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MB123Marketing Week 6Dr Leanne Brereton• Consultation:• Mondays before class 9:00-10:00am via Zoom• Contact Details:• [email protected]• Ensure you include your name onyour email.☺Today’s agenda
Welcome! Any questions? ☺Lecture Part 1Case study analysis: LegoShort 10 min. breakLecture Part 2Short 15 min. breakAssessment 2B Group Work –Next week, Questions…See you next week!
Unless stated otherwise, all images free from Pixabay https://pixabay.com/imagesPricing strategiesLecture Part 1Pricing StrategiesLearning Outcomes1. Answer the question “What is a price?” and discuss the importance ofpricing in today’s fast- changing environment.2. Identify the three major pricing strategies and discuss the importance ofunderstanding customer-value perceptions, company costs, andcompetitor strategies when setting prices.3. Identify and define the other important external and internal factorsaffecting a firm’s pricing decisions.4. Describe the major strategies for pricing new products.5. Explain how companies find a set of prices that maximizes the profits fromthe total product mix.6. Discuss how companies adjust their prices to take into account differenttypes of customers and situations.Major Pricing StrategiesCustomer-Value-Based, Cost-based Pricing,Competition-basedPrice is the amount of money charged for a productor service, or the sum of all the values thatcustomers exchange for the benefits of having orusing the product or service.What is price?Major Pricing StrategiesSource: Kotler and Armstrong (2018)Major Pricing StrategiesSource: Kotler and Armstrong (2018)Customer Value-based PricingValue-based pricing uses the buyers’ perceptions of valuerather than the seller’s cost.• Value-based pricing is customer driven.• Cost-based pricing is product driven.• Price is set to match perceived value.Customer Value-based Pricing• Good-value pricing is offering just the right combination ofquality and good service at a fair price.• Everyday low pricing (EDLP) involves charging a constant everydaylow price with few or no temporary price discounts.• High-low pricing involves charging higher prices on an everyday basisbut running frequent promotions to lower prices temporarily onselected items.• Value-added pricing attaches value-added features and services todifferentiate the companies offers and thus their higher prices.Customer value-based pricing in action
Example from the market place
Good value pricing
Mercedes-Benz CLA class entry levelmodels.
The 2020 Mercedes-Benz CLA |Versatility in Motion
Everyday low pricing
ALDI charging a constant, everyday lowprice with few or no temporary pricediscounts.
ALDI Australia: Permanently LowPrices
David Jones with their frequent saledays, early-bird savings, and bonusearnings for store credit-card holders.
DAVID JONES MID-SEASON SALE: TAKEAN EXTRA 25% OFF
Value added pricing
Events cinemas by adding quality,services and value added features todifferentiate their offers and thussupport higher prices.
Events Cinemas Gold Class Garden City“Walkthrough”
Cost-based pricingCost-based pricing sets prices based on the costs for producing,distributing, and selling the product plus a fair rate of return for effortand risk.• Fixed costs are the costs that do not vary with production or sales level, forexample: rent, heat, interest, executive salaries• Variable costs vary directly with the level of production, for example: rawmaterials, packaging.• Total costs are the sum of the fixed and variable costs for any given level ofproduction.Cost based pricingCost-plus pricing adds a standard markup to the cost of the product.Advantages▪ Sellers are certain aboutcosts.▪ Price competition isminimized.▪ Buyers feel it is fair.Disadvantages• Ignores demand andcompetitor pricesBreak-even pricing (targetreturn pricing) is setting price tobreak even on costs or to makea target return.Cost based pricingSource: Kotler and Armstrong (2018)Competitionbased pricingCompetition-based pricing issetting prices based oncompetitors’ strategies, costs,prices, and market offerings.Source: Kotler and Armstrong (2018)New productpricing strategiesMarket-skimming pricingstrategy sets high initial pricesto “skim” revenue layers fromthe market.• Product quality andimage must support theprice.• Buyers must want theproduct at the price.Source: Kotler and Armstrong (2018)New product pricing strategiesMarket-penetrationpricing involves setting alow price for a newproduct in order toattract a large number ofbuyers and a largemarket share. Netflix is a powerful exampleof using market penetration pricing to edgeout a major competitor.BreakTake 10 mins!Lecture Part 2Pricing – considerations when strategisingProduct line pricingOptional product pricingCaptive product pricingBy-product pricingProduct bundle pricingProduct Mix Pricing strategiesProduct mix pricingstrategies• Product line pricing takes into account the cost differencesbetween products in the line, customer evaluations oftheir features, and competitors’ prices.• Optional product pricing takes into account optional oraccessory products along with the main product.• Captive product pricing sets prices of products that mustbe used along with the main product.• By-product pricing sets a price for by-products in order tomake the main product’s price more competitive.• Product bundle pricing combines several products at areduced price. Source: Kotler and Armstrong (2018)PriceadjustmentstrategiesPrice adjustmentstrategies• Discount and allowancepricing• Segmented pricing• Psychological pricing• Promotional pricing• Geographical pricing• Dynamic and onlinepricing• International pricingSegmentationpricingSegmentation Customer-segment pricingProduct-form pricingLocation-based pricingTime-based pricingForsegmentedpricing to beeffective:Market must be “segmentable”Segments must show different degrees of demandCosts of segmenting cannot exceed the extra revenueMust be legalPromotionalpricingCharacterised by temporarily pricing products below the list price, andsometimes even below cost, to increase short-run sales. Examplesinclude:• special-event pricing• limited-time offers• cash rebates• low-interest financing,• extended warranties,• or free maintenanceGeographicalpricing• FOB-origin pricing• Uniform-delivered pricing• Zone pricing• Basing-point pricing• Freight-absorption pricingDynamicpricingDynamic pricing involvesadjusting prices continually tomeet the characteristics andneeds of individual customersand situations (Kotler &Armstrong, 2018).InternationalpricingInternational pricing involvesadjusting prices continually tomeet the characteristics andneeds of individual customersand situations (Kotler &Armstrong, 2018).Buyer Reactions toPricing Changes• Product is “hot”• Company greedPrice increases• New models will be available• Models are not selling well• Quality issuesPrice cutsCompetitorReactions toPricingChanges• Why did the competitor change theprice?• Is the price cut permanent ortemporary?• Is the company trying to grab marketshare?• Is the company doing poorly andtrying to increase sales?• Is it a signal to decrease industryprices to stimulate demand?Respondingto PricingChanges • •Effective Action Responses Reduce price to match competition• Maintain price but raise the perceivedvalue through communications• Improve quality and increase price• Launch a lower-price “fighting” brandImportant external and internal factors affectinga firm’s pricing decisions.Otherconsiderationswhen pricing• Overall Marketing Strategy, Objectives, andMix• Organizational Considerations• The Market and Demand• The economy & other external factors➢Resellers➢Government➢Social concernsBreakTake 15 mins!Tutorial• Further information on thegroup project• Lego Case StudyYour brandof coffee?Which brand would your grouplike to focus on for yourmarketing plan?• Nescafe• Moccona• Starbucks• Lavazza• Vittorio• Other…Group Report• Discuss the current marketingcommunications strategy andtactics.• Research – desk top for relevantindustry reports, journal articles,statistics, and/or asking family andfriends (primary research).• Answer the questions as well as youcan given the information that youcan access.• Ensure your plan is well justified andNOT an opinion piece. You need tojustify your recommendations!Source: Principles of Marketing, 2015Marketing metrics to be advisedACTIVITY:LEGO it’s notall aboutpricing!Even though pricing is the only element of the marketingmix that brings in revenue, it needs to be seen as a part ofthe mix. Too often students think, “drop the price” as the“go to” strategy when competition heats up.1. Read the case study: Ashcroft, J & Co. 2014 The LEGOCase Study. TheLegoCasestudy.com accessed30042021 (https://www.hacerlobien.net/lego/Grupol-012-Case-Study.pdf)2. Answer the following questions:a) What was Lego management’s reaction to thechallenge faced by the company at the end of2003?b) Rather than reduce their price to match the copycat and cheaper cost competitors, what actiondid they take?c) Share your in the Discussion Forum on Canvasentitled: “Lego Case Study Discussion”Source: Pixabay free imagesQuestions?ConclusionNext week, questions, references …WEEK 7 Mid-semester breakWeek 6• Submit your assessment 2A by 11:59PM on Friday 27AugustWeek 7• Mid-semester break• Catch up on Assessment 1 – Weekly preparationWeek 8• Marketing channels (place)Source: Pixabay free imagesComing up:Assessment 2A!Individual Reportdue this Week 6!Source: Pixabay free imagesHave a greatbreak!ReferencesKotler P and Armstrong G, 2018 Principles of Marketing 17th edn.Pearson, London.Principles of Marketing 2015. Minneapolis: University of MinnesotaLibraries Publishing.QIAN, J 2020 LEGO: The Marketing Strategy Behind the Toy IndustryTitan available at https://blog.contactpigeon.com/lego-marketingstrategy/ Accessed 30 April 2021
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