May 2, 2011

Chapter 10 : Pricing Decision ( Part 1 )

Question 1

Discuss the various pricing objective available to a product manager.

a) Penetration Pricing

- When purposely give most of the value to the customer and keeps a small margin.
- Used as an entry strategy and useful for discouraging compatitive entry.
- Objective: To build or keep market share/
- Necessary for price-sensitive market segment
- Should not be used for product or services subject to a price-perceived quality relationship or when the product has a strong competitive advantages.

b) Return on Sales/Investment Pricing

- Price that delivers the rate of return demanded by the senior manager in the company
- Ignore customer value and competition
- Useful only when the product has a monopoly or near-monopoly position

c) Skimming Pricing ( Prestige pricing )

- Particularly more on the value to producer rather than the customer
- Strong price-perceived quality relationship
- To position the product at a high end of the market
- Disadvantage : the higher the price, the higher the margin, result in higher chance that competition will enter.

d) Competitive Pricing

- Pricing at the category average or mimicking a particular competitor
- Similar product ( E.g : Ekomoni Handalan Vs Bio-Zip )
- Commodity category

e) Pricing for stability

- It is difficult to develop profit forecast and long-range plans when prices for products that make up a substantial portion of the buyer's cost fluctuate dramatically.

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