Chapter 19 Chapter 17 Pricing and Price Adjustment Strategies

After developing a pricing structure and strategy, companies often face situations where they must initiate price changes or respond to price changes initiated by competitors. When pricing goods and services, companies generally do not set a single price, but determine a pricing structure to reflect the differences in factors such as geographical demand and cost, market segment demand, procurement time, and order quantity.Because with changes in market supply and demand, as well as changes in competitors' countermeasures, companies need to make adjustments and changes to the prices of goods or services at any time.The market is not static, so the price cannot be static.

Humbray Company is a professional company that produces and manages vodka in the United States. Its Smirnoff enjoys a high reputation in the vodka market, with a market share of 23%. In the 1960s, another company introduced a new vodka that was as good as Smirnoff for $1 less per bottle. Facing price competition from rivals, according to the usual practice, Humbray has three countermeasures to choose from: Cut the price by $1 to preserve market share; Maintain the original price and compete with competitors by increasing advertising costs and promotional expenditures; Maintain the original price and allow its market share to decrease.

Whichever of these strategies Humbray takes, it appears to be losing.However, after much deliberation, the company's marketers concocted a fourth, unexpected tactic, raising the price of Smirnoff by another dollar and introducing a Swiss version of the same vodka as the competitor's new vodka. Saga and another bobo that is less expensive. In fact, the quality and cost of these three wines are almost the same.However, the implementation of this strategy has enabled the company to reverse the unfavorable situation: on the one hand, it has improved the status of Smirnoff wine, making the competitor's new product a common brand; on the other hand, it does not affect the company's sales revenue. .This strategy has been resoundingly successful, and Humbray has consolidated its market position, expanded its sales, and maintained its dominant position in the market.

There are only two ways to change the price of commodities-price reduction and price increase.The meaning of price reduction and price increase is not difficult to understand, but the difficulty is to choose the appropriate price change period in the operation.Marketers must consider, when does a product need to be reduced in price?When can I raise the price again? 1.price reduction Marketing scholars have examined several situations that lead a firm to consider lowering its original price.The first situation that causes prices to change is excess production capacity.Businesses need to expand their business, but sometimes increasing sales force, improving products, or taking other possible measures is not enough to achieve the goal.At this time, companies may use aggressive price reduction methods to increase sales.But cutting prices in industries with excess capacity can spark a price war as competitors try to keep their market share.my country's color TV price war is a typical example.

Another situation that can lead to price cuts is when intense price competition leads to a loss of market share.The price war forces those companies that do not have excess production capacity to "challenge" by cutting prices. In addition, enterprises may also reduce prices by reducing costs in order to control the market.Regardless of whether a company starts with lower costs than its competitors or with the hope of capturing market share, it will further reduce costs through the expansion of sales.Bausch & Lomb pioneered an aggressive low-cost, low-price strategy that established itself as an early leader in the competitive market for soft contact lenses.

2.price increase Every price increase by a company will inevitably cause direct dissatisfaction among consumers, dealers and salespersons of the company, and it will be directly manifested through reduced sales.Therefore, companies generally do not raise prices easily unless they have to.Generally speaking, companies will adopt price increase strategies in the following situations: Due to inflation, cost increases, many companies have to increase product prices.In order to reduce customer dissatisfaction, companies should explain the reasons for price increases to customers when raising prices, and help customers find ways to save.During the economic crisis around 2008, while many companies raised prices, they also found ways to save money for customers by changing packaging and batch discounts, so as to minimize the negative effects of price increases.

(2) The company's products are in short supply and cannot meet the needs of all its customers.In this case, companies have every reason to raise prices. Discounted pricing has become customary practice for a surprising number of companies that provide goods and services to colleagues.Even Pepsi and Coca-Cola, two of the world's most popular brands, are involved in a price war. The price of a product cannot be implemented immutably since it is formulated. Due to changes in the product life cycle, consumer preferences and market demand, companies have to make corresponding adjustments to the price according to actual needs.Many companies modify their quotations in order to pay early, to meet bulk purchases and off-season purchases, etc.These price adjustments become discounts and allowances.

The Wal-Mart chain company, which was founded in 1962, now has a large number of branches all over the world, and its low-cost business philosophy is highly praised by the world.Wal-Mart's prices are usually 20% lower than other chains.In Wal-Mart stores, warehouse-style product display is adopted.Simple shelves, hardly decorated floors and walls, but cheap and high-quality stores still attract many customers. Therefore, when Wal-Mart appeared in this way, it achieved great success. This is the success of the boss Sam's "discount sales" concept, which is essentially different from the general price reduction and profit sharing.

Although both seem to be characterized by cheap sales, as a specific sales method, discount sales focus more on a long-term and stable strategic goal, and at the same time require the coordination of multiple links in operation and management; Cutting prices and making profits is a short-term behavior that only focuses on immediate interests. Wal-Mart, however, considers price reductions as a marketing strategy.After the product enters the store, Wal-Mart staff will estimate the industry's average market price based on a survey of peers, and then find a middle price between the average price and the purchase price, which will be the official selling price of the product at Wal-Mart.The usual practice is that Wal-Mart sets prices at a rate 30% higher than the purchase price, in order to reflect the principle of "small profits but quick turnover".

This is the unshakable principle of Wal-Mart.Even though its own purchase price is much lower than that of its competitors, Wal-Mart has always insisted on the practice of "giving up the profits to customers". This long-term business strategy has enabled Wal-Mart to win the victory in time.People firmly believe that Wal-Mart is synonymous with cheap and good quality.With the passage of time, people have become more and more deeply aware of the operating soul of Wal-Mart's "honest sales". Wal-Mart's discounted pricing has become a benchmark in the industry and an industry model that many companies are eager to learn from and aim to catch up with.The discount pricing strategy uses various discounts and price concessions to attract dealers and consumers, prompting them to actively promote or purchase the company's products, so as to achieve the purpose of expanding sales and increasing market share.With the fierce competition in the market, discount pricing has increasingly become a long-term pricing model used by enterprises.

There are several main forms that marketers can take when applying discounted pricing: 1.Cash Discount.In order to speed up capital turnover and prevent bad debts, enterprises give a certain percentage of preferential treatment to buyers who pay in cash, pay in advance or pay quickly on loans.Using this strategy, although the enterprise has paid a certain price, it can attract customers to pay in cash and pay in advance, reduce enterprise risk, promote rapid recovery of funds, and expand reproduction, thereby forming a virtuous circle for the enterprise.This discount model, popular among Western companies, is being adopted by more and more Chinese companies. 2.Quantity discounts.Quantity discount is when the buyer's purchase reaches a certain amount or amount, the enterprise will give a certain discount.Generally speaking, the larger the quantity or amount of the customer's purchase, the greater the discount.Quantity discounts encourage customers to buy in large quantities, which reduces the cost of sales and speeds up capital turnover. 3.Seasonal discounts.Enterprises that produce seasonal products will give discounts to buyers who purchase in the off-season, and encourage middlemen and users to purchase early.This is beneficial to reduce the storage pressure, thereby speeding up the sales of goods, so that the production can be balanced in the off-season, and there is no need to work overtime in the peak season, which is conducive to giving full play to the production capacity. However, Kotler also reminded marketers that they must be very careful when making discounts and discount adjustments for products, otherwise, our profits will be far lower than expected and may damage the company's brand image. Businesses often adjust their basic prices based on differences in customers, products, and locations.Differential pricing means that an enterprise sells products or services at two or more prices that do not reflect proportional differences in costs. According to Kotler's definition, differential pricing means that an enterprise sells a certain product or service at two or more prices that do not reflect the proportional difference in costs.In marketing, differential pricing has a more colloquial name—price discrimination. For merchants, the purpose of implementing price discrimination is to obtain more profits.If the commodity can be sold at a higher price, the producer can make more money.Producers, therefore, will try to price their commodities as high as possible.But if the commodity price is set too high, many consumers with lower ability to pay will be driven away, resulting in a reduction in the profit of the producer.How to adopt a method of getting the best of both worlds, earning money from the rich at higher commodity prices, and earning money from the poor at lower prices.This is what producers want to achieve, and it is also the fundamental reason for price discrimination. In 2008, the different prices of several models of Lexus in different markets around the world are as follows: Chinese market: There are two models, GS300 and GS430, priced at 688,000 to 904,000 yuan. US market: There are three power models of GS350, GS430 and hybrid GS450h, plus there is also a four-wheel drive version of GS350.The price range is US$44,150-54,900, or approximately RMB 335,000-417,000. German market: There are three models: GS300, GS430 and hybrid GS450h.The price is 43,291 to 59,090 euros, or about RMB 440,000 to 602,000. Japanese market: There are three powertrains of GS350, GS430 and GS450h, and GS350 also has a four-wheel drive version.The price is 5.220 million to 7.720 million yen, or about RMB 349,000 to 517,000. The domestic price of GS300.688 million is more than 200,000 yuan higher than the price of about RMB 440,000 in the German market, and it is twice as high as the price in the US market.The price of Lexus GS430 in the US market is 51,500 US dollars, and the price in the European market is 54,200 euros, equivalent to only about 400,000 yuan in RMB, while the price of the same car in China is more than 900,000 yuan. Lexus adopts different pricing strategies for different consumer groups. In fact, it contains the principle of "price discrimination" in the price mechanism in the economic market. The premise of the difference is market segmentation.If producers cannot divide the market, only one price can be imposed.If the producer can segment the market and differentiate the customers, it must be segmented so that different markets have significantly different payment capabilities.In this way, enterprises can implement different commodity prices for different groups, and try their best to realize higher commercial profits for enterprises.Lexus has successfully segmented the market and regards the payment ability of the rich in the Chinese market as the highest, thus providing a basis for its differential pricing. In daily life, there are many examples of price discrimination.Parks used to sell tickets at low prices for locals and high prices for foreigners; college students can buy half-price tickets as long as they hold their student ID cards when they go home from vacation; In order to make dancers pair up during the dance, and even only buy tickets for men, women can buy tickets for free...Marketers can target different customer groups, different models and features of products according to the characteristics of their own products (such as real estate according to the location of the house, The ticket price of the theater is priced according to the quality of the viewing location, etc.) and even the sales time, etc., and adopts differential pricing. The 8 is round and balanced, so it creates a comforting effect; the 7 is sharp, so it creates a dissonant effect.Considering the psychology of customers, we use the number 8 instead of 7 when pricing. The psychological price strategy in marketing is mainly a price strategy aimed at retail enterprises.Retail enterprises directly face final consumers, and consumer psychological needs are an important factor affecting purchasing behavior, and thus become an important factor in formulating price strategies. Studies by psychologists have shown that small differences in price mantissas can significantly affect consumers' purchasing behavior.It is generally believed that the last digit of 9 is the most popular for products below 5 yuan; the best effect is 95 for products above 5 yuan;The mantissa pricing method will give consumers a psychological feeling of accurately calculated and lowest price; sometimes it can also give consumers a feeling that the original price is discounted and the product is cheap; Additional items will be discovered and purchased. For example, the price of a 54cm color TV of a certain brand is 998 yuan, which gives people a cheap feeling.I thought I could buy a color TV for only a few hundred yuan, but in fact it was only 2 yuan less than 1,000 yuan.The mantissa pricing strategy also gives the impression that pricing is precise and trustworthy. Mantissa pricing method often uses odd numbers as mantissas in Europe, America and my country, such as 0.99, 9.95, etc. This is mainly because consumers have a good impression of odd numbers, and it is easy to generate a concept of low prices and downward prices.However, due to the homonym of 8 and pronunciation, the adoption rate of 8 is also high in pricing. The mantissa pricing method is widely used in psychological pricing.It adopts a fractional price tag, sets the price below the integer level, and keeps the price at a lower level. On the one hand, it gives people a sense of cheapness, and on the other hand, it gives people a sense of trust because of the accurate price tag.For commodities with strong demand elasticity, mantissa pricing can often bring about a substantial increase in demand.However, for products with weak demand elasticity, we have many other psychological pricing methods: Integer price strategy.Integer price strategies can be adopted for higher-priced commodities, such as high-end commodities, durable goods, or gifts.In order to cater to consumers' psychology of "high price and high quality", enterprises set an integer price for commodities.When consumers have no other information about product quality, in order to buy high-quality products, they often have the mentality of "high-end stores, high-end products" and "high prices, good products", and use the price to identify product quality. Pros and cons. Prestige pricing.Prestige pricing refers to consumers' "you get what you pay for" psychology, setting higher prices for products that enjoy prestige and credibility in consumers' minds.The price level is often regarded as the most intuitive reflection of product quality, especially when consumers recognize famous and high-quality products, this awareness is particularly strong.This pricing technique is widely used not only in retail business, but also in catering, service, repair, technology, medical, cultural and educational industries. Tout price strategy.In order to cater to the consumer's desire for low cost, the strategy of temporarily reducing the price of a few commodities to attract customers and solicit business is called the solicitation price strategy.Its purpose is to attract customers to the mall, and buy other products when buying these low-priced products. Get used to pricing strategies.Customary prices refer to those prices that are well-known and accustomed to by customers and difficult for individual producers to change.Even if the production cost increases greatly, and it becomes unprofitable to sell at the original price, the company cannot raise the price, otherwise it will cause customer dissatisfaction, and can only adjust by reducing the quality and quantity; it can also launch new products. Variety of design and color, improve the decoration in order to change the price. Consumer psychology is always a research topic for marketers.In fact, no matter which pricing method is adopted, the first thing we need to do is to have a thorough understanding of consumer psychology. Many companies will need to give serious consideration to barter and peer-to-peer trade if they are to win a certain audience. When setting prices, enterprises will inevitably encounter whether to charge higher prices to customers in remote areas to compensate for higher shipping costs and win increased business, or how to deliver the money.This requires the company to determine the pricing of the product according to the actual situation in different regions or countries.That is our geographic pricing. In 2007, Amazon, the leader of online retailing in China, took the lead in provoking a nationwide "free shipping" promotion.However, when the activity ended after 16 months of persistence, Dangdang, another B2C website that once criticized it for adopting unfair competition methods, suddenly changed its attitude. From the end of October 2008, it also launched free shipping for national express and flat mail. discount. Some people in the industry pointed out that this is even more fierce than the previous two competitions in which the bestsellers were discounted at the same time.According to the analysis of relevant persons, for B2C websites, the delivery fee is a hard cost, which accounts for a very large share of its operating costs, and it is a test of a website’s cash flow. If a long-term competitive strategy of free shipping is implemented, it will be very difficult for any B2C website. is a test. However, in order to attract users, B2C websites have to adopt a free shipping strategy, so free shipping is a test for both Joyo and Dangdang. Analysts believe that the two major B2C websites offer free shipping at the same time, which will greatly test the capital and operating levels of the two companies.However, under the fierce market competition, this is the trump card that the B2C business model has to use to enhance its own competitiveness. In marketing, geographic pricing refers to the company's strategy of specifying differential prices based on the geographical location of product sales.Price adjustments based on geographical factors are mainly divided into the following categories: 1 ex-origin price.This refers to the price at which the seller delivers the goods at the ex-factory price or sends the goods to a certain means of transportation designated by the buyer.In Incoterms, this price is called FOB or FOB.After delivery, the ownership of the product belongs to the buyer, and all costs and insurance premiums during transportation are borne by the buyer.The price of delivery at the origin is more convenient for the seller, the cost is the least, and the risk is the least, but it has a certain impact on the expansion of sales. 2 Uniform delivery pricing.Contrary to the delivery price at the origin, the unified delivery pricing is priced according to the same factory price plus the same freight (that is, the average freight calculation) for a certain product sold to customers in different regions.This pricing method is the same price for customers in different regions, regardless of distance. 3 partition shipping price strategy.Marketers often divide the market into several large regions. According to the distance between regions, different regions adopt different freight standards. This is the regional transportation price strategy.This price is implemented for general raw material products and agricultural products. 4 basis point pricing strategy.We can also choose some cities as the base point, and set the price according to the price of the place of origin plus the base point (the base point closest to the customer's location) to the customer's location.Adopting this pricing strategy can make the delivery price of the seller's products basically the same in various places, which is conducive to developing distant markets and expanding sales.It works well for bulky items where shipping costs are a large percentage of the cost. 5 Free shipping pricing strategy.The seller bears all the freight from the place of origin to the customer's location, and sells the product at the ex-factory price uniformly. This is the most popular "free shipping" pricing strategy among customers.Since the distance between the place of production and the customer's location is different, adopting this strategy can reduce the freight burden of distant customers, help maintain market share and open up new markets. No matter what strategy an enterprise adopts to set prices, from a long-term and overall perspective, its commodity prices must recover costs and obtain reasonable profits.For different regions and different markets, we can adopt different pricing strategies according to the cost and competitive pressure faced by enterprises. When a product becomes part of a product mix, the logic for pricing the product must be revised.Pricing is difficult because of the inherent interrelationships between demand and cost for a wide variety of products, and because these products are marketed with varying degrees of competition. An enterprise generally produces more than one kind of product. For an enterprise that produces and operates multiple products, pricing must focus on maximizing the profit of the entire product portfolio, not a single product.Therefore, marketers must not only consider the pricing of a single product, but also the combined pricing of each product of the company. The product portfolio pricing strategy refers to the strategy for dealing with the price relationship among various products of the enterprise.In product portfolio pricing, we can distinguish six situations: product line pricing method, feature selection pricing method, incidental product pricing method, two-stage pricing method, by-product pricing method and product bundle pricing method. Passat (PASSAT) is a brand of medium-sized cars designed by Volkswagen.Since its birth in 1973, Volkswagen Passat has swept the global auto market with its high-standard safety, classic design and top-level car-making quality.However, this world-famous sedan has also made a lot of mistakes in product line pricing. The Passat produced by Shanghai Volkswagen first introduced the GLI-1.8-liter engine, manual transmission, and velvet seats, priced at 245,000 yuan; then launched the GSI-1.8-liter engine, four-speed automatic transmission, leather seats, 6CD speakers, and Sunscreen curtains... This Passat is priced at 287,000 yuan, and the difference between the two is only 42,000 yuan, or 17%.Due to the high price of the previous GLI-1.8-liter model, when the GSI was launched, it fell into an embarrassing situation: the price was high, and the new car was difficult to sell; the price was low, and the old model was suppressed. In August 2001, the PST1.8T model was launched, priced at 298,000 yuan, which made the performance-price ratio of GLI and GSI extremely poor. GSI quietly disappeared from the market, and it only sold well for half a year. The price of Passat's mutual containment shows that the pricing must be compatible with its own product line in the long run, and the price level must be designed.Otherwise, just like dominoes, if the price of one product changes, the prices of all products must change accordingly. Many companies today would rather develop a product line than a single product.Therefore, the company has to consider product line pricing issues in the long run.For products belonging to the same product line, pricing must be considered in conjunction.Marketers suggest that three factors should be considered in product line pricing: the cost gap between products, customer evaluation of each product, and the price level of similar products of competitors. The general practice of product line pricing is to implement price differentials, so that the price is in a ladder structure.Generally speaking, if the price difference between two similar products is large, buyers will buy the cheap one; if the price difference is small, buyers tend to buy the good quality one. In addition to product line pricing, there are the following product portfolio pricing methods: 1. Choose Featured Pricing.Many companies offer a variety of alternative products or featured main products.Prices then need to be specified for these choices.For example, car buyers may choose to purchase power window controls, stain removal devices, and light dimmers.Car companies have to consider which items go into the total price and which items are optional.Restaurant food and drink prices are also facing the same problem. 2. Pricing of accessories.Some companies always produce products that must be used with its main product. These products are often called incidental products.Such as knife frame and blade, camera and photographic film, computer hardware and software, etc.In response to this situation, the usual pricing method is: low price for the main product and high price for incidental products.Kodak created a market opportunity with this strategy. 3. Two-stage pricing method.Service companies often use a two-stage pricing method, charging a fixed fee first, plus a variable usage fee.Telephone companies and amusement parks often use this form of charging.The former is a fixed fee + usage fee; the latter is a ticket + project fee.Generally speaking, the former charge is low to attract customers; the latter charge is high to obtain profits. 4. By-product pricing method.There are often by-products in the production of processed meat, petroleum products and other chemical products.If by-products are valuable to certain customer segments, they must be priced according to their value.High revenues from by-products will make it easier for companies to set low prices for their main products in order to increase their competitiveness in the market. 5. Bundle price.Combining several products together and selling them for less than the total price paid if sold separately.Example: A home theater is a bundled price of a large-screen TV, DVD player, and stereo.