Pricing Fall07 Stu Essay examples

Pricing Fall07 Stu Essay examples Pricing Fall07 Stu Essay examples Pricing Strategies Week 6 EWMBA 206 Ganesh Iyer 1 Analysis Framework Competitor Analysis Perceptual mapping Company Analysis Marketing Myopia First mover advantages Customer Analysis Positioning Segmentation Marketing Strategy Pricing process Pricing and innovation Product Marketing Orientation Branding Price Promotion Place Market Ganesh Iyer 2 Economics of Pricing Two Problems with Single Price Strategy ï  ± Leave money on the table ï  ± Some customers are willing to pay more ï  ± Pass-up Profit ï  ± Some potential customers were not served even though the firm could have served them at prices above the marginal cost Ganesh Iyer 3 Price Discrimination Customization by Observable Characteristics Based on observable characteristics that signal buyers’ price sensitivity ïÆ'Ëœchessclub.com/ : Students: $29.95/year; Adults: $59.95 ï  ¬ AMC theaters can observe the consumer-type using his student ID, seniors  » Customer 1 No student ID $6.75  » Customer 2 Haas student ID $4.75  » Customer 3 Haas student ID $4.75  » etc. Ganesh Iyer 4 Price Discrimination Purchase Location ï  ± Consumers at different purchase locations have different price sensitivity ï  ± Cure for anthrax: $450 in the U.S. $190 in Canada canadadrugs.com ï  ± Staples website asks for zip code staples.com/ ï  ± Select segmentation variables that ensure ï  ± different segments purchase at different locations ï  ± high enough shipping cost to prevent arbitrage Ganesh Iyer 5 Customize By Time of Purchase ï  ± Peak-load pricing: designed to re-distribute usage from peak time to off-peak time ï  ± Redeye flight. ï  ± Electronic road pricing. Ganesh Iyer 6 Electronic Road Pricing Ganesh Iyer 7 Price Discrimination Palm Pilot: Product-line in Action Palmm505 Palmm500 Palm VIIx $399 Color $399 $449 Palm Vx $299 Palm IIIxe $179 Palm m100 $129 Ganesh Iyer 8 Microsoft Office: Product Line (Versioning) in Action Office 2000 Developer Office 2000 Premium Office 2000 Small Business Ganesh Iyer Office 2000 Professional Office 2000 Standard 9 How to Price Discriminate Using through Product Line Design? ï  ¬ Key to Successful Versioning ï  ² Identify the best ways to distinguish the different versions of the product/service ïÆ'Ëœ Need to determine which features will be highly valuable to some customers but of little value to others. ïÆ'Ëœ Goal: Create the â€Å"right† # of versions targeted at the â€Å"right† customer segments by setting the â€Å"right† prices. ï  ² Strategic Issue Cannibalization: Will the high-end customers buy the higher priced version? How to dissuade them from buying the lower priced version? Ganesh Iyer 10 Product Line (Versioning) Segmentation, Targeting & Cannibalization ï€   Example 1: Pricing Dell Laptops ï€   Table: Perceived Economic Value Personal Users ï€   Business Users ï€   Segment Size 60 40 ï€   Dell 350 MHz $ 500 $ 750 ï€   Dell 550 MHz $ 750 $ 2500 Ganesh Iyer 11 Product Line (Versioning) Segmentation, Targeting & Cannibalization ï  ° Example 1: Pricing Dell Laptops ïÆ'Ëœ Option I: Dell 350 MHz only: ï  ² Targeting: Business Users – Price $ 750 – Total Revenue $ 30,000 ï  ² Targeting: Business Users & Personal Users – Price $ 500 – Total Revenue $ 50,000 ïÆ' ° Ganesh Iyer Optimal targeting if introducing 350 MHz: Business Users + Personal Users 12 Product Line (Versioning) Segmentation, Targeting & Cannibalization ï  ° Example 1: Pricing Dell Laptops ïÆ'Ëœ Option II: Dell 550 MHz only: ï  ² Targeting: Business Users – Price $ 2500 – Total Revenue $ 100,000 ï  ² Targeting: Business Users & Personal Users – Price $ 750 – Total Revenue $ 75,000 ïÆ' ° Ganesh Iyer Optimal targeting if targeting 550 MHz: Business Users 13 Product Line (Versioning) Segmentation, Targeting & Cannibalization ïÆ'Ëœ Option III: Both 350 MHz & 550 MHz : ï  ² What will be the price of 350 Mhz = 500 ï  ² What are the options available to Business Users? ï  ² Buy 350 MHz at $ 500 or 550 MHz at $ X? ï  ² Surplus from 350 MHz = $ 750 - $ 500 = $ 250 Thus, price of 550 MHz