Marketing Strategy Chapter 3: Price Leadership

price strategy

1. price

2. differentiation

price leadership strategy

doing the same thing but cheaper

consists of

1. cost-based price leadership → actions → offered price →

2. perceived price leadership

differentiation strategies

1. quality

2. time

quality leadership strategy

doing the same thing but better

time leadership strategy

do something entirely different

(innovation) - create something new and build a market around it

objective disparity

when a brand has cost based price leadership but consumer do not perceive the price advantage. people probably will not purchase your product because they do no know it is a good price

this is not economical

communicative disparity

when a brand has a perceived price advantage without actually being a price leader

this is not sustainable

customers will notice and competitors will jump on this

influencing price perceptions bases on pricing and price evaluation of single prices

1. threshold prices

2. price promotions

influencing price perceptions based on pricing and price evaluation of an entire brnads/retailer

1. loss leader pricing

2. “everyday low price”

3. sales periods

influencing price perception based on price communication and price evaluation of single prices

1. influence reference prices

2. price presentation

influencing price perceptions based on price communication and price evaluation of an entire brand/retailer

1. price guarantee

2. communicate low prices

reference prices

displaying the manufacturer’s recommended price as external reference point

displaying competitor’s price as external reference point

displaying packages/versioning to show consumers the different prices if they upgrade “starting from…”

price guarantee

best price guaranteed

companies assert that they will either match or beat competitor prices

how to establish cost leadership

(static) status quo analysis → current costs → cost benchmarking

(dynamic) future actions → cost development → cost-cutting potential

cost cutting potential

cost cutting with unmodified product → production volume

cost cutting with unmodified product → structural actions → rationalize processes, outsourcing, insourcing

cost cutting with modified product → value analysis

cost cutting with modified product → target costing

fixed cost degression effect

the more units you produce the more units you can lay your fixed costs on, which makes each individual unit cheaper

this is very important to reach price leadership

this effects the fixed cost

experience curve effect

the more products you produce, the more experience you can get at producing the product more efficiently

pertains to marginal costs

penetration pricing

setting the price lower as your unit costs decrease. price is slightly higher than unit costs so as to make a profit

cost reduction due to increased production volume

skimming pricing

choosing not to reduce prices despite having a lower unit costs or only lowering your prices a bit to reach a higher margin

for price leadership you can do this just as long as competitors do not enter into price competition with you

once a competitor comes along with lower prices, you are forced to lower your prices as well if you are successful, you may drive competitor out of the market and you can slightly raise your prices again

target pricing

setting your prices lower than your unit costs so that you are losing a profit at the start but eventually as unit costs decrease, you break even and then end up making a profit

common approach

costs + profit margin = price market price

how much will a product cost

target costing

market price +profit margin = target costs

how much may a product cost?