Wednesday, April 18, 2007

developing pricing strategies and programs

shaping the market offerings -- Chapter 14 -- summary

Despite the increased role of nonprice factors and modern marketing, price remains a critical element of the marketing mix. Price is the only element that produces revenue; the others produce costs.

In setting pricing policy, a company follows a six step procedure.

  1. selecting the pricing objective
  2. estimating the demand curve
  3. estimate how its costs vary at different levels of output, different levels of accumulated product should experience, and differentiated marketing offers
  4. examines competitors costs, prices, and offers
  5. selects a pricing method
  6. then selects the final price
Companies do not usually set a single price, but rather a pricing structure that reflects variations in geographical demand and costs, market segment requirements, purchase timing, order levels, and other factors. Several price adaptation strategies are available:

  • geographical pricing
  • price discounts and allowances
  • promotional pricing
  • discriminatory pricing
After developing pricing strategies, firms often face situations in which they need to change prices. A price decrease might be brought about by excess plant capacity, declining market share, a desire to dominate the market through lower costs, or economic recession. A price increase might be brought about by cost inflation or over demand. Companies must carefully manage customer perceptions in raising prices.

Companies must anticipate competitor price changes and prepare contingent response. A number of responses are possible in terms of maintaining or changing price or quality.

The firms facing our competitors price change must try to understand the competitors and tend and the likely duration of the change. Strategy often depends on whether a firm is producing homogeneous or nonhomogeneous products. Market leaders attacked by lower-priced competitors can choose to maintain price, raise the perceived quality of their product, reduced price, increase price and improve quality, or launch a lower-priced fighter line.

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