Introduction to B2B

Pricing StrategySession 9-11Revenue generator

Easily adjustable

Most Tangible

Immediate InfluencerPricing: A Different PRebatesDealer incentivesLoyalty CardsFreemium PricingFree to Fee PricingRentFaresFeesTollsRetainersWagesCommissionsFREEPricing A Number on Tag?Reference Pricing: Observed vs ReferenceFair Price Typical PriceLast Price PaidUpper-Bound PriceLower-Bound PriceHistorical Competitor PriceExpected Future PriceUsual Discounted PricePrice Quality InferencesPrice EndingsConsumer PsychologySelecting the Objective

Determining Demand

Estimating Costs

Analyzing Competition

Selecting a Pricing Method

Selecting the Final PricePrice SettingSurvivalOvercapacity, Intense Competition, Changing ConsumersMaximum Current ProfitSacrifice long-term ProfitMaximum Market SharePrice sensitive, Dip in Production Cost, Discourages CompetitionMaximum Market SkimmingHigh current demand, Less competition, Superior image, Unit Costs LowProduct-Quality LeadershipOther ObjectivesSelecting the Objective Step 1Price SensitivityMore DistinctiveLess aware about substitutesDifficult to compare with substitutesSmall part of buyers total incomeSmall part of the total cost of end product - TCOCost borne by another partyUsed in conjunction with other assetsBetter QualityCannot StoreInfrequent purchaseSlow to change buying habits

Determining Demand Step 2Price ElasticityMagnitudeDirectionPrice IndifferenceLong-term vs Short-termCeteris Peribus

Estimating Demand CurvesSurveysPrice ExperimentsStatistical Analysis: Longitudinal or Cross-functional

Determining Demand Step 2Types of CostsVariable CostFixed CostAverage Cost per UnitShort-termLong-term

Accumulated ProductionRisks associated:Cheap imageWeak followerFocus on Manufacturing

Target CostingEstimating Costs Step 3Competition OfferingAdd or Subtract ValueCompetition ResponseHomogenous ProductFew playersHighly informed buyers

Anticipating Competition ResponseMarket shareProfit maximizationStandardized vs Fresh challengeAnalyzing Competition Step 4Mark-up Pricing

Target Return Costing: Break-even volume

Perceived Value Pricing

Value PricingEvery Day Low PricingHigh-Low Pricing

Going-Rate Pricing

Auctions: English, Dutch, Sealed-bid

Selecting a Pricing Method Step 5Impact of Other Marketing ActivitiesQuality and Advertising

Company Policies

Gain-And-Risk-Sharing Pricing

Impact on Other PartiesSelecting the Final Price Step 6Higher or Lower

Barter

Compensation

Buyback Arrangement

OffsetPrice Adaptation Geographical PricingEarly Pay Discount: 2/10, net 30

Quantity Discount

Functional Discount

Seasonal Discount

AllowancesTrade-inPromotionalPrice Adaptation Discounts and AllowancesLoss-leader pricingSpecial Event pricingSpecial Customer pricingCash RebatesLow-interest FinancingLonger payment TermsWarranties and Service ContractsPsychological DiscountingPrice Adaptation Promotional PricingFirst degree DiscriminationSecond degree DiscriminationThird degree DiscriminationCustomer-segment pricingProduct-form pricingImage pricingChannel pricingLocation pricingTime pricingHow to make it WorkNo bondBundling the OfferUse it as Reward

Price Adaptation Differentiated PricingWhen does it WorkDifferentiated SegmentsRe-selling disallowedNo under-selling by competitionCost must not exceed revenueNo customer resentmentShould be Legal

Price Adaptation Differentiated PricingInitiating CutsExcess CapacityMarket shareConcerns: Low-qualityFragile market shareShallow pockets Price warInitiating IncreaseCost InflationOver-demandQuality perception

Initiating Price ChangesManaging Price IncreaseDelayed Quotation PricingEscalator ClausesUnbundlingReduction of DiscountsGradual IncreaseGiving advance noticeMove low-visibility prices firstIncrease minimum order sizeProduct amount reductionSubstituting ingredientsReducing features, servicesPackaging changesReducing low profit itemsCreating new economy Brands

Initiating Price ChangesProducts Stage in Life CycleImportance in PortfolioCompetitors intentions and resourcesWhy has competitor changedPermanent or TemporaryWhat if No changeResponse from the industryPrice-Quality EquationCost-Volume EquationAlternate OpportunitiesFurther differentiateIntroduce a low cost ventureReinvent as a low cost playerHomogenous vs Non-homogenousResponding to CompetitorCost + Industry Margin

No revisions

Independent of Marketing Programs

Not varying across items, segments, channels and purchase occasionsPricing MistakesThank You