Pricing Strategies

Session 2
(Introduction to Strategic Pricing)
Pricing Game
The Strategic Pricing Pyramid
Price level
Session 7,8,9,10
(Price Setting)

Pricing Policy
(Negotiation tactics and
criteria for discounting) Session 6

Price and Value Communication

(Communication, Value Selling tools)
Session 5

Session 4 Price Structure

(Metrics, Fences and Controls)

Value Creation
Session
2&3 (Economic value, Offering Design, Segmentation)
The Strategic Pricing Pyramid
Price level
(Price Setting)

Pricing Policy
(Negotiation tactics and
criteria for discounting)
Session 2 & 3
Price and Value Communication
(Communication, Value Selling tools)

Price Structure
(Metrics, Fences and Controls)

Value Creation
(Economic value, Offering Design, Segmentation)
Recap: The Total Product

• Delivery
Installation
Support Services Warranty
After sales service

• Brand
Product Design
Country of Origin
Attributes Price
Packaging

Core • Features/Functions/benefits

Product/Benefits Value to Customer

 Components of Offering

Brand
Suppliers creatively combine
components of the total offering
that contribute to value for a
specific customers.
Product Service

Components will vary depending Packaging

on specific customer needs and the
Cost
customer’s cost structure

Value

Customer perceives price as a cost

in its offering
Availability
Reflect
• There is a lot of data to support the idea that a firm which has the
largest market share also is the most successful in a particular
industry. And what is the most effective way to gain the largest
market share?
Reflect
• Certainly to lower prices below competition.
• If this is true, wouldn’t a smart marketing manager always lower his
prices below the firms competitors to get the biggest market share
possible?
• What could possibly prevent him from taking this action?
Profit Objectives
Profit • Include pricing to realize a target return
on investment or to maximize profits
Oriented
Sales • Aim to increase sales either in currency
or unit terms or to penetrate markets
Oriented and increase share

• Includes meeting competition or

Status Quo choosing to compete on a non-price
basis
 Customer
Firm -Value in use
-Corporate Objectives -Perceptions of
-Costs product, company
-Marketing Program -Ability to pay
-Product assortment

Pricing Competitors
-offerings
Environment Strategy -pricing
-Govt Regulations -costs
-Inflation
-Currency Value and
stability Distribution
-Economy Channels
-Costs
-Capabilities
-Grey Market Possibilities
Pricing

• Determine the cost to produce and then

Cost plus add the profit (markup) to set the price

Customer • Value+ Profit

Driven
• Sales objective to get maximum market
Share Driven share
Just 574 To’ak chocolate bars were
produced in 2014 using hand sorted,
heirloom cacao beans harvested from
rare Ecuadorian trees. Each bar is
engraved with an individual number,
packaged in a Spanish elm wooden box
and comes with a specially designed
tasting tool (touching the chocolate with
your fingers can alter the flavour). A
single 50gram bar will set you back
$260.

Who decides what a chocolate bar is worth and on what evidence do they base that decision?
How do we know when to pay more or less?
Value is in the heart of the beholder.
More often than not value is perceived, not calculated.

It’s irrational, intangible, unpredictable and messy.

The customer is not paying for the rare beans or even the tasting
experience— she’s paying for the joy that believing the story brings
her.

Value creation is the responsibility of the marketer. It’s our job to

give people stories to believe in, not just advantages to measure.
 2 3
1
Pricing should reflect value
Value Creation
• Rank your preference on seat position in the class room
1. Middle or on side of class room (Horizontally)
2. Front, Middle or back (Vertically)
3. Sit next to a friend
4. Have room to spread out
What is “Value”?
Commonly refers to the overall satisfaction that a customer receives from using a
product or service offering.
Which airline “seat” do you
prefer?
 Economic or Exchange Value
• Economic value depends on the alternatives customers have available
to satisfy the same need.

How many of you will be willing

to pay for the premium seats?

Economic Value is created through

Differentiation
Economic or Exchange Value
Monetary
value
Differential
value

Psychological
value
Value Creation

Product Cost Price Value Customers

Customer Values Prices Costs Product

Caterpillar Example
• Is the equipment’s s price if it is only equivalent to the
$90,000 competitors tractor

$7,000 • Is the price premium for Caterpillars superior durability

$6,000 • Is the price premium for caterpillar’s superior reliability

$5,000 • Is the premium for Caterpillars superior service

$2,000 • Is the premium for Caterpillars longer warranty on parts

$110,000 • Is the normal price to cover Caterpillars' superior value

-$10,000 • Discount

$100,000 • Final Price

Economic Value
Negative Differentiation Differentiation Value:
Positive Value The Value to the customer (both positive
Differentiation and negative) of any differences between
Value the offering and the reference product

Total Economic
Value
Reference Value:
Reference The price (adjusted for differences in
value units) of the customer’s best alternative
Feedback and Questions to:
Mridula.Mishra@espial-edge.com
mridulasm@gmail.com