Chapter 18 Chapter 16 Pricing is a System Art

Companies generally do not set a single price, but rather establish a price structure that reflects changes in factors such as regional demand and costs, market segmentation requirements, timing of purchases, order levels, and other factors. Of all marketing tools, price is the only factor that generates revenue.Businesses need systems to understand prices in order to better set, adjust and improve them.Since the pricing is affected by various factors such as product, market, demand, etc., Kotler suggested that the company should make a decision on the overall marketing strategy before setting the price, and then formulate the corresponding price to obtain profits.

In 1991, due to the economic downturn, Compaq Computer Company, known as the production of noble computers, suffered a loss in the first quarter and laid off 1,200 workers.That year, Pfeiffer, who had rich experience in marketing, was ordered to serve as the president of Compaq Corporation in times of crisis. Pfeiffer earnestly summed up the existing problems of Compaq, and put forward a new development strategy, that is, insisting on the development of personal computers and popularizing them.Pfeiffer clearly recognized the problem in Compaq's business: its personal computers were aimed at the rich and powerful, and the prices were too high for the average consumer.As a result, Pfeiffer made a bold decision to reduce the price of Compaq computers by 1/3 and increase the number of retail agents in the sales plan.

The first-ever price drop on a personal computer, and to an incredible price, was an instant hit.In this way, the market for buying brand-name computers at the price of non-brand-name computers was occupied by Compaq.Although the price reduction has reduced the unit profit, Feiffer is not without profit.He realized that profit and market share are closely linked.Without a market, no matter how high the price is set, profits cannot be realized. The key issue of marketing is to open up the market, and to open up the market depends on two factors: one is a good brand image, and the other is cheap prices.After Compaq Computer has a brand advantage, it needs to cut prices if it wants to develop greatly.In order to ensure profitability and meet the growing demand, Pfeiffer requires all aspects of production to reduce costs, and requires the factory to continuously produce 24 hours a day.When discussing its management methods to reporters, Pfeiffer said: "For Compaq, price cuts go hand in hand with reducing production costs and carrying out mass production. Ideal profit." When Compaq transferred to mass production, the cost of each process was reduced as much as possible. In 1993, when the production volume increased from 1.5 million units to 3 million units, the total production cost dropped by 10 million US dollars.

When other companies producing brand-name PCs realized the reason for Feiffer's price reduction, they followed suit one after another. For a while, the prices of brand-name computers dropped.However, not all companies can withstand the test of price cuts.Many companies closed down due to lack of financial resources, while Compaq Computer jumped from the fourth in the world in annual sales in 1992 to the first in the world in 1993, with a market share of 12.4% and a turnover of 7.2 billion US dollars. And become one of the few companies in the industry that is profitable year after year.

Enterprise pricing is not limited to the consideration of enterprise cost and profit, and the reasonable pricing of products is affected by many factors.Just like Pfeiffer's price adjustment to Compro, not only its cost and scale cost, but also the goal of its marketing strategy need to be considered.The clearer a company is about its goals, the easier it is to set prices, and costs determine the lower limit of product prices.Therefore, companies need to focus on the following aspects when pricing products: 1.Survive.In the case of increasingly fierce market competition and changing consumer needs, enterprises need to maintain their survival as the main goal.In order to ensure that factories continue to operate and inventories are sold, companies must set lower prices, and profits are much less important than survival.To remain in the industry, many businesses price only to cover variable costs and some fixed costs.However, Kotler reminded companies that survival can only be a short-term goal.Learning how to add value is the way to go in the long run.

2.Maximize current profit.Some enterprises regard setting a price that can maximize the current profit as the goal.They estimate demand and costs, and accordingly choose a price that produces the greatest current profit, cash flow, or return on investment.Assuming that the enterprise has a full understanding of the demand function and cost function of its products, the price that ensures the maximum profit of the current period can be formulated with the help of the demand function and cost function. 3.Market share leadership.Some companies hope to have the largest market share by lowering prices, because the company is sure that after winning the highest market share, it will enjoy the lowest cost and the highest long-term profit, so the company sets the price as low as possible to pursue market share leadership. status.Firms may also pursue a particular market share.When one of the following conditions is met, the company can consider increasing market share through low prices:

The market is highly price sensitive, so low prices can stimulate rapid growth in demand. The unit cost of production and distribution will decrease with the accumulation of production experience. Low prices can scare off existing and potential competitors. 4.Product Quality Leadership.Enterprises can also consider the goal of leading product quality in the market, and always implement the guiding ideology of product quality optimization in the process of production and marketing.However, when adopting this marketing goal, achieving product quality leadership generally means setting a higher price to compensate for the various costs invested by the company.Therefore, when adopting this strategy, enterprises should give more consideration to the comprehensive marketing effect.

There are multiple ways companies in Asia approach pricing.In a small company, the price is set by the boss; in a large company, the pricing is determined by the energy of the business unit and the energy of the product line.Others who influence pricing include sales managers, production managers, financial managers, and accountants. Pricing is one of the most important components of marketing. It mainly studies the strategy of setting and changing the prices of goods and services in order to obtain the best marketing effects and benefits.Pricing directly determines the profit of the enterprise. Therefore, to understand the price and set the price, many factors must be considered.

In the initial stage of entering the dairy industry, a company mainly promoted pure milk 243ml/bag, packaged in Baili package, product specifications 20 bags/box, product supply price 19 yuan/piece, terminal retail price 20 yuan/piece, product sales per The daily output is less than 12 tons, and the enterprise is in a state of no profit or even a loss. In response to this situation, the company changed the capacity of each bag of milk to 200ml/bag, and the specifications were 24 bags/box. In order to formulate a more reasonable price, the company did in-depth market research before deciding.The survey found that the dairy industry is a sunrise industry, and liquid milk products are in a stage of rapid development, with a large market capacity.At the same time, I checked the prices of milk products in various regions of the country from the Internet. The price of a single bag of Bailibao products is 1 yuan, and the price of the whole box is different due to different packaging specifications, but the equivalent price per bag is still 0.9 ~1 yuan.

In addition, analyzing the competitive products in the entire market, it is found that the product specifications and packaging tend to be consistent, the product price is the same as the price of the same specification, and the supply price is also the same. Yuan/piece, and the high one is 22 yuan/piece, which is the mainstream in the market. In addition, the supply price of the company's original specification products is 19 yuan, and the profit of retail and FCL purchases is the same for the channel. Although the profit of FCL is the same as that of competing products, the price difference between retail and competing products is 1 yuan, and the terminal is slightly different. This also affects the retail recommendation power of terminal retail shop owners.

From the perspective of the company itself, the company is full of confidence in the development of the dairy industry, and will invest heavily in the promotion, branding, and publicity of the dairy industry in the later stage, so product pricing needs to give up this part of the space for profit; in addition, the parent company of the company is large in scale, The financial situation is good, and the quality of the milk source is high, but the product price positioning is platinum quality, silver price, and it is an enterprise that pursues market share.Judging from the market environment of the enterprise, milk products are in the rising period of sales momentum, and the sales volume will increase significantly. According to the comprehensive consideration of various factors, combined with the analysis of the market survey results, the company adopts the market-based pricing method of the competition-oriented pricing method, and the company positions the product at a mid-range price. The price is set at 22 yuan/piece, and the suggested retail price is 23~ 24 yuan/piece, considering the unpredictability of the later development of the market, it is recommended that enterprises raise 2 yuan for product promotion and promotion expenses in product promotion.After the implementation of this strategy, the product went on the market smoothly and formed a large sales volume. The price of the product is one of the tools of marketing. There are many ways to set the price of the product. One of the most important points is to adjust its own price according to the market. The company in the case finally came up with the price setting through the analysis of the market, competitors and itself. It is most suitable at 22 yuan/piece. The price of each commodity is by no means randomly customized, but must be formulated scientifically and rationally according to the characteristics of the enterprise and the product, combined with the current market situation.In general, the pricing of products needs to follow the following steps: Step 1: Select a pricing target.The company generally pursues six goals through pricing: survival, maximum current profit, maximum current revenue, maximum sales growth, maximum market share, or leading product quality.The clearer a business's goals are, the easier it is to set prices. Step 2: Identify needs.Each price will result in a different level of demand and thus have a different effect on marketing objectives.Generally speaking, the higher the price, the lower the demand; the lower the price, the higher the demand.However, the price sensitivity and price elasticity of consumers also need to be considered. Step Three: Estimate Costs.The company's costs are the bottom line, and the company wants to set a price that includes all of its low costs of producing, distributing, and marketing the product, as well as a fair reward for the company's efforts and risks. Step Four: Analyze competitors.Competitors' costs, prices, and possible price responses also help the firm set its prices within the range of possible prices determined by market demand and costs. Step 5: Select a pricing method.On the basis of grasping the demand, cost and competitor's price, the enterprise can choose the appropriate pricing method to set the price.Commonly used pricing methods are: cost-plus pricing, target revenue pricing, cognitive value pricing, value pricing, prevailing price pricing, auction-style pricing and group pricing. Step 6: Select the final price.Narrow down the range from which to select the final price by the pricing method described above.Finally, the company introduces some legalist considerations, including consumer psychology and other marketing factors, to finalize the price. Pricing strategies can greatly influence customer marketing and market competition behavior.Pricing strategies generally change with the changes in the product life cycle, and the pricing of new products in the introduction period is a very important issue. When a company develops a new product, when it pushes a regular product into a new distribution channel or a geographic region, the company's pricing process begins. In the 1960s, there was an entrepreneur named Milton Reynolds in the United States.He stumbled upon the ballpoint pen while doing business in Argentina.Although the invention of the ballpoint pen came out as early as 1888, it was not mass-produced and is unknown to the world. Reynolds keenly believed that the ballpoint pen had a broad market prospect, so he rushed back to China, researched and improved it day and night, and took out his own sample in just over a month, and cleverly used people's understanding of it at that time. Atomic hot mood, named "atomic pen". After that, he took the only sample to the Kimbell department store in New York to show the executives the extraordinary features of this wonderful pen of the atomic age: "It can be written in water, and it can also be written at high altitudes." These are the promotional strategies carefully formulated by Reynolds based on the characteristics of ballpoint pens and the American character of seeking new and different. At that time, the production cost of this ballpoint pen was only US$0.50, but Reynolds believed that this product appeared in the United States for the first time, that it was a rare commodity, and that there was no competitor, so he decisively set the price at US$12.50, and the retailer again. Sold to consumers at a price of more than 20 US dollars each.Reynolds believes that only such a price can show the extraordinary features of this pen, worthy of the name of "ball pen".Although the price is so high, the ballpoint pen has been popular in the United States for a period of time with its novel, peculiar and noble image, and it is very popular in the market.Every time Kimbell Department Store sells this kind of pen, thousands of people rush to buy the "wonderful pen".Orders flew to Reynolds' company like snowflakes.In just half a year, not only the capital of 26,000 US dollars invested in the production of ballpoint pens was recovered, but also an after-tax profit of 1.55 million US dollars was obtained.Later, other manufacturers followed suit, reducing the cost of the product to $0.10 each, with a retail price of $0.70 each. When the ballpoint pen was first brought to the United States, it was in a completely monopolized market, and all production and sales were operated and controlled by Milton Reynolds, so he could set the price arbitrarily.After considering the following factors, Milton Reynolds set the ballpoint pen at $12.50, which costs only $0.50.The new product skimming pricing method is used. The ballpoint pen is the first to appear in the United States, and it has many wonderful features, which are very attractive to Americans who are looking for new ideas. Moreover, the ballpoint pen is in the investment period and has a bright future. Naturally, it is priced by "skimming".Skimming pricing is a high-price launch strategy for new products that companies use to price new products that have unique advantages.It is beneficial for operators to quickly recover the investment in new products in a short period of time, avoid operating risks, and help establish a product image. But not all businesses can do this. Skimming pricing is the most appropriate pricing method when customers are willing to pay a higher price than the market average.Of course, as Kotler pointed out, this must be based on the quality of the product and the good image of the company.Skimming pricing strategies can be used when producing a product is technically difficult, has technical or time constraints, and prevents rapid diffusion of production. "Ballpoint pen" just met this condition when it came out.That is, before adopting skimming pricing, it must be ensured that competitors cannot easily enter the market. The opposite of skimming pricing is penetration pricing.Penetration pricing works by setting a relatively low price for a product to reach the mass market.Low price can occupy a large market share, thereby reducing production costs.If a marketing executive regards obtaining a large market share as the pricing goal of the company, then the penetration pricing strategy is a natural choice. However, penetration pricing also means lower unit profit. Therefore, in order to achieve the breakeven point, the company must ensure that the cost of the company will decrease as the product sales increase.Marketers believe that penetration pricing can moderate competition and be more effective in price-sensitive markets. The cost sets the lower limit for the price, and the consumer's perception of the value of the product sets the upper limit for the price. The company must find the best price between the above two extremes on the basis of considering competitive prices and internal and external factors. Generally speaking, there are generally three pricing methods of enterprises: cost-based pricing, value-based pricing and competition-based pricing.The cost-based pricing method is a pricing method based on the cost of the enterprise's products. The advantage of this method is that it "pays what you pay for", seeks profit from cost, and is simple to calculate. In July 2009, China's largest catering group, Yum Brands China Division of KFC, signed an agreement with the three leading domestic chicken companies in Beijing to purchase 280,000 tons in the next three years under the brand-new model of "cost pricing" for the first time Chicken, the total amount will exceed 5 billion yuan. The price that Yum! negotiated with chicken companies this time is based on the price of the main raw materials that determine the cost of chicken products, which is the "cost pricing method" in marketing.In the context of the global financial crisis, the "cost pricing" method is more conducive to enhancing suppliers' ability to resist market risks and expanding investment confidence than the original "market price pricing" method. According to estimates, the 280,000 tons of chicken that KFC will purchase means the demand for 1.2 billion chickens.The breeding and slaughtering process of these 1.2 billion chickens requires about 90,000 breeding workers and 90,000 slaughtering and processing workers.The feeding of these chickens will consume 5.5 million tons of chicken feed, and indirectly consume 2 million tons of soybeans and 2.88 million tons of corn, all of which constitute the cost of chicken. Chen Wenrui, Senior Director of Supply Chain Management of Yum China, said that cost control is a very important means for enterprises to deal with the financial crisis. The fundamental purpose of Yum! Cost is the bottom line of product pricing.In the long run, the price of any product should be higher than the costs incurred. Only the consumption incurred in the production and operation process can be compensated from the sales revenue, the enterprise can obtain profits, and the production and operation activities can continue.Many companies struggle to reduce costs, mainly because low costs often lead to low prices, thereby achieving higher sales and profits.Generally speaking, the costs considered in product pricing mainly include the following aspects: 1.fixed costs.Refers to expenses that do not change with changes in product output within a certain period of time, such as depreciation expenses for equipment and plant buildings, fixed wages for employees, certain management expenses, etc.The overall expenditure level of these expense items is relatively fixed in the short term. Even if the enterprise does not produce products, it still needs to spend. When the output increases, this part of the expenditure does not increase significantly. 2.Variable costs.This is the expenses that change with the change of product output in the production and operation of the enterprise, such as piece-rate wages, raw material expenses, etc.These expenses can be included in the product cost directly, do not have to adopt the method of apportionment.Generally speaking, in a period of time, the growth rate of the total variable cost is basically in the same proportion as the output growth rate.However, when the output increases to a certain level, it may be due to the need to pay overtime wages, hire unskilled workers, use low-quality raw materials, etc., which will lead to an accelerated growth rate of the total variable cost. The total cost of a product is the sum of fixed and variable costs. Value pricing is not simply about selling a product less than competitors.It is necessary to reengineer the company's operating process in order to truly achieve low cost without reducing quality, and use a lower price to attract a large number of value-conscious customers to buy. Generally speaking, when consumers buy commodities, they will have their own certain understanding and basic value judgments on the quality, performance, use and price of the commodities. That is to say, consumers will estimate whether it is worth buying a commodity at a certain price. .Therefore, when we set prices, when the commodity price is at the same level as consumers' understanding and awareness of its value, it will be accepted by consumers; otherwise, it will be difficult for consumers to accept or not accept it. The value-based pricing method thus emerged as the times require.Marketers set commodity prices based on consumers' understanding and awareness of commodities, which is value-based pricing, also known as demand-oriented pricing.The idea of ​​this method is: the key to enterprise pricing is not the seller's production cost, but the buyer's understanding of commodity prices. The Gillette razor blade company in the United States was founded as an unknown small company.Now, Gillette has developed into a world-renowned large company.Gillette razor blades sell well all over the world. As long as there are people, there are almost Gillette razor blades. Before 1860, only a few aristocrats had the time and money to trim their faces, and they could hire a barber to shave them.After the commercial revival in Europe, many people began to pay attention to grooming their appearance, but they did not want to use razors because the razors were cumbersome and dangerous at that time, and they did not want to pay too much money for a barber to fix their faces. In the second half of the 19th century, many inventors rushed to launch the "do-it-yourself" razor blades they invented and manufactured. However, these new razor blades were too expensive to sell.A cheapest safety razor costs 5 yuan, which is equivalent to five days' salary of a worker at that time.And a shave at the barber only costs 10 cents. Gillette razor blades are comfortable and safe razor blades, but if you just use "comfortable and safe" to describe them, Gillette razor blades are not any better than other brands, not to mention that their cost is higher than other brands high.But Gillette doesn't "sell" its razors, it "gives" its razors.Gillette set the price at 55 cents, less than one-fifth of its manufacturing cost.But Gillette has designed the entire knife holder into a special form, and only its razor blades can fit into this special knife holder.The manufacturing cost of each blade is only 1 cent, but it sells for 5 cents.However, what consumers consider is that the last shave in a barber shop cost 10 cents, and a 5-cent blade can be used about 6 times.In other words, the cost of shaving with your own razor blade is less than 1 cent, which is only equivalent to 1/10 of the barber's fee, which is still a good deal. Gillette does not set the price of razor holders based on manufacturing cost plus profit, but sets the price of razor holders based on customer psychology.As a result, customers may pay more for Gillette than they would for razors made by other companies.Gillette makes consumers buy the value of the products in their minds through such a "decreasing one and the other" method, and naturally wins a big victory.It should be noted that this kind of "one trades off" strategy sells products according to the needs and values ​​of customers and actual interests, rather than according to the producers' own decisions and interests.In short, Gillette's "one and the other" represents a change in the original value of customers, rather than a change in the manufacturer's cost price. This strategy is generally used for complementary products (products that need to be used in conjunction with each other), and companies can use the adjustment function of price to the consumption demand of complementary products to fully expand sales.Intentionally sell one of the complementary products that is not selling well at a low price, and then increase the price of another complementary product that matches it, so as to achieve an overall increase in sales of various products. In industries where a few manufacturers control the market, such as selling commodities such as steel, paper, fertilizer, etc., firms usually charge the same price.Those small businesses "follow the leader".They change their prices not so much according to changes in their own needs or changes in costs, but rather as a price change by a market leader. The price of the enterprise needs to take into account the setting of competitors' prices.A firm's prices may be the same as those of its main competitors, or they may be higher or lower than those of its competitors.The competition-oriented pricing method is based on the competitive price level and constantly adjusts the price of its own products as the competition changes.According to Kotler, consumers use the prices of similar goods from competitors as a basis for judging the value of a product.Therefore, the company's pricing should be the same or similar to that of its main competitors, rather than adjusting its own pricing based on competitors' movements. Carrefour's commodity prices have always been priced at cost plus a fixed gross profit margin.Through the cost-based pricing method, firstly, the profit of the shopping mall is guaranteed, and at the same time, the mutual confrontation with the opponent is eased in the increasingly competitive market. However, with the competition of furniture, Carrefour realized that if this method is simply used, it cannot adapt to changes in market demand, and it is easy to be dominated by competitors in terms of price. Therefore, while adopting the cost pricing method, Carrefour also Adopt competition-oriented pricing method. Competition-oriented pricing is a strategy of setting prices against major competitors.Every Wednesday, Carrefour sends a large number of people to two major competitors, Lufthansa Wangjing and Pursmart District, to collect prices, and then quickly collect prices, and adjust prices on Thursday nights to meet the peak sales on weekends.In the competition-oriented pricing method, Carrefour mainly uses the market-as-you-go method, which uses the price of Lufthansa Wangjing as the basis, and only lowers it slightly, so as to ensure the price advantage and not cause an excessive reduction in income. There are two main competition-oriented pricing methods: general pricing method and sealed bid pricing method.Carrefour in the case used the prevailing pricing method, also known as market-based pricing and pegged pricing. In a highly competitive industry, the pricing method used by an enterprise to keep its product price at the average price level of the same industry is the prevailing pricing method.The prevailing pricing method is the most popular method in the competition-oriented pricing method, and it is quite common in practice. In the market where enterprises compete, the price is the result of the joint action of countless buyers and sellers. Under such conditions, enterprises actually have no pricing power.If the price of the product is changed slightly, it will either make the company's products unsalable and reduce sales; or the company's products will be sold too quickly, which will bring undue losses to the company's profits.Therefore, enterprises use the average price level of the same industry as the price of their products. The general pricing method has many advantages: first, the price level that has been formed represents the collective wisdom of all enterprises in the industry, and the average profit can be obtained by using such a price.Second, pricing according to the prevailing market conditions makes it easy for companies in the industry to maintain the same price and avoid "killing" each other, so that companies focus on optimizing their service methods and improving their service levels to win more customers.Third, when the cost of some commodities is not easy to calculate, and the market demand and the response of competitors are unpredictable, the use of this pricing method can save a lot of time for marketing and pricing personnel. In addition to the general pricing method, there is also a sealed bid pricing method for competition in bidding transactions.Sealed tender pricing is applicable to some engineering construction projects or procurement of certain commodities.When an enterprise participates in bidding, it is not based on the cost and demand of the enterprise itself, but on the basis of the forecast of competitors' pricing. Since the purpose of the enterprise is to win the bid, the price of the enterprise must be lower than that of other enterprises. Given the opportunity.