Pricing Summer Student

7/24/2019 Pricing Summer Student

1/17

1Ganesh Iyer

Pricing Strategies

Session 7

XMBA 206.1


2/17

2Ganesh Iyer

Analysis Framewor

Market

Customer AnalysisCompetitor

Analysis

Company AnalysisMarketing Myopia

Marketing Strategy

Product

Price

Promotion

Place

Marketing Orientation

Perceptual mapping

SegmentationPositioning

First mover advantages

Branding

Pricing processPricing and innovation


3/17

3Ganesh Iyer

!conomics o" Pricing

#wo Pro$lems with Single Price Strategy

Leave money on te ta!le Some customers are "illing to pay more

Pass#up Pro$it

Some potential customers "ere not served even toug te $irm couldave served tem at prices a!ove te marginal cost


4/17

%Ganesh Iyer

Price %&stomi'ation(

Price )iscrimination an* Sel"+selection

&yer's Car"as ()ample

Price * o$ Car "ases

3 +,,,% 3,,,

-o" to Price . /at is te !est single price.

Can you increase revenues. &$ so to "at level.


5/17

+Ganesh Iyer

Price )iscrimination an* Sel"+Selection

%ons&mer %o&,oning

/y coupons0

People "o are "illing to pay more tend to ave a iger personal time cost andare tere$ore less likely to clip coupons

isadvantage is non#redemption costs Companies spent appro) 45 B on distri!uting 2+6 B coupons o$ "ic 35 B "ere

actually redeemed


6/17

5Ganesh Iyer

-ey Princi,les

Consumers are eterogeneous in teir "illingness to pay Carge according to consumer price sensitivity Make sure tat people "it

inelastic demand pay more and people "it elastic demand pay less

7ey Pro!lem (nsuring sel$#selection8segmentation $ences

Make sure tat prices directed at one segment cannot !e taken advantage o$ !yte oter

-o" sould you acieve tis. &denti$y a 9!ad: $or te ig "illingness to pay segment and !undle it "it te

product to create a product $or te lo" segment #his is where ,ro*&ct *esign an* ,ricing comes together.

Segmentation $ences in airline pricing signi$icant increase in prices ; 1% days !e$ore departure


7/176Ganesh Iyer

Price %&stomi'ation

$ser/a$le %haracteristics

< Based on o!serva!le caracteristics tat signal !uyers' price sensitivity ttp0=="""cessclu!com= 0 Students0 42>>+=year? Adults0 4+>>+

AMC teaters can o!serve te consumer#type using is student &@ seniors

Customer 1o student & 456+ Customer 2-aas student & 4%6+

Customer 3-aas student & 4%6+

etc

Select te segmentation varia!les tat Separate consumers !ased on o!serva!le caracteristics into groups "it di$$erent

sensitivities eg@ a!ility to pay tuition@ age movie

Are o!serva!le and targeta!le "itout great e)pense eg@ Lotus 1#2#3 432+ $or $irsttime !uyer@ 4>> $or upgrades


8/17DGanesh Iyer

Price )iscrimination

P&rchase ocation

Consumers at di$$erent purcase locations ave di$$erent pricesensitivity Cure $or antra)0 4%+, in te ES 41>, in Canada

ttp0=="""canadadrugscom

Staples "e!site asks $or ip code ttp0=="""staplescom=

Select segmentation varia!les tat ensure di$$erent segments purcase at di$$erent locations

ig enoug sipping cost to prevent ar!itrage


9/17>Ganesh Iyer

%&stomi'e By #ime o" P&rchase

Pea+loa* ,ricing0 designed to re#distri!ute usage $rom peaktime to o$$#peak time

Gedeye $ligt

On demand computing

(lectronic road pricing


10/171,Ganesh Iyer

!lectronic oa* Pricing


11/1711Ganesh Iyer

Psychology in Pricing Strategy

Heans0 4%28432?ttp0=="""1macyscom=catalog=product=inde)ognc.

&I2,%,,%JCategory&I11221JLinkKypeI(verreen

Gole) "atc0 41,@,,, ttp0=="""role)com=en= >@>>, >@>6+

Gelative price di$$erence matters not te a!solute matters

/e!er#Fecner la"0 Gelative price di$$erence and not te a!solutematters

/e!er gradually increased te "eigt tat a !lind$olded man "as oldingand asked im to respond "en e $irst $elt te increase

Gesponse "as proportional to a relative increase in te "eigt &$ te "eigt is 1 kg@ an increase o$ 1, grams "ill not !e perceived &$ "eigt is 2, grams@ an increase in 1, grams is perceived Applies to sound@ vision etc


12/1712Ganesh Iyer

Psychology in Pricing Strategy

Mental %ategori'ation

& "ill so" you t"o numerical di$$erences Look at tem uicklyN


13/1713Ganesh Iyer

Psychology in Pricing

/ic di$$erence do you tink is greater.

Odd num!er pricing 4,>> vs 41,, /y ike soes are priced at 46>>>@ not 4D,N

Keoretical underpinning0 Mental categoriation

Price uality perceptions Koronto $lea markets

ttp0=="""torontocom=sopping=listing=,,,#211#236

Pricing and visi!ility Mark Laracy0 9&$ you like Opium you "ill like ina:

Pricing and social net"orks Pricing Krump to"ers


14/171%

Ganesh Iyer

Pros,ect #heory -ahnemann an* #/ersy3

One additional dollar gives a lesser increase insatis$action or value tan te dissatis$action caused!y a one dollar decrease

iving or taking a dollar

People $eel te pain o$ losses muc more tan tey$eel te appiness o$ euivalent gains


15/171+

Ganesh Iyer

Pros,ect #heory

A,,lications

En!undle gains0 Sports &llustrated@ o$$er additional !ene$its rater tan a discountBundle Losses0 Sellers o$ consumer dura!les and "arranties ()ample@ a 4+, "arranty $or46,, appliance


16/1715

Ganesh Iyer

Managing %om,etition

Price Matching %ra'y !**ie3

&n te e" ork city stereo "ars Cray (ddie ad made is trademark Wecannot be undersold. We will not be undersold. Our prices are thelowest.guaranteed. Our prices are insane.

-is main competitor e"mark J Le"is is no less am!itious /it any

purcase you get te store's 9Lifetime low-price guarantee: &t promisesto re!ate dou!le te di$$erence i$ you can $ind a lo"er price else"ere&$ a$ter your purcase $rom e"mark you $ind te same item at a lo"erprice proo$ o$ purcase reuired@ in te marketing area@ during teli$etime o$ your purcase@ e"mark "ill give you a 2,,Q gi$t certi$icatere$und 1,,Q o$ te price di$$erence plus an additional 1,,Q

/at "ould appen to prices "en $irms compete !y o$$ering tese guarantees.

/at could !e te reasons "y tese retailers adopted tese policies in te $irst

place.

/ould tese price matcing guarantees claims increase competition !et"eente t"o retailers and reduce teir pro$its or "ould it do te opposite.


17/1716

Ganesh Iyer

-ey Messages

eveloping pro$ita!le pricing strategies is a critical and creativee)ercise

Pricing is te only element o$ te marketing mi) "ose cost isgetting it "rong

Pricing's impact on pro$ita!ility is o$ten more signi$icant andmore immediate tan te impact o$ oter elements o$ te

marketing mi)

Pricing Summer Student

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