sellers are also prohibited from using predatory pricing - selling below cost with the intention of punishing a competitor or gaining higher long- run profits by putting competitors out of business.
The aim is to help companies position their products or services relative to competitors as perceived by the market, and consider their pricing strategy accordingly. One marquee hire company I worked with offered high quality service and a very low price which was a superb-value strategy. Every year, we invest half our profits back into harnessing them at our research and development laboratory in Wiltshire. Too many times, the focus of pricing is related to short-term competition or internal cost structure. While this is valuable information, these types of research approaches don't do a good job of replicating the complexity of current marketplaces and extracting the real impact of price and price sensitivity. This tends to lower the value of research because management can only make decisions on a relative "percentage" basis, rather than on an absolute "profit" basis.
Some companies get input on customer's willingness to pay from measurements based on observed marketplace behavior. These factors need to be considered in developing pricing strategies, but these strategies can hurt long-term profitability and product equity if they don't estimate market response and impact on sales channels and profitability. The overall process is broken down into four basic components: (1) modeling of market input, (2) calibrating model sensitivities to current market, (3) developing contribution measures, and (4) integrating with the overall marketing mix and developing profitability measures. This is especially important when making pricing decisions in light of total R&D and marketing investments.
Now the market response tool can optimize pricing and packaging strategies based on the total contribution rather than just share or sales. Also included here are any market or production constraints that need to be considered in developing pricing strategy. In addition, experiments can accommodate new brands, features, prices, and channels that currently don't exist in the marketplace.
For example, if management wants to test a new offering, they may want to consider multiple scenarios of (a) adding it to its current portfolio, (b) having it replace one or more existing products and services, or (c) not introducing it at all because it might cannibalize their more profitable current offerings. Prices can be different for all products and services being tested and should reflect current market prices. In both cases, multiple levels of price would need to be tested for each de-bundling and package offering. Developing segments of respondents who exhibit similar market sensitivities helps discrete choice maintain a high level of heterogeneity, and better understanding of the unique needs of target segments.


This is a very important step in bridging the richness of market input with the accuracy of known market information. If the optimization criterion is based on sales, rather than share, the price that maximizes sales is $22.50.
By entering "worst case" to "best case" ranges for these relationships, along with varying levels of advertising and promotion, the market response tool can determine what impact these items have on pricing strategy and overall profitability. However, because the model can provide a list of alternative pricing and packaging strategies sorted by profitability, it can identify the best alternative by locating the highest profitability subject to the necessary optimization criteria. Overall market size had been growing due to initial direct-to-consumer (DTC) advertising and anticipation of lower priced alternatives and safer products.
Then for each initial question, an additional question was asked to determine how the prescribing behavior would change based on the availability of new products with higher safety claims.
Total market size, in terms of prescriptions, was overlaid into the market response tool so total prescriptions and sales could be shown. Therefore, by raising prices, the generic pricing would also be higher, which would improve the margins for the client's private label offering. Then, based on these assumptions, the planning tool determined the five-year net present value associated with the overall company's contribution in the category.
At times, the company and industry information needed to design and implement them aren't readily available. Management must then create an environment that encourages marketing managers, product managers, and finance managers to develop the necessary inputs and to work together to develop the optimum strategies. Parcelforce Worldwide has differentiated its products by offering services that offer a balance and choice between speed and value for money. Companies bringing out a new product face the challenge of setting prices for the first time. Pricing is difficult because the various products have related demand and costs and face different degrees of competition. The reference price might be formed by noting current prices, remembering past prices, or assessing the buying situation.
A seller may simply offer discounts from normal prices to increase sales and reduce inventories. FOB- origin pricing Uniform- delivered pricing Zone pricing Basing- point pricing Freight- absorption pricing ? This practice means that the goods are placed free on board a carrier.
A price change, especially a drop in price, can adversely affect how consumers view the brand. Or it might think that the company wants the whole industry to cut prices to increase total demand. There are 650 engineers and scientists based there.' They share their story and ‘behind the scenes’ details, such as the hammer test (below), to justify their premium pricing strategy. Even if a company analyzes existing market data or collects new market input, this information usually doesn't provide links to profitability and other marketing-mix items. For example, conjoint creates an artificial marketplace that forces competitive offerings to contain similar features and prices, when, in reality, many unique products and services have different features and prices. To develop a meaningful pricing strategy, researchers must integrate customer input on a complete competitive marketplace with how it interfaces with the distribution channel and variable costs.
However, such measurements are limited because they only reflect existing product and service characteristics. With the calibration, the measures reported in the market response tool can show the impact on total sales as well as share. This step, along with the step relating to contribution, increases the value of market input because results are stated in direct financial terms and deal with the interaction between pricing and other items in the overall marketing mix. Discrete choice provides the best tools for developing pricing strategy in a designed experiment. At the same time, management wants to know which prices and specific features, along with any packaging alternatives, will optimize their portfolio. The ranges of prices must be wide enough to allow proper sensitivity testing and future use of the market response tool.
Another consideration for the design is allowing respondent choices to be recorded in a way that matches how customers would normally make choices.
As an example, a certain segment may be defined as customers who prefer a certain feature or package and are rather insensitive to price. No matter how good the sampling and however realistic the survey matches the actual buying experience, this step ensures all projections are based on an agreed-upon starting point.
This increases total sales to approximately $23 million, as opposed to $22 million at a price of $21. This focus ensures the pricing strategies are optimized based on a company's overall offering, costs, and prices, rather than on what price is going to be more attractive than that of the competitors. In addition, production costs for clients' products were included so total contribution could be shown for all clients' products. Based on a 15% lower price for the generic alternative, generics were projected to get 50% of the branded product's share.
At the proposed $.65, the impact of a generic offering that was originally priced at 50% lower than the client's product would now be a 20% reduction in contribution based on the higher price and the private label offering. Even though the company's new product offering was better than the other new offerings in the market, the company was projected to attain higher contribution by not making the investment in this new product. In addition, multiple disciplines need to come together to integrate current market conditions, market sensitivities, and profitability into one model. This is a large mountain to climb, but the benefits of a comprehensive pricing strategy compared to on-going reactive pricing can be tremendous.
In the non-urgent market, Parcelforce Worldwide is looking to achieve some degree of price leadership by finding lower cost international delivery models and passing some of this cost saving to its customers.
They can choose between two broad strategies: market- skimming pricing and market-penetration pricing.
More importantly, they should account for differences in customer perceptions of the value of different features. Rising costs squeeze profit margins and lead companies to pass cost increases along to customers. Second Company might improve quality and increase price, moving its brand into a higher price-value position. Research showed that potential customers were suspicious and didn’t place orders with them as they thought the product quality was low because the price was low. To develop an effective pricing strategy, it's important to first analyze a method of integrating meaningful customer input based on the entire company and competitive offerings within a category. Conjoint typically underestimates the impact of price and doesn't provide a value of price sensitivity by brand, but rather only in aggregate. In addition, observational data doesn't involve controls, so it can be difficult to separate the trends and sensitivities in the observed data from external items like product availability, promotion and advertising for the company, and competitive offerings.
When properly executed, it allows the researcher to present a complete portfolio of products and services that parallels current marketplace offerings.
The key for the survey is to derive sensitivities from market input and then to put this information into a context that management can understand and then use to develop an effective pricing strategy. Even if the competitors lower their prices, in most cases, original pricing based on profitability will still be the optimal price as compared with a lower price that meets the competitor's price.
With a $.25 private label offering, the client's projected share loss of 50% would be reduced to only 30%. The recommended strategy was to focus on DTC advertising for the category and implement suggested pricing strategies and the private label offering. Market penetration pricing may be low in order to gain a foothold in a new market or with a new product. Customer-segment pricing Different versions of the product are priced differently but not according to differences in their costs. Manufacturers sometimes offer cash rebates to consumers who buy the product from dealers within a specified time; the manufacturer sends the rebate directly to the customer. Third Company might launch a low-price “fighter brand” - adding a lower-price item to the line or creating a separate lower-price brand. In addition, combinations of new and existing products and services can be tested in and out of the current marketplace, as well as changing prices and specific features for any offering in the marketplace. To take market share with its new Express service, Parcelforce Worldwide needed to price keenly. When a company cannot supply all that its customers need, it may raise its prices, ration products to customers, or both.
Quantity Discount A sellers offers a discount to trade- channel members who perform certain functions, such as selling, storing, and record keeping. Trade-in allowance It’s the payments or price reductions that reward dealers for participating in advertising and sales support programs. Product-form pricing A firm varies its price by the season, the month, the day, and even the hour.
Functional Discount (Trade Discount) A price reduction to buyers who buy merchandise or services out of season. Time pricing A company charges different prices for different locations, even though the cost of offering each location is the same.



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