Webmaster Forum - View Single Post - Marketing for Beginners: Targeting & Positioning, Segmentation, Costs & Pricing.

SVB · 02-05-2007, 07:50 PM

Let's take a look at pricing.

If you find your costs are rising, you may wish to increase prices of your products. Under what circumstances should you increase price?

Inflation
Stock market expectations
Desire to grow turnover quickly/improve margin quickly (cost reduction too slow)
Rising costs
Excess demand
Harvest objective
Value greater than price

And when should prices be reduced?

Value less than price
Falling demand/excess supply
Build objective
Price war unlikely
Pre-emptive strike on competitor
You can afford to do it

Remember that a price change will be immediately noticed by the customer.

Reducing customer sensitivity to price rises

Trading up - Quality improvements (New and improved)
Line extensions - Longer acting varients, etc
Unbundling - Charge extra for elements that were previously free
Lower discounts - eg remove cash back, quantity discounts, etc
Multiple Branding - Introduce a fighter brand to combat discounting and at the same time, raise price of original
Repositioning - Creating luxury proposition and by association decreasing price sensitivity
Escalation clauses - Allows supplier to pass on rises as appropriate (favoured nation?)
Cost plus formulas - All changes and enhancements met by customer on cost plus basis (get the basic cheaply, change your mind mmmm)
Staged price increases vs Jump - staged allows testing, jump if you don't care.

When it comes to pricing itself, there are a variety of methods you can use.

Full Cost Pricing
- Take all of your costs (direct and fixed), estimate volume, apply markup, and you have your price.
- Considerations:
  - Volume falls and prices increase
  - Illogical to estimate volume before set price (price sensitivity)
  - Focus is on internal costs rather than willingness to pay
  - Maybe technically difficult to allocate a 'fair' proportion of overheads

Direct Cost Pricing
- - Take direct costs, apply your markup, and you have the price.
  - Considerations:
    - Other customers may find out this new price if done as one off
    - Enable asset utilisation and makes a contribution to fixed costs (useful for services, where there is no sotrage facility)
    - Still no account of customer willingness to pay

Going Rate Pricing
- The commodity rate

What the competitor charges but a bit less
- Power of Internet - make use of your online status vs the offline alternatives

Competitive Bidding
- Sealed bids

What I have given you here are some basic points to think about when you consider the three main questions you originally asked. Hopefully this will help you think in a more marketing style. If you have any more questions or want me to expand on any points mentioned or not, feel free to ask and I will try my best to answer.

02-05-2007, 07:50 PM	#2 (permalink)
SVB Inactive Join Date: 10-13-03 Posts: 7,481 iTrader: 0 / 0% Latest Blog: None	Let's take a look at pricing. If you find your costs are rising, you may wish to increase prices of your products. Under what circumstances should you increase price? Inflation Stock market expectations Desire to grow turnover quickly/improve margin quickly (cost reduction too slow) Rising costs Excess demand Harvest objective Value greater than price And when should prices be reduced? Value less than price Falling demand/excess supply Build objective Price war unlikely Pre-emptive strike on competitor You can afford to do it Remember that a price change will be immediately noticed by the customer. Reducing customer sensitivity to price rises Trading up - Quality improvements (New and improved) Line extensions - Longer acting varients, etc Unbundling - Charge extra for elements that were previously free Lower discounts - eg remove cash back, quantity discounts, etc Multiple Branding - Introduce a fighter brand to combat discounting and at the same time, raise price of original Repositioning - Creating luxury proposition and by association decreasing price sensitivity Escalation clauses - Allows supplier to pass on rises as appropriate (favoured nation?) Cost plus formulas - All changes and enhancements met by customer on cost plus basis (get the basic cheaply, change your mind mmmm) Staged price increases vs Jump - staged allows testing, jump if you don't care. When it comes to pricing itself, there are a variety of methods you can use. Full Cost Pricing Take all of your costs (direct and fixed), estimate volume, apply markup, and you have your price. Considerations: Volume falls and prices increase Illogical to estimate volume before set price (price sensitivity) Focus is on internal costs rather than willingness to pay Maybe technically difficult to allocate a 'fair' proportion of overheads Direct Cost Pricing Take direct costs, apply your markup, and you have the price. Considerations: Other customers may find out this new price if done as one off Enable asset utilisation and makes a contribution to fixed costs (useful for services, where there is no sotrage facility) Still no account of customer willingness to pay Going Rate Pricing The commodity rate What the competitor charges but a bit less Power of Internet - make use of your online status vs the offline alternatives Competitive Bidding Sealed bids What I have given you here are some basic points to think about when you consider the three main questions you originally asked. Hopefully this will help you think in a more marketing style. If you have any more questions or want me to expand on any points mentioned or not, feel free to ask and I will try my best to answer.