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Pricing Policies & Strategies


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Market variable that can be changed most quickly, usually in response to competitor pricing Seen as a financial expression of the value of the product Concept of value: Perceived value = perceived benefits perceived costs Customers motivation to purchase product, first from need/want (I need/want food); second comes from perception of value (I really fancy a McDonalds) Perception of value varies with customers, and can be increased by either increasing the perceived benefits or reducing the perceived costs
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List Price what the customer pays


Physical good/service Assurance of quality Repair facilities Packaging Credit Warranty Delivery

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Pricing Objectives
Companies concerned about pricing objectives (one of the 4 Ps) as it directly affects sales/earnings and competitiveness Pricing objectives should fit companys overall marketing strategy Types of pricing objectives:

Profit-oriented: using target return objective Sales-oriented: to get specified share of the market Status quo-oriented: maintain stable prices/competitor activity (especially if satisfied with present situation)
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Influences on Pricing Policy

Costs: need to recover most of the time Competitors: Need to accept market price in conditions nearing perfect competition Customers: what the customers are willing to pay; need to match desired sales (market share) with price-demand curve realities Business Objectives maximise profits, make target return, achieve sales target, get/maintain market share, match competition, etc
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Pricing Strategies
Full Cost Plus Pricing: (see p 530) Return on Investment: (see p 534) Expansionist Pricing:

Exaggerated form of penetration pricing Setting low prices to establish mass markets, possibly at the expense of competitors Useful when entering new/international markets Variation: a lower cost version offered at a very low price to gain recognition/acceptance (only until this is achieved) When offered in overseas market at prices lower than production cost dumping

Penetration Pricing to set lower prices so as to achieve dominant market share

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Pricing Strategies (contd)


charging a high price for a relatively short period skim off customers willing to pay Price lowered when demand from early adopters falls

Variable/Marginal Cost Pricing (see p 546)

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Other Pricing Strategies

Prestige Pricing to evoke perceptions of quality/prestige Pre-emptive pricing discourage/deter new potential entrants to the industry Extinction pricing used selectively to limited geographical markets/certain product lines as a means to strategy (i.e., attract customers to its other products which are more profitable)
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Transfer pricing
Where the parties are somehow connected same parent company (usually an issue in cross-border transactions) Using arms length principle

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