Marketing II Session 5 14 04 2015

Marketing II / Session 5 14. 04. 2015 Martin Samek martin. samek@lbs. ac. at

2 Lauder Business School Marketing II / Session 4

Price Lauder Business School Marketing II/ Session 5 3

Price - is relative to competition and the economy - is a message about quality -is a signal regarding positioning and image of the brand - provides value for money/ cost benefit Easiest to change of the 4 Ps 4 Lauder Business School Marketing II / Session 5

Price The 3 Cs influencing pricing decisions -> Company’s cost -> Customers’ sense of product’s value -> Competition’s price 5 Lauder Business School Marketing II / Session 5

Pricing Strategies LOW PRICE: -> Nearly predatory (Wal-Mart…) -> Market penetration (Clever… -> Loss leader (Happy Hour, Cell Phones…) -> Cost-plus (Primark…) 6 Lauder Business School Marketing II / Session 5

Pricing Strategies MEDIUM PRICE: -> Competitive (Best Western) -> Slightly below competition ( -> Slightly above competition 7 Lauder Business School Marketing II / Session 5

Pricing Strategies HIGH PRICE: -> Market Skimming -> Prestige or status pricing -> High because of real market difference 8 Lauder Business School Marketing II / Session 5

Pricing Low price: - How do we determine whether costs are covered? - Are low prices a strategic choice or should we offer price fluctuations? 9 Lauder Business School Marketing II / Session 5

Pricing Low price: - How do we determine whether costs are covered? - Are low prices a strategic choice or should we offer price fluctuations? -Cost is the limiting factor -- If variable costs are high – maximize margins per unit -- If fixed costs are high – Maximize number of units sold (to disperse the cost per unit) -Cost-plus pricing: P = (unit cost) / (1 -X%) Lauder Business School Marketing II / Session 5 10

Pricing Low price: Break Even? ->Number of units needed to sell to cover costs BE = fixed costs/(price-variable costs) BE is calculated for different price scenarios 11 Lauder Business School Marketing II / Session 5

Pricing Higher price: Price Sensitivity PS Price Sensitivity P 1 New Price (Lower Price) P 2 New Price (Higher Price) 12 Lauder Business School Marketing II / Session 5

Pricing Higher price: Two unknown variables PS and % change in sales PS: ->Past data/experience ->Scanner Data -> Survey Data (WTP ) -> Conjoint Analysis 13 Lauder Business School Marketing II / Session 5

Pricing Profit maximization: Profit = revenue – expense Revenue = price x quantity sold To maximize profits, find a price where any further increase in price would lead to a large falloff in quantity sold Profit Maximization: marginal revenue equals marginal cost 14 Lauder Business School Marketing II / Session 5

Pricing Temporary Adjustments 15 Lauder Business School Marketing II / Session 5

Pricing Temporary Adjustments 16 Lauder Business School Marketing II / Session 5

Pricing Temporary Adjustments 17 Lauder Business School Marketing II / Session 5