Synopsis of Value Creation and Value Delivery

Marketing Management

Synopsis of Value Creation and Value Delivery

Vijayalakshmi Kanna

University Of The Cumberlands

Chapter – 11: Concepts and tools for Strategic Pricing

Pricing Strategies

Price is the only element of Marketing mix that produces revenue; the others produce costs. Pricing practices have changed significantly. A combination of environmentalism, renewed frugality, and concern about jobs and home values forces many consumers to rethink how they spent their money. The new economic realities have caused many consumers to reevaluate what they are willing to pay, and companies have had to carefully review their pricing strategies as a result. Pricing decisions must take into account many factors—the company, the customers, the competition, and the marketing environment. Consumers often actively process price information within the context of prior purchasing experience, formal and informal communications, point-of-purchase or online resources, and other factors.

Pricing Policy

In setting pricing policy, a company follows six steps: (1) select the pricing objective - here the company first decides where it wants its market offerings considering many factors like Maximum profits, Market skimming, Product quality leadership and so on (2) determine demand – each price will lead to different demand and have a different impact on companies marketing strategy (3) estimate costs – The Demand usually sets the ceiling on the price the company can charge for its product, and cost set the floor (4) analyze competitors’ costs, prices, and offers - Within the range of possible prices determined by market demand and company cost, the firm must take competitors’ costs, prices, and possible price reactions into account  (5) select a pricing Method - costs set a floor to the price. Competitors’ prices and the price of substitutes provide an orienting point. Customers’ assessment of unique features establishes the price ceiling.  (6)  And finally decide on the final price.

Price Adoption Strategies

Price-adaptation strategies include geographical pricing here the the company decides how to price its products to different customers in different location and countries. Price discounts and allowances where most companies will adjust their list price and give discounts and allowance for early payment, volume purchases, and off-season buying, promotional pricing, and discriminatory pricing which occurs when a company sells a product or service at two or more prices that do not reflect a proportional difference in costs. Author also discusses about the pricing strategies, the reasons for decline in market prices which might be brought about by excess plant capacity, declining market share, a desire to dominate the market through lower costs, or economic recession and price increase might be brought about by cost inflation or over demand. Companies must carefully manage customer perceptions when raising prices. Also, they should anticipate competitor price changes and prepare contingent responses, including maintaining or changing price or quality. When facing competitive price changes, the firm should try to understand the competitor’s intent and the likely duration of the change.