Session 17 Pricing in Business Marketing
Session 17 Pricing in Business Marketing
Session 17 Pricing in Business Marketing
Chapter Topics
Understanding how customers value pricing is the essence of
the pricing process. Chapter topics include:
2.How effective new product prices are established and the need
to periodically adjust the prices of existing products
1. Building trust
2. Demonstrating commitment
3. Being flexible
4. Initiating joint ventures
5. Working on developing deeper relationships
1. Service support
2. Personal interactions
3. Supplier know-how
4. Ability to improve customer’s time to market
SOURCE: Adapted from Gerald E. Smith and Thomas T. Nagle, “How Much Are Customers Willing to Pay,”
Marketing Research 14 (winter 2002): pp. 20-25.
I. Goal is to identify significant drivers of
value
Inelastic
An increase or decrease in
Inelastic price will not significantly
Demand
Demand affect demand
Price
D
D
Quantity Quantity
Elasticity of Demand
Price
Price Goes...
Goes... Revenue
Revenue Goes...
Goes... Demand is...
Down Up Elastic
Up Up Inelastic
Up Down Elastic
2. Price Skimming
3. Penetration Pricing
Price Skimming
Price Skimming is charging a high initial price
Price Skimming:
Appropriate for distinctly new products
Provides the firm with opportunity to profitably reach
market segments not sensitive to high initial price
Enables marketer to capture early profits
Enables innovator to recover high R&D costs more quickly
Should you:
Lower your price?
Ignore it?
Raise it?
If you
respond, is
Is your
Is there a response competition
No position in No Yes No
Accommodat that would cost less willing and
other Respond
e or Ignore than the preventable able to
markets at
sales lost? reestablish
risk?
the price
difference?
Yes
Does the
value of the Yes
No markets at
risk justify Will the multiple responses
the cost of No required to match a
response? competitions cost less than
the preventable sales loss?
Yes Yes
Respond
Respond
Source: Figure from “How to Manage an Aggressive Competitor” by George E. Cressman, Jr. and
Thomas T. Nagle from BUSINESS HORIZONS 45 (March-April 2002): p. 25. Reprinted with permission from Elsevier.
1. Before responding, ask: “Do the benefits
justify the costs?”
1. Governments
2. Large companies (using preferred suppliers) bid for:
a. Non-standard material
b. Complex designs and difficult manufacturing
methods
TYPES OF BIDDING
Closed bidding: Suppliers submit a written bid on a
specific contract and all bids are opened simultaneously
and often job goes to lowest bidder…
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