ch10

Views:
 
Category: Entertainment
     
 

Presentation Description

No description available.

Comments

Presentation Transcript

Slide 1: 

1 Chapter 10 Pricing in Business-to-Business Marketing Prepared by John T. Drea, Western Illinois University

Pricing Basics : 

2 Pricing Basics Fundamentally, price is an indicator of the worth of a product. Price needs to be set at a level that indicates that the benefits are worth the price, indicates that the customer can afford the price, the customer cannot obtain more value from some other supplier’s offerings.

Exhibit 10-1 Components of the Offering : 

3 Exhibit 10-1 Components of the Offering

Cost-Based vs. Value-Based Pricing : 

4 Cost-Based vs. Value-Based Pricing

Maximum Price : 

5 Maximum Price The highest price a supplier can charge for a product or service Key Points: If there is no competition, maximum price is the point where benefits just barely exceed the evaluated price. To build a relationship, a fair price is needed. “Fair” is a function of customer perceptions of the offering value. Competitor prices and total benefits delivered constitute a reference points in determining what is a fair price.

Exhibit 10-3 Customer’s Perception of Value and Evaluated Price : 

6 Exhibit 10-3 Customer’s Perception of Value and Evaluated Price

Value-Cost Model of Pricing : 

7 Value-Cost Model of Pricing Need to analyze what activities subtract the most from each customer’s profitability. At the same time, we need to analyze how important a product is to the customer’s creation of value. This indicates what each buyer can afford and how sensitive the customer is likely to be to price changes.

Exhibit 10-4a Value-Cost Model for Analyzing Customers : 

8 Exhibit 10-4a Value-Cost Model for Analyzing Customers Management and infrastructure…. Value score: FC% Technology development………… Value score: FC% Other overhead……………………. Value score: FC% Delivery & customer Supply service Sales Marketing Operations logistics Materials Value Value Value Value Value Value score: score: score: score: score: score: VC% VC% VC% VC% VC% VC% FC% FC% FC% FC% FC% FC% Value score: Contribution to value for customer’s customer 1 = Key component, 2 = Significant component, 3 = Minor component Cost percentage = Percentage of fixed costs (FC) or variable costs (VC)

Exhibit 10-4b Value-Cost Model for Analyzing Customers : 

9 Exhibit 10-4b Value-Cost Model for Analyzing Customers Management and infrastructure…. Value score: 1 FC% 15% Technology development………… Value score: 3 FC% 5% Other overhead……………………. Value score: 3 FC% 20% Delivery & customer Supply service Sales Marketing Operations logistics Materials Value Value Value Value Value Value score: 1 score: 3 score: 3 score: 1 score: 2 score: 3 VC% 10% VC% 0% VC% 0% VC% 70% VC% 10% VC% 10% FC% 25% FC% 10% FC% 5% FC% 20% FC% 0% FC% 0% Value score: Contribution to value for customer’s customer 1 = Key component, 2 = Significant component, 3 = Minor component Cost percentage = Percentage of fixed costs (FC) or variable costs (VC)

Exhibit 10-5 Maximum and Minimum Price : 

10 Exhibit 10-5 Maximum and Minimum Price

Exhibit 10-6 Effect of Price Reductions on Cost Coverage : 

11 Exhibit 10-6 Effect of Price Reductions on Cost Coverage

Exhibit 10-7 Demand and Supply Curves : 

12 Exhibit 10-7 Demand and Supply Curves

Relevant Costs : 

13 Relevant Costs must meet the following four criteria Resultant Costs Avoidable Costs Forward- looking Incremental Costs Realized Costs

Relevant Costs:On-going revenues must pay for on-going costs : 

14 Relevant Costs:On-going revenues must pay for on-going costs

Lessons to be learned on the economic fundamentals of price : 

15 Lessons to be learned on the economic fundamentals of price Lesson 1: Demand levels differ at different price levels. Each segment will have a different degree of price sensitivity. Lesson 2: Price changes trigger customer reactions. In the short-term, these reactions may be constrained by customers’ situations. Lesson 3. Price changes trigger reactions from competitors.

Several Marketing Objectives Addressed by Pricing : 

16 Several Marketing Objectives Addressed by Pricing Strategic Purposes Achieve a target level of profitability Build goodwill in a market Penetrate of a new market or segment Maximize profit for a new product Keep competitors out of an existing customer base Tactical Purposes Win new and important customer business Penetrate a new account Reduce inventory levels Keep business of disgruntled customers Encourage product trial Encourage sales of complementary products

Introductory Pricing Strategies : 

17 Introductory Pricing Strategies

Introductory Pricing Strategies : 

18 Introductory Pricing Strategies

Managing Pricing Tactics : 

19 Managing Pricing Tactics

Determining a Bid Price : 

20 Determining a Bid Price Expected profit at a given price is calculated as E(PF) = PW(Pr) x PF(Pr) Where: E(PF) = Expected profit PW(Pr) = Probability of winning the bid at price Pr PF(Pr) = Profit at price Pr

Exhibit 10-9 Hypothetical Example of Profit Expectations in a Competitive Bidding Situation : 

21 Exhibit 10-9 Hypothetical Example of Profit Expectations in a Competitive Bidding Situation

Exhibit 10-10 Effect of an Industry Increase in Costs : 

22 Exhibit 10-10 Effect of an Industry Increase in Costs

Exhibit 10-11 Two Types of Negotiating Situations in B2B Sales : 

23 Exhibit 10-11 Two Types of Negotiating Situations in B2B Sales

Preparation in negotiation is key : 

24 Preparation in negotiation is key

Pricing and the Changing Business Environment : 

25 Pricing and the Changing Business Environment As time pressures increase, marketers must react quickly to changes in customer needs or competitor actions. Two examples are hypercompetition and the Internet. Hypercompetition: requires constant collection of information on customer value-cost models and paying attention to your customers’ customers and their perceptions of value. The Internet: Improves communication, increases both buyers and marketers preparation. The Internet also facilitates on-line auctions – this is good for commodities, but can minimize relationships for other products.

authorStream Live Help