Seventh seminar for my Managing Marketing Processes course in the MGM program at the Stockholm School of Economics, http://www.hhs.se/EDUCATION/MSC/MSCGM/Pages/default.aspx
Yaroslav Rozhankivskyy: Три складові і три передумови максимальної продуктивн...
Managing Marketing Processes_Seminar 7
1. Seminar 7
Managing Marketing Processes
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Value Creation and Price Setting
Robin Teigland
Master of General Management
Stockholm School of Economics
September 19, 2013
2. Seminar 7 Overview
Guest Speaker, Karin Krook
Sales and Marketing Director
Elite Hotels
American Airlines' Value Pricing - A
Group Presentations
2
3. Case Study: American Airlines
Questions:
What is “Value Pricing” and why did AA introduce it?
What results did AA expect from this plan? What are
the implicit assumptions in these estimates?
What is the likely reaction of each of the competitors?
In the face of the likely competitive reaction, what
should AA do?
3
4. 1. Long-term goal (objective)
1. Scope of the firm (customer or offering,
geographic location, vertical integration
1. Competitive advantage
Components of business strategy
Collis & Rukstad 2008 4
5. 5
Porter’s five forces of competition
ENTRANTS
SUPPLIERS BUYERS
SUBSTITUTES
INDUSTRY
COMPETITORS
Rivalry among
existing firms
Threat of new entrants
Threat of substitutes
Bargaining
power of
suppliers
Bargaining
power of
buyers
http://www.youtube.com/watch?
v=mYF2_FBCvXw&feature=channel
Porter, 2008
6. 6
Generic Strategies in the Auto Industry
Scope
(Customer/
variety)
Type of
competitive advantage
Broad
Narrow
Differentiation Low cost
Mercedes
(Differentiation)
Nissan
(Cost leadership)
BMW
(Differentiation-
based focus)
Lada
(Cost-based
Focus)
7. Avoid being stuck in the middle
Market share
Return on
investment
High
HighLow
Low
Differentiation Cost leadership
Porter 7
8. CHP: 8&10-8
Segmentation, Targeting, and Positioning
Market Segmentation
1. Identify bases for
segmenting market
2. Develop segment profiles
Market Segmentation
1. Identify bases for
segmenting market
2. Develop segment profiles
Market Targeting
3. Develop measure of
segment attractiveness
4. Select target segments
Market Targeting
3. Develop measure of
segment attractiveness
4. Select target segments
Market Positioning
5. Develop positioning for
target segments
6. Develop marketing
mix for each segment
Market Positioning
5. Develop positioning for
target segments
6. Develop marketing
mix for each segment
14. Setting Pricing Policy
1. Selecting the pricing objective
2. Determining demand
3. Estimating costs
4. Analyzing competitors’ costs, prices, and
offers
5. Selecting pricing method
6. Selecting the final price
14
15. Step 1: Selecting the Price Objective
Survival
Short-term objective
Maximum current profit
Short term over long term performance?
Maximum market share
Market penetration
Maximum market skimming
High current demand
Product-quality leadership
Affordable luxury
16. Step 2: Determining Demand
Price sensitivity
Total Cost of Ownership (TCO)
Estimating demand curves
Price elasticity of demand
16-16
18. Step 3: Estimating Cost
Types of Cost and Levels of Production
Fixed costs (overhead)
Variable costs
Total cost
Average cost
Accumulated Production
Experience curve (Learning curve)
Differentiated Marketing Offers
Activity-based cost (ABC) accounting
Target Costing
19. Step 4: Analyzing Competitors’ Cost, Prices,
and Offers
Positioning in relation to competition
Costs
Prices
Possible price or other reactions
More
Same
Less
20. Step 5: Selecting a Pricing Method
Markup Pricing
Unit Cost = variable cost + (fixed cost/unit sales)
Markup Price= unit cost/ (1 – desired return on sales)
Target-return Pricing
Target-return price =
unit cost + (desired return X investment capital)/unit sales
Perceived-value Pricing
Price buyers, value buyers, loyal buyers
Value Pricing
Reengineering operations to become low cost without sacrificing
quality while reducing prices
Going-rate Pricing
Based on competitors’ prices
Auction-type Pricing
English, sealed bids
21. Step 6: Selecting the Final Price
Influence of the Other Marketing Elements
Brands with average relative quality but high relative advertising
budgets charged premium prices
Brands with high relative quality and high relative advertising budgets
obtained the highest prices
The positive relationship between high advertising budgets and high
prices held most strongly in the later stages of the product life cycle
for market leaders
Company Pricing
Consistent with company pricing policies
Gain-and-risk-sharing Pricing
Perceived level of risk by consumer?
Impact of prices on other parties (stakeholders)
23. 23
Exploiting differences, not doing the same!
Competitive advantage:
Ability to outperform others
due to exploiting unique
features of firm’s resources
and capabilities
Grant 2008
Grant 2008: the nature of strategy in a turbulent direction – it ’s about direction, not detailed planning. Madonna (like Virgin or Google) displays clear direction combined with the flexibility to adapt to and exploit unexpected change Collis & Rukstad: It is always easy to claim that maximizing shareholder value is the company ’s objective. In some sense all strategies are designed to do this. However, the question to ask when creating an actionable strategic statement is, Which objective is most likely to maximize shareholder value over the next several years?What our competitive game plan will be BALANCED SCORECARD How we will monitor and implement that plan of a Strategy Statement OBJECTIVE = Ends SCOPE = Domain ADVANTAGE = Means MISSION Why we exist VALUES What we believe in and how we will behave VISION What we want to be STRATEGY What our competitive game plan will be BALANCED SCORECARD How we will monitor and implement that plan The BASIC ELEMENTS of a Strategy Statement OBJECTIVE = Ends SCOPE = Domain ADVANTAGE = Means Single goal – profitability vs market share – what matters more? Scope - 3 dimensions – customer or offering, geographic location, vertical integration, clearly defined areas Advantage –1) value proposition – why should people buy your product over others? 2) combination of activities to deliver value proposition
Three horizontal forces and two vertical forces Picture from Grant 2008 All competing to get a share of the profits
Survival Maximize current profits Maximize market share Market-penetration pricing Best when: Market is highly price-sensitive, and a low price stimulates market growth, Production and distribution costs fall within accumulated production experience, and Low price discourages actual and potential competition