This presentation covers the main issues when thinking about effective pricing strategies. It comes from the marketing forum at the Bizface UK business Forum

1. Dr. Stephanie J. Morgan Marketing Mix 2 - Price and Place Marketing Principles and Practice Download at www.bizface.co.uk

4. Pricing methods 3 D Jobber, Principles and Practice of Marketing, © 2001 McGraw-Hill Cost Competition Marketing Pricing methods

5. The demand curve Q 2 Q 1 P 2 P 1 Price Quantity D Jobber, Principles and Practice of Marketing, © 2001 McGraw-Hill 2

6. Cost-oriented Pricing Direct Costs (per unit) £2 Fixed Costs £200,000 Expected Sales 100,000 Costs per Unit Direct Costs £2 Fixed Costs (200K/100K) £2 Full Costs £4 Mark-up (10%) £0.4 Price (costs + mark-up) £4.4 Costs are taken into account only when they are directly attributable to the production of a particular product. Fixed costs or overheads are not included in the marginal cost. Marginal cost for the example: Fixed Costs £200,000 Expected Sales 100,000 Marginal Cost £2 Mark-up (10%) £0.2 Marginal Price £2.2 Full Cost Pricing Direct (Marginal) Cost Pricing 4 D Jobber, Principles and Practice of Marketing, © 2001 McGraw-Hill

7. Determining the break even point Losses Break even point Fixed costs Total revenue Total variable costs Total cost Profits Units of Production Money (£) 5 D Jobber, Principles and Practice of Marketing, © 2001 McGraw-Hill

8. Competitor-oriented Pricing Going-rate Pricing : With no product differentiation producers are forced to accept the going rate. In reality there is almost no situation in which no differentiation occurs. Competitive bidding : The supplier will price according to a specification drawn up by the purchaser. Usually the supplier will choose the lowest (most competitive) price tendered. Statistical modelling has resulted in the following basis for calculating expected profits. Expected profit = Profit X Probability of winning 6 D Jobber, Principles and Practice of Marketing, © 2001 McGraw-Hill

9. 7 D Jobber, Principles and Practice of Marketing, © 2001 McGraw-Hill Marketing-orientated pricing Effect on distributors/ retailers Negotiating margins Costs Political factors Product line pricing Competition Price-quality relationships Explicability Marketing strategy Value to customer Marketing-oriented pricing

10. New product launch strategy Rapid skimming 9 D Jobber, Principles and Practice of Marketing, © 2001 McGraw-Hill High Slow skimming Rapid penetration Slow penetration Price Low Promotion High Low

13. 13 D Jobber, Principles and Practice of Marketing, © 2001 McGraw-Hill Pricing using EVC analysis (Industrial/Organizational Markets) Life-cycle cost Purchase price Start-up costs Post-purchase costs 200 000 200 000 40 000 Added value Reference product New product X New product Y 50 000 30 000 120 000 100 000 20 000 80 000 EVC = 90 000 120 000 30 000

14. 14 D Jobber, Principles and Practice of Marketing, © 2001 McGraw-Hill Layers of competition Tertiary competitors Different products solving or eliminating the problem in a different way Different products solving the same problem in a different way Secondary competitors Immediate competitors Technically similar products

19. How a channel intermediary increases distribution efficiency 3 D Jobber, Principles and Practice of Marketing, © 2001 McGraw-Hill Direct distribution P = Producer C = Customer Number of Contacts = Number of Producers X Number of Customers P P P C C C 1 2 3 4 5 6 7 8 9

20. How a channel intermediary increases distribution efficiency 4 D Jobber, Principles and Practice of Marketing, © 2001 McGraw-Hill Distribution using a channel intermediary P = Producer C = Customer I = Channel intermediary Number of Contacts = Number of Producers + Number of Customers P P P C C C I 1 2 3

21. Distribution channels for consumer goods 5 D Jobber, Principles and Practice of Marketing, © 2001 McGraw-Hill Wholesaler Retailer Consumer Agent Producer Wholesaler Retailer Consumer Producer Retailer Consumer Producer Consumer Producer

23. Distribution channels for industrial goods 7 D Jobber, Principles and Practice of Marketing, © 2001 McGraw-Hill Producer Producer Producer Producer Industrial Consumer Industrial Consumer Industrial Consumer Industrial Consumer Distributor Agent Distributor Agent

24. Distribution channels for services 8 D Jobber, Principles and Practice of Marketing, © 2001 McGraw-Hill Service provider Agent Consumer or industrial customer Service provider Consumer or industrial customer

25. Channel strategy 9 D Jobber, Principles and Practice of Marketing, © 2001 McGraw-Hill Market Factors Producer, product and Competitive factors. Intensive Selective Exclusive Conventional Franchise, Vertical/ownership Channel strategy Distribution intensity Channel selection Channel integration

26. Components of the physical distribution system 12 D Jobber, Principles and Practice of Marketing, © 2001 McGraw-Hill Physical distribution system Warehousing Materials handling Transportation Inventory control Order processing Customer service

27. Inventory control Lead Time Inventory level Inventory Maximum Inventory Order point Safety stock level Time Order placed Order received 13 D Jobber, Principles and Practice of Marketing, © 2001 McGraw-Hill

28. Determining the economic order quantity Order processing cost Cost per unit Order quantity Economic order quantity 14 D Jobber, Principles and Practice of Marketing, © 2001 McGraw-Hill Inventory cost Total costs

29. Channel management 11 Acceptance? Financial sup. Exclusivity Relations Internal Competencies? Retain? Develop? Power Rels. Partnership, Positioning Performance Channel management Managing conflict Motivation Selection Evaluation Training