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Chapter Eight
Value-Based Pricing and Pricing Strategies
8-2Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall
Value-Based Pricing and Pricing Strategies
• Value-based pricing
• Price-margin management
• Product life-cycle pricing strategies
• Pricing and profitability
• Price elasticity and profitability
• Price and break-even analysis
• Product line pricing
8-3Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall
Value-Based Pricing
• Value-in-use pricing
• Perceived-value pricing
• Performance-based pricing
8-4Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall
Value-In-Use Pricing
Figure 8-2 Price Is Only the Tip of the Iceberg
8-5Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall
Performance-Based Pricing
Figure 8-7 Performance-Based Pricing Customer Preferences
8-6Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall
Price-Margin Management
Figure 8-10 McKinsey’s Waterfall
8-7Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall
Product Life-Cycle Pricing Strategies
Figure 8-12 Product Life-Cycle Pricing Strategies
8-8Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall
Market-Based Pricing Strategies
• Skim pricing
• Value in-use pricing
• Perceived value pricing
• Segment pricing
• Strategic account pricing
• Plus-one pricing
At what stages in the PLC should these strategies be employed?
8-9Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall
Skim Pricing
• Favorable Conditions– Considerable differentiation– Quality-sensitive customers– Sustainable advantage– Few competitors– Few substitutes– Difficult competitor entry
8-10Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall
Penetration Pricing
• Favorable Conditions– No/limited differentiation– Price-sensitive customers– No sustainable advantage– Many competitors– Many substitutes– Easy competitor entry
8-11Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall
Price Elasticity
% Change Volume
% Change Price
Price Elasticity =
8-12Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall
Price Elasticity and Performance
Figure 8-23 Price Elasticity — Volume, Sales, and Profitability
8-13Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall
Price Elasticity Guidelines
Figure 8-25 Guidelines for Estimating Price Elasticity
8-14Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall
Price and Break-Even Analysis
Break-Even Volume = Fixed Expenses
Margin per Unit
Break-Even Market Share = Break-Even Volume
Market Demand
8-15Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall
Product Line Pricing
• How could a marketer– Price substitute products?– Price complementary products?
8-16Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall
Review
• Value-based pricing
• Price-margin management
• Product life-cycle pricing strategies
• Pricing and profitability
• Price elasticity and profitability
• Price and break-even analysis
• Product line pricing
8-17Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.
Copyright © 2009 Pearson Education, Inc. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice HallPublishing as Prentice Hall