Unit10.HowtoSetaPriceonaProduct

HowtoSetaPriceonaProduct

Priceisoneofthemostimportantmarketingvariablesinthemarketingmix.Generallyspeaking,settingtherightpriceonaproductisafour-stepprocess(seeexhibitbelow):（SeeP176)Establishpricinggoals.EstimateDemand,Costs,andProfitsChooseapriceStrategytohelpdetermineabaseprice.Finetunethebasepricewithpricingtactics.Thesefourstepsarediscussedbelow.3EstablishpricinggoalsEstimateDemand,Costs,andProfitsChooseapriceStrategytohelpdetermineabaseprice.Fine-tunethebasePricewithpricingtactics

NewProductDevelopmentProcess

Generallyspeaking,settingtherightpriceonaproductisafour-stepprocess.Thefirststepinsettingtherightpriceistoestablishpricinggoals.Generallyspeaking,thepricingobjectivesfallintothreecategories:profitoriented,salesoriented,andstatusquo.Thesegoalsarederivedfromthefirm’soverallobjectives.Agoodunderstandingofthemarketplaceandoftheconsumercansometimestellamanagerveryquicklywhetheragoalisrealistic.Forexample,iffirmA’sobjectiveofa20percenttargetreturnoninvestment(ROI),anditsproductdevelopmentandimplementationcostsare$5million,themarketmustberatherlargeormustsupportthepricerequiredtoearna20percentROI.AssumethatcompanyBhasapricingobjectivethatallnewproductsmustreachatleast15percentmarketsharewithinthreeyearsaftertheirintroduction.Athoroughstudyoftheenvironmentmayconvincethemarketingmanagerthatthecompetitionistoostrongandthemarketsharegoalcan'tbemet.Allpricingobjectiveshavetrade-offsthatmanagersmustweigh.Aprofitmaximizationobjectivemayrequireabiggerinitialinvestmentthanthefirmcancommitorwantstocommit.Reachingthedesiredmarketshareoftenmeanssacrificingshort-termprofit,becausewithoutcarefulmanagement,long-termprofitgoalsmaynotbemet.Meetingthecompetitionistheeasiestpricinggoaltoimplement.However,canmanagersreallyaffordtoignoredemandandcosts,thelifecyclestage,andotherconsiderations?Whencreatingpricingobjectives,managersmustconsiderthesetrade-offsinlightofthetargetcustomerandtheenvironment.EstimateDemand,Costs,andProfits.Theoretically,totalrevenue

isafunctionofpriceandquantitydemandedandthatquantitydemandeddependsonelasticity.Afterestablishingpricinggoals,managersshouldestimatetotalrevenueatavarietyofprices.Next,theyshoulddeterminecorrespondingcostsforeachprice.Theyarethenreadytoestimatehowmuchprofit,ifany,andhowmuchmarketsharecanbeearnedateachpossibleprice.Thesedatabecometheheartofthedevelopingpricepolicy.Managerscanstudytheoptionsinlightofrevenues,costs,andprofits.Inturn,thisinformationcanhelpdeterminewhichpricecanbestmeetthefirm’spricinggoals.ChooseapriceStrategyThebasic,long-termpricingframeworkforagoodorserviceshouldbealogicalextensionofthepricingobjectives.Themarketingmanager’schosenpricestrategydefinestheinitialpriceandgivesdirectionforpricemovementsovertheproductlifecycle.Thepricestrategysetsacompetitivepriceinaspecificmarketsegment,basedonawell-definedpositioningstrategy.Changingapricelevelfrompremiumtosuperpremium,mayrequireachangeintheproductitself,thetargetcustomersserved,thepromotionalstrategy,orthedistributionchannels.Thus,changingapricestrategycanrequiredramaticalternationsinthemarketingmix.Acarmakercannotsuccessfullycompeteinthesuperpremiumcategoryifthecarlooksanddriveslikeaneconomycar.Acompany'sfreedominpricinganewproductanddevisingapricestrategydependsonthemarketconditionsandotherelementsofthemarketingmix.Ifafirmlaunchesanewitemresemblingseveralothersalreadyonthemarkets,itspricingfreedomwillberestricted.Tosucceed,thecompanywillprobablyhavetochargeapriceclosetotheaveragemarketprice.Incontrast,afirmthatintroducesatotallynewproductwithnoclosesubstituteswillhaveconsiderablepricingfreedom.Thethreebasicstrategiesforsettingapriceonagoodorservicearepriceskimming,penetrationpricing,andstatusquopricing.Adiscussionofeachtypefollows.PriceSkimming

Priceskimmingissometimescalleda“market-plus”approachtopricing,becauseitdenotesahighpricerelativetothepricesofcompetingproducts,RadiusCorporationproducesuniqueoval-headedtoothbrushesmadeofblackneoprenethatlooklikeascuba-divingaccessory.Radiususesaskimmingpolicy,pricingthetoothbrushesat$9.95,comparedtoaround$2.00foraregulartoothbrush.Thetermpriceskimmingisderivedformthephrase“skimmingthecreamoffthetop.”Companiesoftenusethisstrategyfornewproductswhentheproductisperceivedbythetargetmarketashavinguniqueadvantages.Forexample,Caterpillarsetspremiumpricesonitsconstructionequipmenttosupportandcaptureitshighperceivedvalue.GenzymeCorporationintroducedCeredaseasthefirsteffectivetreatmentforGaucher’sdisease.Thepillallowspatientstoavoidyearsofpainfulphysicaldeteriorationandleadnormallives,Ayear’ssupplyforonepatientcanexceed$300,000.Asaproductprogressesthroughitslifecycle,thefirmmayloweritspricetosuccessfullyreachlargermarketsegments.Economistshavedescribedthistypeofpricingas“slidingdownthedemandcurve.”Notallcompaniesslidedownthecurve.Genentech'sTPA,adrugthatclearsbloodclots,wasstillpricedat$2,200adosefouryearsafteritsintroduction,despitecompetitionfromamuchlowerpricedcompetitor.Priceskimmingworksbestwhenthemarketiswillingtobuytheproducteventhoughitcarriesanabove-averageprice.If,forexample,somepurchasingagentsfeelthatCaterpillarequipmentisfarsuperiortocompetitors'products,thencaterpillarcanchargepremiumpricessuccessfully.Firmscanalsoeffectivelyusepriceskimmingwhenaproductiswellprotectedlegally,whenitrepresentsatechnologicalbreakthrough,orwhenithasinsomeotherwayblockedentrytocompetitors.Managersmayfollowaskimmingstrategywhenproductioncannotbeexpandedrapidlybecauseoftechnologicaldifficulties,shortages,orconstraintsimposedbytheskillandtimerequiredtoproduceaproduct.Aslongasdemandisgreaterthansupply,skimmingisanattainablestrategy.PenetrationPricing:Penetrationpricingisattheendofthespectrum,oppositeskimming.Penetrationpricingmeanschargingarelativelylowpriceforaproductasawaytoreachthemassmarket.Thelowpriceisdesignedtocapturealargeshareofasubstantialmarket,resultinginlowerproductioncosts.Ifamarketingmanagerhasmadeobtainingalargemarketsharethefirm'spricingobjective,penetrationpricingisalogicalchoice.Penetrationpricing

doesmeanlowerprofitperunit,however.Therefore,toreachthebreak-evenpoint,itrequireshighervolumesalesthanwouldaskimmingpolicy.Ifreachingahighvolumeofsalestakesalongtime,thentherecoveryofproductdevelopmentcostswillalsobeslow.Asyoumightexpect,penetrationpricingtendstodiscouragecompetition.Ifafirmhasafixedcoststructureandeachsaleprovidesalargecontributiontothosefixedcosts,penetrationpricingcanboostsalesandprovidelargeincreasestoprofits—butonlyifthemarketsizegrowsorifcompetitorschoosenottorespond.Lowpricescandrawadditionalbuyerstoenterthemarket.

Theincreasedsalescanjustifyproductionexpansionortheadoptionofnewtechnologies,bothofwhichcanreducecosts.And,iffirmshaveexcesscapacity,evenlow-pricedbusinesscanprovideincrementaldollarstowardfixedcosts.

Penetrationpricingcanalsobeeffectiveifalargeexperiencecurvewillcausecostsperunittodropsignificantly.Theexperiencecurveproposesthatper-unitcostswillgodownasafirm'sproductionexperienceincreases.Onaverage,foreachdoublingofproduction,afirmcanexpectper-unitcoststodeclinebyroughly20percent.Costdeclinescanbesignificantintheearlystagesofproduction.Manufacturerswhofailtotakeadvantageoftheseeffectswillfindthemselvesatacompetitivecostdisadvantagerelativetootherswhoarefurtheralongthecurve.Thebigadvantageofpenetrationpricingisthatittypicallydiscouragesorblockscompetitionfromenteringamarket.Thedisadvantageisthatpenetrationmeansgearingupmassproductiontosellalargevolumeatalowprice.Whatifthevolumefailstomaterialize?Thecompanyisfacedwithhugelossesfrombuildingorconvertingafactorytothefailedproduct.Skimmingpricing,incontrast,letsafirm"stickitstoeinthewater"andseeifthelimiteddemandexistsatthehighprice.Ifnot,thefirmcansimplylowertheprice.Skimmingletsacompanystartoutwithasmallproductionfacilityandexpanditgraduallyaspricefallsanddemandincreases.Anotherproblemwithpenetrationpricingiswhenaprestigebrandmovestopenetrationpricingtogainmarketshareandfails.WhenOmegawatches—onceabrandmoreprestigiousthanRolex—wastryingtoimprovemarketshare,itadoptedapenetrationpricingstrategythatsucceededindestroyingthewatch'sbrandimagebyfloodingthemarketwithlower-pricedproducts.Omeganevergainedsufficientshareonthelowerprice/lowerimagecompetitorstojustifydestroyingitsbrandimageandhigh-pricedpositionwithupscalebuyers.Similarout-comeswereexperiencedbytheCadillacCimarronandLacosteclothing.StatusQuoPricingThethirdbasicpricingstrategyafirmmaychooseisstatusquopricing,ormeetingthecompetition.Itmeantchargingapriceidenticaltoorveryclosetothecompetitor’sprice.Onedepartmentstore,forexample,makessureitischargingcomparablepricesbysendingrepresentativestoshopatcompetitor’sstores.Althoughstatusquopricinghastheadvantageofsimplicity,itsdisadvantageisthatthestrategymayignoredemandorcostsorboth.However,meetingthecompetitionmaybethesafestroutetolong-termsurvivalifthefirmiscomparativelysmall.Managersmustunderstandboththelegalandmarketingconsequencesofpricestrategies,theyshouldsetabaseprice,thegeneralpricelevelatwhichthecompanyexpectstosellthegoodorservice.Thegeneralpriceleveliscorrelatedwiththepricingpolicy:abovethemarket(priceskimming),atthemarket(statusquopricing),orbelowthemarket(penetrationpricing).Thefinalstep,then,istofine-tunethebaseprice.Fine-tuningtechniquesareshort-runapproachesthatdonotchangethegeneralpricelevel.Theydo,however,resultinchangeswithinageneralpricelevel.Thesepricingtacticsallowthefirmtoadjustforcompetitionincertainmarkets,meetever-changinggovernmentregulations,takeadvantageofuniquedemandsituations,andmeetpromotionalandpositioninggoals.Fine-tuningpricingtacticsincludevarioussortofdiscounts,geographicpricing,andspecialpricingtactics.23ReviewofTermsandConceptsPricestrategy:Abasic,long-termpricingframework,whichestablishestheinitialpriceforaproductandtheintendeddirectionforpricemovementsovertheproductlifecycle.價(jià)格策略

Priceskimming:Apricingpolicywherebyafirmchargesahighintroductoryprice,oftencoupledwithheavypromotion.撇脂定價(jià)

Penetrationpricing:Apricingpolicywherebyafirmchargesarelativelylowpriceforaproductinitiallyasawaytoreachthemassmarket.滲透定價(jià)

Baseprice:Thegeneralpricelevelatwhichthecompanyexpectstosellthegoodorservice.基礎(chǔ)價(jià)格

Prestigebrand:Aprestigebrandorluxurybrandisabrandforwhichamajorityofitsproductsareluxurygoods.(e.g.LouisVuitton,Gucciareexamplesofprestigebrands).Itmayalsoincludecertainbrandswhosenamesareassociatedwithluxury,highprice,orhighquality,thoughfew,ifany,oftheirgoodsarecurrentlyconsideredluxurygoods.豪華品牌

DiscussionandReviewQuestions:1.Whatisthefirststepinsettingarightprice?2.Whatarethethreecategoriesaboutthepricingobjectives?3.Whatshouldthemanagersdoafterestablishingpricinggoals?4.Whatarethethreebasicstrategiesforsettingapriceonagoodorservice?5.HowtochooseapriceStrategy?Giveanexample?6.Howtodefinethestrategypr