Pricing Strategy for Business Markets

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Pricing Strategy for Business Markets

• Chapter 15

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The Meaning Value

• The Importance of Price
• Customer Value
• Business customers overall assessment of the
  utility of a relationship with a supplier based
  on benefits received and sacrifices made.
• Benefits
• Core benefits
• Add-on Benefits
• Three examples
• Sacrifices
• Total Cost in Use
• Acquisition
• Possession
• Usage
• Value-Based Strategies

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Pricing Process

1. Set Strategic Pricing Objectives
2. Estimate Demand and Price Elasticity of Demand
3. Determine Costs and Relationship to Volume
4. Examine Competitors Prices and Strategies
5. Set the Price Level

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Step 1 Set Strategic Pricing Objectives

• Three goals
• ___________________
• ___________________
• ___________________
• Dow v. DuPont

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Step 2Estimate Demand and Price Elasticity of
Demand

• What to Look At
• Assessing Value
• Isolate important attributes and perceptions
• Four strategies

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Step 2Estimate Demand and Price Elasticity of
Demand

• Elasticity of Demand
• What does it measure?
• Satisfied customers Less price sensitivity
• Customized solution means higher price
• What increases price sensitivity?
• Easy to shop around
• Easy price comparisons
• Buyers can switch without extra costs
• Inelastic when price comprises large part of
  total cost
• Focus on end-use
• Value-based segmentation

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Step 3Determine Costs and Relationship to Volume

• Target costing
• What is it?
• Classifying costs
• Three types
• Direct traceable or attributable costs
• Raw materials
• Indirect traceable costs
• General plant overhead
• General costs
• Administrative costs of sales districts

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Step 4Examine Competitors Prices and Strategies

• Is price the only thing customers look at?
• Hypercompetitive Rivalries
• Characteristics
• First-movers
• Advantages
• Followers
• Advantages

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Pricing Products in the Life Cycle

• Analyze from __________ perspective
• Skimming
• What is it?
• When to use it?
• Time segmentation
• Penetration
• What is it?
• When to use it?
• Product Line Consideration
• Legal Considerations
• Robinson-Patman Act

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Responding to Price Attacks

• Evaluating the Threat
• Is there a response that would cost you less than
  the preventable sales loss?
• 3 ways to decrease threat
• If you respond, is the competitor willing and
  able to lower price again to restore difference?
• Why are they focusing on price?

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Responding to Price Attacks

• Will multiple responses that maybe required to
  match a competitors prices still cost less than
  the available sales loss?
• Allow them to win?
• Create barriers
• Is your position in other markets at risk if the
  competitor gains marketshare? Does the value of
  all the markets at risk justify the cost of the
  strategy response?
• Look at costs and benefits
• Two general rules

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Competitive Bidding

• Two forms
• Gain understanding of prices
• Reverse auctions
• Closed bidding
• Open bidding
• Online open bidding
• Strategies
• How to gain profitability?