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Chapter 1

This document provides an overview of strategic pricing. It discusses coordinating the drivers of profitability, including customer-driven pricing, cost-plus pricing, and share-driven pricing. Strategic pricing involves taking a value-based, proactive, and profit-driven approach. The strategic pricing pyramid shows how marketers create value and establish price structures, communicate prices and value, set pricing policies, and determine price levels. Implementing strategic pricing requires coordination across functions like marketing, sales, capacity management, and finance, and is built on effective organization, information, and motivated management.

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Sarahjane Terrado
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415 views19 pages

Chapter 1

This document provides an overview of strategic pricing. It discusses coordinating the drivers of profitability, including customer-driven pricing, cost-plus pricing, and share-driven pricing. Strategic pricing involves taking a value-based, proactive, and profit-driven approach. The strategic pricing pyramid shows how marketers create value and establish price structures, communicate prices and value, set pricing policies, and determine price levels. Implementing strategic pricing requires coordination across functions like marketing, sales, capacity management, and finance, and is built on effective organization, information, and motivated management.

Uploaded by

Sarahjane Terrado
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 19

CHAPTER 1:

Strategic
Pricing
Objectives:
01 Coordinating the Drivers
of Profitability

02 STRATEGIC PRICING?

03 The Strategic Pricing


Pyramid
01
Coordinating the
Drivers of Profitability
• The economic forces that determine profitability
change whenever technology, regulation,
market information, consumer preferences, or
relative costs change. Consequently,
companies that grow profitably in changing
markets often need to break old rules and
create new pricing models.

• the measure of success at strategic


pricing is not how much it increases price
but how much it increases profitability.
Coordinating the Drivers of Profitability
CUSTOMER-DRIVEN
PRICING 02

COST-PLUS PRICING SHAREDRIVEN PRICING


01 03 trade-offs come in two forms
1. willingness to lower price to exploit a market opportunity
to drive volume

04
2. willingness to give up volume by raising prices.
02
WHAT IS STRATEGIC
PRICING?
strategy
The word “strategy” is
used in various contexts 3 principles:
to imply different things.
Here we use it to mean Value-based
the coordination of
otherwise independent Proactive.
activities to achieve a
common objective Profit-driven
03
The Strategic Pricing
Pyramid
The Strategic Pricing Pyramid
VALUE CREATION Alternative
Approaches to Value
Marketers create value cost-effectively and Creation
convince people to pay commensurate with
that value. It expect that, as a result, those
who apply these ideas will contribute to an
economic system in which firms that are
most adept at creating value for customers
are most rewarded by improvement in their
own market value.

y2mate.com - value_creation_through_the_marketing_mix_dNDSYW5Zu4E_360p.mp4
PRICE STRUCTURE
The purpose of more complicated price structures is
to reflect differences in the potential contribution
that can be captured from different customer
segments by capturing the best possible price from
each segment, making the sale at the lowest
possible cost, or both.
PRICE AND VALUE COMMUNICATION
A successful pricing strategy must justify the prices
charged in terms of the value of the benefits
provided. Developing price and value
communications is one of the most challenging
tasks for marketers because of the wide variety of
product types and communication vehicles.
PRICE AND VALUE COMMUNICATION
The messaging approach

• search goods
• experience goods
• psychological or monetary
• buying process
PRICING POLICY
• refers to rules or habits, either explicit or cultural, that determine
how a company varies its prices when faced with factors other
than value and cost to serve that threaten its ability to achieve it
objectives.
When customers become increasingly resistant to whatever price a firm
asks, most managers would draw one of three conclusions:
1. that the product is not offering as much value as expected,
2. that customers do not understand the value, or that the price is too high
relative to the value.
3. Customers sometimes decline to pay prices that represent good value
simply because they have learned that they can obtain even better prices by
exploiting the sellers’ pricing process.
PRICE LEVEL
• Price setting should be an iterative and cross-functional process
led by marketing that includes several key actions. The first action
is to set appropriate pricing objectives, whether that means to use
price to drive volume or to maximize margins.

• According to economic theory, setting prices is a straightforward


exercise in which the marketer simply sets the price at the point
on the demand curve where marginal revenues are equal to the
marginal costs.
PRICE LEVEL
UNIT FIXED VARIABLE TOTAL MARGINAL
PRODUCED COST COST COST COST
1 10 20 ?

2 19 21 ?

3 27 22 ?

4 34 23 ?

5 40 24 ?
PRICING POLICY
• refers to rules or habits, either explicit or cultural, that determine
how a company varies its prices when faced with factors other
than value and cost to serve that threaten its ability to achieve it
objectives.

• Good policies enable a company to achieve its short-term


objectives without causing customers, sales reps, and competitors
to adapt their behavior in ways that undermine the volume or
profitability of future sales. Poor pricing policies create incentives
for customers, sales reps, or competitors to behave in ways that
will undermine future sales or customers’ willingness-to-pay
IMPLEMENTING
THE PRICING 01
02
Successful
STRATEGY Implementing
pricing strategy
implementation
pricing strategy is is built on three
difficult because it pillars:
requires input and • an effective
coordination organization,
across so many
• timely and
different functional
areas: marketing, accurate
sales, capacity information,
management, and and
finance • appropriately
motivated
management
QUIZ!!!!!

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