You will be required to complete a Pizzeria’s marketing plan by including content from units 6-9. Your presentation should include Promotional Mix, Commerce

BCOBM222 Marketing in Action Unit 7: Pricing Strategies

Ryan Bytenski (MBA)

BCom., BCom Honors (Cum Laude)., PGDip., M.B.A.

euruni.edu

Pricing Objectives

Video: https://www.youtube.com/watch?v=sF6AMj3H0jg

Pricing Objectives

• Pricing objectives are the goals that guide a company in setting the price of a product or service.

• These objectives are fundamental to a firm’s overall business and marketing strategy, influencing

how products are positioned in the market and compete with others.

• The pricing objectives of a company directly impact its market presence and profitability.

• They determine the pricing tactics, influencing the product’s perceived value and the revenue

generated.

Pricing Objectives: Types

1. Profit Maximization:

• This objective focuses on setting prices to maximize the company’s profitability.

• It involves understanding the market’s price elasticity and determining the optimal price point where

profits are highest.

2. Specific Profit Margin Targeting:

• The goal is to achieve a specific profit margin per unit sold.

• It is suited for products with well-defined cost structures and established market presence.

Pricing Objectives: Types

3. Market Share Leadership:

• Companies aiming for market share leadership set prices to outcompete rivals and dominate market

share.

• This could involve aggressive pricing strategies to capture and maintain a larger market segment.

4. Customer Retention:

• The focus of a customer retention pricing objective is on retaining existing customers and building

loyalty by setting prices that are attractive to repeat buyers.

Pricing Objectives: Types

5. Survival:

• Survival becomes a priority in turbulent markets or during economic downturns, focusing on staying

afloat rather than profitability.

• Pricing decisions in this context focus on covering costs and maintaining viability, often leading to

lower profit margins.

6. Market Penetration:

• This involves setting lower initial prices to attract new customers and gain market entry.

• The long-term goal is to establish a customer base and increase market share, often followed by

gradual price increases as brand loyalty builds.

Pricing Objectives: Importance

• Impact on Market Share and Sales Volume.

• Alignment with Overall Business Strategy.

• Crucial for Achieving Business Goals.

• Pricing Objectives vs. Pricing Strategies.

• Distinction Between Objectives and Strategies.

• Pricing Objectives are the goals a company aims to achieve through its pricing.

• Pricing Strategies, on the other hand, are the specific methods and tactics a company employs to meet these objectives.

• Guide for Choosing Pricing Strategies.

• Profit Maximization: Companies aiming for maximum profits might adopt premium pricing strategies.

• Market Penetration: Contrastingly, a market penetration objective often leads to economy pricing strategies.

Role of “External Factors” Influencing Pricing Objectives

1. Competition:

• The level of competition in the market significantly influences pricing objectives.

• In a highly competitive market, a company may need to adopt more aggressive pricing strategies,

such as economy pricing, to gain a foothold or maintain its market share.

2. Customer Demand:

• Understanding customer demand is pivotal.

• Pricing objectives must reflect what customers are willing to pay, which depends on factors like

perceived value, customer income levels, and price sensitivity.

3. Market Conditions:

• Broader market conditions, including economic trends and industry shifts, also dictate pricing

objectives.

• For example, a company might lower its prices in a recession to maintain sales volume.

Importance of “Internal Factors” Influencing Pricing Objectives

1. Cost Considerations:

• The cost of producing or sourcing a product or service sets the baseline for pricing.

• Pricing must cover costs to ensure sustainability, making cost analysis a fundamental aspect of

setting pricing objectives.

2. Quality of Offerings:

• The quality of what a company offers directly impacts its pricing power.

• Higher quality often justifies higher prices, but the pricing must align with the perceived quality in the

eyes of the customers.

3. Brand Image:

• A brand’s position in the market influences its pricing objectives.

• Luxury brands, for instance, typically aim for premium pricing to align with their high-end image.

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Pricing Approaches & Methods

Video: https://www.youtube.com/watch?v=xQWUm_eHjGk

Effect of Price on Profit

Types of Pricing Methods and Strategies

1. Penetration Pricing:

• The penetration pricing strategy consists of setting a much lower price than competitors to earn

initial sales.

• Pro: Market penetration is much easier than entering with an average price, and you can quickly

earn new customers.

• Con: It’s not sustainable in the long run and should only be a short-term pricing strategy.

• Example: A new cafe opens up in town and offers coffee that is 30% cheaper than any other cafe in

the area. They also focus on excellent customer service and implement a loyalty program that offers

every tenth coffee for free. When customer demand has built up, the cafe slowly starts increasing

the coffee price to a more profitable level. This gives customers a chance to build a taste for the

coffee and other products and enjoy the great service as they work towards their free tenth coffee.

Many of them will keep coming back as the price rises.

Types of Pricing Methods and Strategies

2. Skimming Pricing:

• Businesses that charge maximum prices for new products and gradually reduce the price over time

follow a price skimming strategy.

• Pro: You can maximize profits of new products and make up for production costs.

• Con: Customers may become frustrated that they purchased at a higher price and watch as the

price gradually declines.

• Example: A home entertainment store starts selling the latest, most advanced television well above

market price. Prices then gradually decrease over the year as newer products come to market.

Types of Pricing Methods and Strategies

3. High-Low Pricing:

• High-low pricing is similar to skimming, except the price drops at a different rate.

• Pro: You can clear your inventory of out-of-date products by discounting them and putting them on

clearance.

• Con: Customers may wait for impending sales rather than purchasing at full price.

• Example: A boutique clothing store sells women’s sundresses at a high price during the summer

and then puts them on clearance once autumn arrives.

Types of Pricing Methods and Strategies

4. Premium Pricing:

• Premium pricing occurs when prices are set higher than the rest of the market to create perceived

value, quality, or luxury.

• Pro: Profit margins are higher since you can charge much more than your production costs.

• Con: This type of pricing strategy only works if customers perceive your product as premium.

• Example: A beauty salon builds up credibility within its market (such as via word of mouth or online

reviews) and offers its services for 30% higher than its competitors.

Types of Pricing Methods and Strategies

5. Psychological Pricing:

• Psychological pricing strategies play on the psychology of consumers by slightly altering price,

product placement, or product packaging.

• Pro: You can sell more products by slightly tweaking your sales tactics without losing profits.

• Con: Some customers may perceive it as being tricky or salesy, which could potentially tarnish your

reputation or lead to missed sales.

• Example: A restaurant sets a gourmet hamburger’s price at $12.95 to lure customers into

purchasing at a perceived lower price compared to $13.

Types of Pricing Methods and Strategies

6. Bundle Pricing:

• Bundle pricing is a type of promotional pricing where two or more similar products or services are

sold together for one price.

• Pro: Customers discover new products they weren’t initially planning to buy and may end up

purchasing them again.

• Con: Products that are sold within a bundle will be bought less often individually since consumers

are saving money on a bundled purchase.

• Example: A taco cantina sells tacos, tortilla chips, and salsa individually but offers a discounted

price if customers buy an entire meal with all of these items.

Types of Pricing Methods and Strategies

7. Competitive Pricing:

• The competitive pricing strategy sets the price of your products or services at the current market

rate.

• Pro: You can maintain market share in a competitive market and attract customers who are

interested in paying slightly less than your competitors’ rates.

• Con: You need to diligently watch average market prices to maintain a competitive advantage for

price-conscious consumers.

• Example: A landscaping company compares its prices to local competitors. It then sets the price for

its most popular service, a lawn maintenance package, below the market average to attract price-

sensitive customers.

Types of Pricing Methods and Strategies

8. Cost-Plus Pricing:

• Cost-plus pricing involves taking the amount it cost you to make the product and increasing that

amount by a set percentage to determine the final price.

• Pro: Profits are more predictable since you’re setting your markup price to a fixed percentage.

• Con: Since this type of pricing strategy doesn’t account for external factors, like your competitors’

pricing, or market demand, you may miss out on sales if you set your markup percentage too high.

• Example: A pizza shop adds up the cost of its ingredients and labor, then sets the pizza price to

receive a 20% profit margin.

Types of Pricing Methods and Strategies

9. Dynamic Pricing:

• Dynamic pricing matches the current market demand for a product. Also known as demand pricing,

this pricing strategy most often occurs when the product at hand fluctuates on a daily or even hourly

basis.

• Pro: You can increase overall revenues by raising prices when demand is on the rise.

• Con: Dynamic pricing requires complex algorithms that small businesses may not have the ability to

manage.

• Example: A boutique hotel raises its room rates for one weekend because there is a popular

summer festival in town.

Types of Pricing Methods and Strategies

10. Economy Pricing:

• Economy pricing consistently undercuts competitors with the goal of making a profit through high

sales volumes.

• Pro: You‘re likely to sell a large volume of products.

• Con: You won’t be making much on each item, so you’ll need to sell more goods than usual. Also, if

you don‘t manage your pricing carefully, you might create the perception of a low-value product or

business.

• Example: A superstore sells a generic brand of tea for 10% less than its local grocery store

competitors.

Types of Pricing Methods and Strategies

11. Freemium Pricing:

• Freemium pricing offers a basic product or service for free, then encourages customers to upgrade

to the paid, premium version to access more features or choices.

• Pro: You are building trust and educating potential customers about your product. You also get their

contact details so you can stay in touch through email marketing.

• Con: You don’t make money from every customer immediately and many users may choose not to

upgrade.

• Example: A software company offers basic virus protection for free with the option to upgrade to

several other tiers of progressively higher levels of online security.

Types of Pricing Methods and Strategies

12. Loss-Leader Pricing:

• Loss-leader pricing brings customers to your store to buy a highly discounted product (the loss

leader).

• Pro: This type of pricing strategy attracts customers who might not otherwise visit your store and

exposes them to your full range of products.

• Con: Some customers will only buy the loss leader product (and possibly many of them), so you

need to watch your profit and stock levels closely.

• Example: A supermarket offers bread at a very low price on Fridays, attracting people who might

then do all their shopping for the week.

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Dynamic Pricing

Video: https://www.youtube.com/watch?v=vTWhsgs3ZRA

Dynamic Pricing

• Dynamic pricing is product pricing based

on various external factors, including

current market demand, the season,

supply changes, and price bounding.

• With dynamic pricing, product prices

continuously adjust – sometimes in

minutes – in response to real-time supply

and demand.

• In contrast, dynamic pricing relies on real-

time trends and supply chain factors.

Dynamic Pricing: Benefits

• Dynamic pricing gives you greater control over your pricing strategy.

• As a retailer using dynamic pricing, you’ll have access to real-time price trends across thousands of products in your industry.

• Dynamic pricing allows flexibility without compromising your brand value.

• You can set a price floor that reflects your brand value while gaining the flexibility to stay profitable.

• Dynamic pricing saves you money in the long run.

• Dynamic pricing is based on real-time changes in supply and demand. It considers market price fluctuations and monitors competitor activity.

• You can manage dynamic pricing effectively with the right software.

• Monitoring hundreds of thousands of products and watching real-time supply-and-demand trends is highly complex and challenging.

• Dynamic pricing isn’t error-free, but you’re still in control.

• Dynamic pricing is based on supply-and-demand changes. As with any technology-based forecast, there is potential for error in dynamic pricing algorithms.

Dynamic Pricing: Downsides

• Dynamic pricing can lead to customer backlash and distrust.

• While it’s tempting to sit back and leave the pricing to the algorithms, doing so can cause a customer revolt.

• Poor data sources can impact dynamic pricing.

• Since dynamic pricing is based on real-time data, the data must be as accurate as possible.

• Dynamic pricing can alter customer behavior.

• Once customers realize that prices change in response to specific factors, they may change their behavior accordingly.

• Dynamic pricing may reduce customer loyalty.

• If customers are confused or feel taken advantage of by fluctuating prices, they may opt to purchase from a competitor with fixed pricing.

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Generating Demand

Generating Demand

• “Demand generation is a marketing strategy that looks at consumer need, and the product you're

offering, and then finding the perfect way to bring awareness to that product in a way that will

hopefully later translate to promising leads”.

• “Demand generation is the process of creating and cultivating interest in a product or service with

the goal of generating high-quality leads that can be nurtured into loyal customers”.

Generating Demand: Stages

1. Awareness: The goal is to create awareness among the

target audience about a brand, products or services.

2. Interest: Once prospects are aware of the offerings from a

company, the next stage is to pique their curiosity and

engage them further.

3. Consideration: This is where potential customers actively

evaluate a company's offerings and compare them to

alternatives as part of their due diligence.

4. Intent: At this point, prospects are actively considering

making a purchase.

5. Conversion/Decision: This is the stage when prospects

take a desired action to become qualified leads or customers.

6. Retention: This part of the customer journey is often

overlooked once a prospect becomes a customer, and for

that reason it is often not considered a stage of demand

generation.

Creating Demand: Strategies

1. Product Scarcity:

Scarcity is often used to bolster sales, but it can also be used to create massive brand lift. It plays on

the customer’s fear of missing out.

2. Information Scarcity:

If you leak just enough information before launch, you can generate tremendous buzz as your audience

searches everywhere for more information.

3. Leverage User-Generated Content:

Sometimes creating demand for a product is as simple as letting your customers sell the experience for

you.

4. Make It Exclusive:

They demand to know why they can’t have it, what factor excludes them, and how they can possibly get

access to it.

Creating Demand: Strategies (Cont’d)

5. Focus on the Biggest Problem:

Once you’ve identified a major issue facing an audience and you know your product is the perfect fit,

you can then take the market by storm with a comprehensive content marketing strategy.

6. Partner with Rockstars:

Influencers hold a lot of sway over their followers. Their audience respects them, trusts their ideas and

opinions, and are willingly persuaded by their interactions and content.

7. Constantly Innovate:

After launching the original version of your product, immediately switch your focus to improving on it

with the help of customer feedback.

Generating Demand: Benefits

• Increased brand awareness.

• Targeted lead generation.

• Improved customer engagement.

• Enhanced customer trust and credibility.

• Expanded market reach.

• Increased conversion rates.

• Higher customer retention.

• Data-driven insights.

• Competitive advantage.

• Sustainable business growth.

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Thank you! Ryan Bytenski

[email protected]

BCOBM222 Marketing in Action Unit 6: Communication Strategies – Part 2

Ryan Bytenski (MBA)

BCom., BCom Honors (Cum Laude)., PGDip., M.B.A.

euruni.edu

Brand Tracking

Video: https://www.youtube.com/watch?v=ZbPUi247wI8

Brand Tracking

Definition:

• “Brand Tracking is the ongoing measurement of

your brand-building efforts against key metrics,

such as brand awareness and perception”.

• “Brand tracking is an ongoing process that

involves monitoring and measuring various

aspects of a brand’s performance, perception,

and presence in the marketplace over time”.

• Trackers help brand owners to understand brand

health and make informed decisions to increase

sales, deliver greater return on marketing

investment, and win market share.

Brand Tracking – How to Track your Brand?

1. Set Objectives and KPIs:

• Clearly state what you want to achieve with brand tracking.

2. Utilize Brand Tracking Methods:

• Tracking a brand involves utilizing various methods and brand tracking tools to collect and analyze

data from different sources.

• Brand Tracking Methods:

• Brand tracking surveys: surveys provide valuable insights into how a brand is perceived by its target audience, how it compares to competitors, and how it is evolving in the minds of consumers.

• Media monitoring: It involves scanning various channels such as news, forums, blogs, podcasts, newsletters, reviews, and social media platforms for m