Operational marketing: Price Strategy (Understanding Price (Pricing in a…
Operational marketing: Price Strategy
Pricing in a digital world
Chart: Data Analytics (Zalando, Airplane tickets)
A changing pricing environment:
Sharing economy (airbnb)
Bartering (swap goods: kids clothes)
How companies price / How companies
"upper/lower bound price
"Historical Competitors prices"
the more expensive, the more you perceive as a high quality product.
People tend to buy the more expensive parachute.
$1.00 => $0.99
people percieve as the lowerbound price rather than the upper buound
Selecting the pricing objective : 4 criteria
Maximum Market Skimming
Price tends to decrease as time pass, as the production quantity increases, as competitors arise.
Market Skimming purpose: to be percieve as HQ product.
Pricing at a lower price in order to penetrate in the market ( maximize market share)
Purpose: Looking more for Quantity rather than quality
Partial cost recovery: University: students pay €800 but each one cost €3.000 to the university
Setting the Price
3 major considerations in price
: Costs = floor price (minimum).
's prices = orienting point
's assessment of unique pricing = PRICE CEILING = maximum
Consumer aspect: Determining Demand
Customers will be less price sensitive when:
distinct product: Apple
less aware of substitutes
Cannot compare easily the quality: car
Expenditure is a smaller part of buyer's income: price of a pencil
Estimating demand curves
Surveys: not always valid.
Price sensitivity: list
Price elasticity of demand: depend on the product
= %∆Quantity Demanded / %∆ Price
Percieved value pricing:
Ice cream sold on a beach / Ice cream which you need to move 1 km for it.
Value Pricing: Auction-type pricing
Company aspect: Cost-based pricing
Fixed cost + Variable cost = Total cost
= Economy of Scale
You fix first the price, then fix the profit. Finnally you deduct the cost ( STUPID METHOD)
Selecting a pricing method
Markup Pricing: Formula
Difficult to match with the price which consumers are willing to pay.
Target-return pricing; based on desired return.
Competitor's aspect: Competitors based pricing
Analyzing competitors' prices:
Value-priced competitors: Ryanair, ALDI
Selecting a pricing method
a) Pricing above the competitors: Apple, Nespresso
b) Pricing at competitor's level: Going-rate pricing
c) Pricing below the competitors: EDLP
Special event pricing: "Back to School": 20% off in end of August
Special customer pricing: reserved to members
Low interest financing
Longer payments terms : "you can buy this PC by simply paying 30$ a month! (for 3 years)"
Warranties and service contracts
Psychological discounting: promotion are not always less expensive.