Cosmetic Products – Pricing Consideration & Approach

By Sangzi Hu and Xiaoning Zhang, Group 16

Cosmetic products has become the most popular products around the world. We are always attracted easily by some products under this category due to the customers increasing attentions to their beauty. The price of the same cosmetic products is different when they sell to different countries. It may affected by the tax influences or the delivery influences. Thus, the pricing considerations of cosmetic products are varied.

The increasing demand of the cosmetic products drive the sales growth in the world, for instance, according to the following video, the beauty/cosmetic products occupies the first place among all favourite products in terms of the survey among 3000 foreign tourists. The foreign tourists can be considered as the major customers’ pattern to raise the demands of the products, thus the suppliers of the cosmetic products can base the consumption tendency to set the price level of these products in this interacting processes.

The selling format is also affect the price setting and the famous selling format is E-commerce. The price of the cosmetic products in online cosmetic store is always lower than the physical store. It also contribute a large proportion of market shares to suppliers and affect the purchase decision of customers. For example, there are 33.7% of the total sales volume of the online cosmetic products until April 2014. Thus, this format of selling can be developed for suppliers, they can take advantage of the qualified e-commerce market to gain more profits. However, the relationship between the physical store products’ price and online store products’ price need to find a balance point relatively. The customers always compare the price level of different stores and purchase the products which has the large benefits provided to them.

What do you think about the pricing considerations of cosmetic products or any pricing approaches can be implemented in cosmetic market? Do you have any special experiences when you purchase some cosmetic products? Do you affect by the brand loyalty when you buy some cosmetic products?

Reference:

http://www.chinainternetwatch.com/8459/online-cosmetics-april-2014/

https://www.choice.com.au/health-and-body/beauty-and-personal-care/skin-care-and-cosmetics/articles/cost-of-cosmetics

Daily necessities – Pricing Consideration and Approach

By Sangzi Hu and Xiaoning Zhang, Group 16

Setting prices can be a very challenging part of running a successful business. Business must find the best way to market these products and price them at a point where consumers are comfortable purchasing the product.

The Daily necessities is like food and household products. The majority of Daily necessities are sold in supermarkets, such as Woolworths, Coles and Aldi.

The following factors may influence pricing considerations for Daily necessities:

1. Competition. Lower prices are possible when many competitors offer the same product. If competitor cut product’s price, the business will follow to reduce the price of ame price. But sometime a business in order to attract more customer’s attention, they will offer some low price promotion to customers.
2. Market demand. The higher prices are possible when demand exceeds available product. Such as Devondale Instant Milk Powder. Because of people substantial demand for Devondale Instant Milk Power, which led to demand exceeds supply. Therefore Woolworth adjust the price from $8.49 to $8.99.

Pricing Approach:

1. Supermarket usually set product’s prices ending in 99. Set the price like $1.99 or $11.99 will more attractive than $2 or $12. Although the actual price difference is only 1 cent, but the psychological difference can be much greater. Some customers will see the $1.99 in the $1 range, rather than the $2 range. The $1.99 will be more likely be seen as a bargain price, whereas the $1 price suggests more quality.
2. Supermarket may simply offer discounts form normal prices to increase sales and reduce inventories. Such as Sale, Reduces,Was $5 but Now$2.5,or Now 2 for only $3.

Question:

1. Do you have any other example about pricing consideration for Daily necessities?
2. Do you think it is other factors may influencing making the price decision for Daily necessities? What is other factors?
3. Do you have any other idea about Pricing Approach for supermarket?

Reference

https://www.youtube.com/watch?v=DOhyIJBRHcs

Pricing Strategy For Tourism Businesses

post by Xiaomeng Tian in Group 108

setting pricing for tourism businesses is a strong mix of marketing strategy and financial analysis.  Is there a formula for developing pricing for tourism businesses?

Not really – tourism products are very rarely identical, often because of location, but also because of the people and the components that make up the experience you provide a traveller.  It can be incredibly diverse and pricing strategies can evolve as a tourism business develops it’s brand and market share.  Even star ratings for accommodation only give a general guide for travellers on what the pricing will be – there are not set criteria.

So the purpose of this article is not about helping you with a formula to devise your pricing, but more of an outline of the things you should consider, components of your pricing strategy, different pricing types and ways to stimulate demand.

Things to consider when setting your pricing strategy
•How unique is your business?  The more unique your tourism product the more flexibility you will have to decide your pricing.
•What value added services do you provide inclusive of the experience?
•What market do you want to attract and what positioning in the market do you want to establish?
•What are your operating costs (fixed and variable)?  Using your costs, get your accountant to help you calculate your break-even point and therefore what your minimum pricing should be for profit goals (estimates of revenue, occupancy rates etc will be needed).
•For most tourism businesses setting prices will be more market based – that is, what do competitors with similar products and services charge within your market?  Be careful however, you must be aware of your own financial position (debt levels, cash flow etc) before you can decide whether you should compete in this way.  Ideally being competitive is not price driven, it’s product driven.

Where to start

Knowledge of your break-even point is an important place to start, but on launch of a new tourism business it may be that pricing is set lower than your longer term pricing expectations in order to attract volume, credibility and establish your brand.  Then as you become more established with a regular booking base you can consider increasing prices.

Of course this is wholly dependent on your overall marketing strategy.  For tourism businesses that cater to the exclusive/luxury traveller pricing may not fluctuate much at all.  While those targeting the budget travel market may not have too much room to move on pricing and they will rely on volumes of bookings.

Pricing Components

Your pricing strategy may be made up of the following components:

Rack Rates

All tourism businesses should have a rack rate – this is your “full rate” before any discounts are applied and typically is what is provided to wholesalers and printed on brochures for the season ahead.  For activity and attraction operators their full rate is more likely to be charged all the time without any day to day discounting, however accommodation operators – particularly those in the middle of the market will be changing pricing almost daily for the month or 2 months ahead to fill gaps.

Seasonal Pricing

Using a mix of pricing throughout the year to cover low, high, and shoulder seasons is a standard way for tourism businesses to cater for differing levels of demand due to the time of year.  Typically these will be the same date periods each year but may also apply for school holiday dates and for local events where the dates vary each year.

Last Minute Pricing

A common method for accommodation suppliers to fill those last minute gaps in inventory availability, last minute pricing is basically discounting daily prices according to forward bookings and promoted on last minute booking websites.

Common Pricing Types
•Per Person pricing: A set price per person e.g Adult and Children prices.  Commonly used by activity/attraction and transport operators or backpacker accommodation and camp sites.  Options may include an adult, child and senior citizen price.
•Per Unit pricing: – A set price for 1 unit of the product e.g. Price per night, this is the standard way to price accommodation, usually the advertised price is for 2 people so if the accommodation fits more than 2 guests it can have a mix of the per person pricing with extra adult and extra child rates.
•Single or double occupancy – common for B&B’s there is a single rate and a double rate (which is not double that of the single rate).

Discounting

While discounting has it’s place, and often unavoidable in a competitive market such as tourism, be very wary about continually discounting your prices to stimulate demand – it can become a rocky road to reducing profitability or even missing that vital break-even point.  Be selective with last minute pricing deals – don’t make every day reduced, just select those where you really do need extra bookings.  Consider adding conditions to a discounted price like a minimum stay or number of travellers in the booking.  While a booking is better than no booking at all, customers do become used to a certain price level and you therefore run the risk of not only making it hard for you to charge your normal rack rates, but it will also devalue your product – remember perception is everything in tourism!

Package Deals

Developing packages with complimentary tourism partners in your area or with value added components is a good way to stimulate demand without having to discount.  Strike up deals with local businesses to provide a full package and share business with each other – you should be able to get their products or services at a “net” rate so the package pricing is better than if they had purchased each component separately.  Packaging can also be used to target niche markets effectively e.g golf weekend, food and wine tours, pampering packages etc.

Commissions

Many bookings will come via some sort of third party who will charge you a commission such as a retail travel agent, wholesaler, inbound tour operator or online travel agent (OTA).  Many tourism operators are tempted to add the value of the commission on to the pricing for these providers but this should actually be considered in the setting of your rack rates anyway – if you have different pricing across different distribution channels it just confuses both travellers and can jeopardise industry relationships, so keep it simple

Got any additional advice or alternative views?  Feel free to add your comment

reference: http://www.tourismindustryblog.co.nz/2010/03/pricing-strategy-for-tourism-businesses/

Does your pricing strategy make the cut?

Group 197 Kerryn & Wayne

Iacobucci (2013) describes multiple potential pricing strategies, and describes how these can be different for goods and services. The comment is made that, ‘services are tricky because they are notoriously disproportionately high in variable costs’ (Iocobucci, 2013, p. 112).

Pricing too low runs the risk of not actually covering costs, and pricing at the high end, on the basis of ‘willingness to pay’ might be successful if the product or service is rare, and highly valued. Below are some examples of how large companies and a small business operator have using pricing strategies to stay in business, but in the end, all of these examples show a preference for ensuring that the most price-insensitive customers are retained.

Dawson (2013) discusses Starbucks pricing strategy for profit maximization. He describes that in 2013 they introduced a 1% price increase, that raised profits by and average of 11%. Their technique is referred to as value based pricing, and that Starbucks perform extensive consumer research to determine the willingness to pay level for their products. Surprising as it may seem to Melbourne coffee snobs, in the US Starbucks is considered to be a premium coffee brand, with an inelastic demand curve. They tend to apply price increases unevenly, and often to their smaller sized versions of products, to enhance the perception of the larger size representing good value for money. This technique is called product versioning, and captures ‘consumer surplus from the customers who find more value in upgrading to grande’ (Dawson, 2013). Their other strategy is to NOT increase prices on the products with the highest margins.

Paula Williams from Aviation Business Consultants (2010), discusses the pricing strategies that may be employed in commercial aviation products (for aircraft). The economy model is no-frills, and market penetration involves good product offering but with the aim of minimizing competition. She advocates premium product combinations of product and pricing for a number of reasons – the perception of quality for a product at a higher price point, the fact that there can be unforeseen costs that are more easily absorbed with this pricing strategy, but that ultimately this strategy provides the opportunity to build the best quality product, and in terms of building components for the aviation industry, there is an ethical consideration to producing highest quality products (Williams, 2010).

For comparison, I discussed pricing strategy with my hairdresser, who is a small business operator. Her approach to pricing is one of ‘cost plus’, wherein she calculates her costs and adds her margin. She feels that this strategy makes the most sense for hairdressers, because there is a significant range of variable costs across her clients (consumables being a significant cost for colourists), and this approach ensures that she is always covering her costs. She is of the opinion that hairdressers who continually scan the local market to try to price match competitors end up either losing money and go out of business, or switch to inferior quality products in order to drive down costs, and then run the risk of losing their ‘price insensitive’ (inelastic) customers, who appreciate quality, and are the most reliable source of income. For a small business operator in this market, it is difficult to predict the proportion of clients who will fall into various pricing categories (ie long hair requires more time and product for foil colour than short hair), so it is safer to individualise pricing than estimate across the predicted clientele.

References

Dawson, T, 2013, ‘How Starbucks Uses Pricing Strategy for Profit Maximization’, 30 July, Retrieved 11 September, 2015.

http://www.priceintelligently.com/blog/bid/184451/How-Starbucks-Uses-Pricing-Strategy-for-Profit-Maximization

Iacobucci, D, 2013, MM4, South-Western Cengage Learning, Mason, OH.

Williams, P, 2010, ‘Aviation Marketing – A Word About Pricing Strategy for Aviation Products’, Retrieved, 11 September, 2015.

https://aviationbusinessconsultants.com/2010/02/a-word-about-pricing-strategy-for-aviation-products/

Luxury Goods-Pricing Considerations & Approaches

By Sangzi Hu and Xiaoning Zhang, Group 16

Considerations can be defined as:

1. the act of considering; careful thought; meditation; deliberation
2. something that is or is to be kept in mind in making a decision, evaluating facts
3. a recompense or payment, as for work done; compensation

From the suppliers’ perspective, the price set should cover the cost and also make sure there is a certain profit space for further development of the company. From the customers’ perspective, price considerations mainly refer to the elements that the customers considered when they purchase some goods or services.

Luxury goods has become the common trend of the world nowadays. They are considered as the social image among the customers compared with the past status. We are always attracted by the luxury goods due to the unique products and the guarantee of the high quality despite the expensive price of those products. The price considerations include many aspects, in one hand, the suppliers try to sell the luxury goods to gain more profits and use their unique brand to build the reorganizations in the market. On the other hand, the customers will consider whether the price match with the values of the products when they make the purchasing decision.

The common trend of luxury goods 2014:

North and South America is unassailable growth engine in 2014, providing 6% growth rate (current exchange rate of 3%). America’s economic growth would be stronger if it was not a harsh winter. Brazil’s disappointing results are due to the devaluation of the currency, but Mexico and Canada have maintained a positive performance.

Europe has risen by 2% in continent, despite ongoing economic challenges, the social and political tensions in Eastern Europe, as well as less dynamic tourism. The market continues to rely heavily on international tourism, as consumer confidence has stopped any significant impact on the recovery of local consumers.

Japan’s driven by a positive trend through an increasing rate of 10% at a constant exchange rate (2%, the current interest rate) to recover of the growth leadership position and promote the best-performing market in the world.

Luxury goods consumption of China shows a negative trend for the first time which decrease the growth rate due to the increasing controls of luxury spending and consumption patterns changing. At the same time, the establishment of the young brand has its own love to visit the growing middle class, the “wannabe” of the consumer market, is expected to increase by 2017.

Other Asian countries, South Korea has strengthened it’s as a kind of fashion and luxury trendsetter business position. In Southeast Asia, Malaysia and Singapore by Malaysia aviation accident of obstacles, but most of the region’s economic growth experienced a brisk pace.

In terms of the analysis of the common trend, most of countries has shown the growing tendency in the luxury market. The average price of the luxury goods also increase in that the demand of the products raising in recent years (Table 1). The currency adjustments as the major elements of the price considerations of brand’s suppliers has exert some influences to the price set of luxury markets. The depreciation of the Euro has led some brands to make wholesale changes in the price. For example, Chanel has increase the price of 20% in the Eurozone, whereas it decrease the price in Asia market.

Table 1 average price increase of luxury goods

Moreover, the pricing considerations should cover the cost of the goods, for example, the Rolex which set one of the highest price level of the watches’ products. The higher price set is not only due to the complexion of the manufacturing process, also because the higher quality of the products and the qualified design.

Luxury goods target the higher spending customers who are considered as the certain groups of the whole market. Although the market instability still exist, these certain customers can maintain the demands and profits of luxury goods. Thus, the fluctuation of the luxury goods is less than before as a consequence of the purchasing power parity increasing. For the suppliers of the luxury goods, the best suitable pricing approaches is market-based pricing. Not only care for the interests and profits of suppliers, also keep a guarantee of the target customers, meanwhile attract new customers.

What do you think about the pricing considerations of the luxury goods or any pricing approaches can be implemented in the luxury market?

Reference:

http://www.globalsources.com/gsol/I/Genuine-leather/a/9000000133720.htm

Pricing Objectives. (Group 171)

Price in many cases is referred to as the measure of what must be exchanged in order for a consumer to obtain a certain good. The main objective of pricing is what the manager looks forward to achieve through the pricing of its products. If the firm is very clear on its objectives it becomes much easier to set a price in relation to target profit making. A company has very many options on the kind of pricing objective to peruse. If a company is plagued with intense competition from other promising firms, they start pricing for survival for e.g.

In order to give comparative benefit to a new product vs the substitutes, many firms offer higher charges to an effort to skim the market. This mostly works in firm that have already developed into a comparative stage and made an impression on the consumers for example Hindustan Lever Ltd (India).

Another very important aspect for the firm is that it may aim to be product quality leader in the market since this allows the firm to charge a bit more on the basis of branding which in turn helps to the change the prices according to the brand image and demand in that particular segment.

In my view while pricing a particular product it is important to survey the brand standing in the market and its segment of market where it trades.

Refrences :

1. http://books.openedition.org/pucl/1649
2. https://hbr.org/2008/12/reinventing-your-business-model

Policies of Pricing and their Relation with Marketing in the Context of Branding. (Group 171)

Policies are defined as designated rules that are intended to keep an organization’s decision at par with its objectives. Without policies, decision makers run the risk of selecting a course action that is not consistent with the objectives of the firm. This is where professional pricing, psychological sentiments in regard to pricing and promotional pricing come to play.

These policies deal with matters on whether to place different prices on products or a one specific price on the product in consideration to the market sentiments. Most service firms offer a single pricing policy. It makes transactions simple and also creates customer trust and makes forecast of future earnings easier. The only way a consumer can buy similar quality product at different prices through a variable price policy for eg. Pricing in retail sector.

These in most cases, the price is usually set as a result of competition in the existing market, hence it is a practice that is most common in developing countries.

For new products skimming or penetration price policy is mostly considered.

Marketers mostly set a high price to scheme layer by layer in the market. Further the lowering of the prices comes in when market is threatened to introduce similar products which also attracts a new layer of customers.

Penetration pricing model: Example: Walmart, Target, And Kroger.

In my view, the policy only works if the product supports its high price and the fact that buyers would want the same product at that given price.

Another important factor is the cost of production is bound to be low. While using the penetration price policy the market must be highly price sensitive in order to produce more sales from a low price setting for eg: Costco.

The cost of production and distrution should be low since the amount of profit made based on the policy is not fully reliable, further more dependent on volume.

The low prices set for the product must also prevent the competitors from entering the market for eg: competition between Bunnings and Masters (Brand of Woolworths).

Therefore in my view price considerations play a key role in determining any pricing policy of the firm depending on the firm targeting volume based sales or for niche market.

Thank you for your time.

References:

• https://www.shopify.in/blog/14122681-9-strategies-for-profitably-pricing-your-retail-products
• http://www.fool.com/investing/general/2015/05/28/penetration-pricing-how-costco-and-kroger-co-domin.aspx
• https://d2l.deakin.edu.au/content/enforced/456038-MPK732_MPK932_TRI-2_2015/Week%207%20Seminar%20slides%20vers2.pdf?_&d2lSessionVal=7yhQ4YILmCGGXMZL5pV5OjGeW&ou=456038

Investment Property Lending and the question of Price

Pricing is not always under the control of the organization selling the goods or services. In fact, in any business there are many internal and external factors that can influence the process taken and the calculations used to set the price of goods and services.  One of these factors is the regulatory environment under which a business operates.  For example, the Victorian Commission for Gambling and Liquor Regulation sets a number of pricing parameters for the Alcohol Industry in Victoria. Another example that has become more apparent in recent times is the effect that the three main Australian banking regulators have on the prices the banks charge (interest rate) for investment lending products.

The Australian Securities and Investments Commission (ASIC) Australian Prudential Regulation Authority (APRA) and the Reserve Bank of Australia (RBA) have in the past 18 months moved to take a more directive approach in the guidance given to the banks around the growth in their lending books. These changes have been such that the banks have needed to shift their pricing strategies from one that saw high competition and some of the lowest lending rates on record to one that is designed to slow/if not stop investment lending.

The change in behaviour of the three regulators is in response to concerns of an unsustainable property bubble in Australia where house price increases have been fuelled by Australians seemingly insatiable thirst for property and the availability of cheap credit. There is a need to change business models and reduce the amount the banks are allowing to be leveraged by their customers.  And as such a limit of 10.8% growth has been dictated.

To comply with this directive, banks in Australia have needed to quickly change their lending policies to slow the growth, this has also meant that a number of the banks have needed to increase the interest rates on investment lending. In particular, CBA, Westpac and ANZ raised interest rates for housing investors by 0.27% whereas NAB raised interest rates by 0.29%.  The second-tier Australian lender AMP took the intervention a step further and decided to suspend new property investor loan approvals for a few months and increased interest rates for existing property investment borrowers by 0.47%.

This need to amend pricing is in some cases an attempt to cover the additional costs incurred due to regulatory changes and in others an attempt to increase the number of clients refinancing away.

According to CoreLogic investor lending growth has slowed to .6% in July down from 11.1% in June (pre APRA directives). The changes to regulation has yet to have a large impact on property prices in Australia although there is anecdotal evidence that auction clearances for investment style properties are starting to cool off.

The influence of the changes being forced on the banks is clearly having an effect on the price and availability of investment lending. Which in turn is adding to the complexities of setting the price on the house you are now looking to sell.

What are your thoughts on the regulators intervention?

And what effect is this intervention going to have on investment property pricing?

What affect if any will this have on the Australia housing bubble?

 

Sources:

http://www.australia.gov.au/information-and-services/money-and-tax/financial-regulation

http://www.corelogic.com.au/news/has-growth-in-investor-housing-credit-reached-its-apex

http://www.abc.net.au/news/2015-07-31/apra-banking-statistics-show-lenders-flouting-investment-loan/6662594

http://www.abc.net.au/news/2015-07-29/housing-market-close-to-peak-as-investor-limits-bite/6656000

Differential Pricing – group 188

Differential Pricing(Group 188)

Ultimately, the methodology of fluctuation is a defensive pricing method; it is to avoid price competition at the same time, also abandoned this price ‘competition’ tool”.

The differential pricing rule is a strategy that in the opposite direction. It is to show the enterprise through different marketing efforts, make the same homogeneity of products in consumers’ mind set up different product image. Then according to their characteristics, select below or higher than that of the competitors as the enterprise product prices. Therefore, the difference product pricing is a kind of aggressive pricing method.

Differential pricing refers to the enterprise with two or more different reflect the proportion of the cost difference price to sell a product or service. The price different is not based on cost, but the enterprises to meet the requirements of different consumption levels and the price of the building structure.

Products, the use of differential pricing method, first requires enterprises must have a certain strength, an area in a certain industry or occupy the bigger market share in the market, consumers can link enterprise product and the enterprise itself. Secondly, in the same quality under the condition of implement differential pricing is limited, especially for positioning for the “premium” image of the enterprise, must pay the larger advertising, packaging and the cost of after-sales service. Therefore, in the long run, the enterprise only by improving the product quality, to win the trust of consumers, can be in an impregnable position in the competition.

There are some ways in differential pricing:

1. Customer segmentation pricing. Companies have the same kind of goods or services in accordance by the different price to sell to customers. For example, to attract tourist, Park and museums uses a method that customers can be divided into the general customers, and senior students. Product form differential pricing. Enterprise is based on the products of different types, different styles, different prices, but different types or the difference between the style of the price of the product and the cost is the difference between the disproportionate.
2. Image differential pricing. Some enterprise image according to the difference of the same products for different prices. At this time, the enterprise can take different packaging or trademarks for the same products, different image, in order to eliminate or reduce consumer awareness of the goods in different market segments are essentially the same goods source of information.
3. Location differential pricing. Of enterprise products and services in a different position or different locations for different prices, even if the cost of each location of the product or service is the same. Such as different theater seats cost are the same, but according to different seat charge different prices, because the public on different seat preferences; The sleeper train from the upper to the lower, middle, the price is higher.
4. Time differential pricing. The price varies with the seasons, date, or even hours. Some utilities, to the user according to the different times of day on an average day, over the weekend, and the different standard rate. Long-distance telecommunications companies to make the evening and the morning of telephone fee may be only half of the day; Airlines or travel companies in off-season price cheap, and the season immediately to the prices.”This brings homogenization consumer demand, to avoid idle or overload operation in the enterprise resource.

Practical examples

Entertainment

Entertainment is, of course, a wide range of products and services category, but the entertainment is a common reason often appears differential pricing. Restaurants and amusement parks, for example, often offer discounts for the elderly and children to a certain age. Provide preferential tickets for the matinee showing to bring more viewers in the daytime. Bars and clubs provide a “happy hour” drink specials in the evening time but increase the price of the drinks in the evening. Buffet-style restaurants attract families and old customers to use these discounts and feel comfortable at a lower price point because the elderly and children might consume less food than between the age range.

Medical Care

International pharmaceutical pricing generally can be divided into the following several ways:

1. On the basis of the reference pricing;
2. Using drug economics based on the performance of pricing;
3. Differential pricing;
4. The average price and comparable pricing;
5. Profit control pricing;
6. New drug innovation pricing;

Movie theater

Differential pricing usually more suit for service that is more intangible. Different product have the different target price in different people’s cognition. The movie ticket can be in full price that provided to people who think the price is worth to pay, or on every Thursday night, it can be cheaper to promote sales volume. Moreover, to some customer that is more price sensitivity, cinema provides coupons, family pack, promotion activity or other kinds of discount method to motivate people and increasing the consumption.

Airlines

This industry is full of differential pricing strategy, especially in time and seats position. Usually, the flight on morning and late evening costs cheaper than the flight in the daytime. The seats in the economic and business class are different either. Different customer can choose the price that is more closer to their budget, it seems like differential pricing is satisfied for targeted customers. But what is the benefits and the disadvantages on differential pricing? Why do we need it? 

Differential pricing is following the principle of “Ramsey pricing”, that is to say, the price of drugs and the sensitivity of the price elasticity of demand or an inverse relationship. Although the price elasticity is not directly observed, per capital income is an important decision factor, can be used as alternative indicators.

Low-income countries should have lower prices, and higher drug prices should be of high-income countries. To make the differential pricing policy execution effectively, low-income countries with high-income countries market should be strictly separated will prevent the low-cost countries the drug in the high country, known as “parallel importing”.

Differential pricing is a strategy to ensure the availability of medicines. High-income countries drug prices should not be low-income countries included in the scope of the international price comparison. Pharmaceutical companies can be different types through registration, or change the packing to avoid price cut. This kind of pricing method has been used in some African countries and some drugs, such as anti-aids drugs. A lot of competition generics also can adopt differential pricing in these markets.

For the different demand customers (i.e., drug purchasers), the price of drugs is different. For drug prices, the economics of price discrimination also exists. Drug price depends on the demand price elasticity. Pharmaceutical factory for the price of each kind of medicine is to establish a price list, also known as the average wholesale price (AWP).

Hospitals and pharmacies in the purchase quantity are different because the hospital pharmacy to store large amounts of drugs used for a prescription. Between hospital, individual pharmacy or pharmacy chains, their drug prices are also different. Any drug for the pharmaceutical industry, there is no single price. Price is determined by the demand of representing different patient groups, in fact, in the United States, health maintenance organizations (HOM) and hospital pharmacies; use of generic drugs is common.

Question

1. The most important problem is how to use differential pricing strategy and under what situation we can use differential pricing?
2. What are the determinants of price sensitivity?
3. What are its cognitive and behavioral consequences?
4. What are the managerial implications of price sensitivity?

Reference list

Neil Kokemuller, 2012, ‘Examples of Products With Differential Pricing’, Small Business, Retrieved 8September, 2015. http://smallbusiness.chron.com/examples-products-differential-pricing-14381.html

Gerald Hanks, 2008, ‘Examples of Products With Differential Pricing’, Azcentral, Retrieved 8September, 2015. http://yourbusiness.azcentral.com/examples-products-differential-pricing-25721.html

Gunnar J. Clausen, 2005, ‘Price Sensitivity for electronic’, Entertainment, Retrieved 8September, 2015. P.11.

Price Discount Considerations

post by Eason Chen in Group 108

About the Author

Bobette Kyle draws upon nearly 20 years of Marketing/Executive experience, online marketing experience, and a marketing MBA as inspiration for her writing. She is cofounder of Daysteps LLC , where the company’s day planner for women helps you feel calm and capable about becoming the person you want to be. Bobette has also been publishing the marketing plan and Website promotion site.

As small business owners, managers, and marketers one of the issues we must confront each holiday season is whether or not to give price discounts as part of your planned marketing programs. The uncertainty can seem enormous. How much should the discount be? When should you run it? In what situations should it apply? Will I profit? Here are some considerations when making those decisions.
Whenever you give a discount you should do so because you think that the additional sales and word of mouth/attention it generates for your company, both today and in the future, will bring you more profit than if you do not. Contrary to what the accountants may have you believe, it is not a cut and dried decision. There can be a great deal of uncertainty because no one can tell the future or look back at what would have happened had you not had a discount.

When evaluating profitability of any price cut, the relevant comparison is: how much did you make as a result of the price cut versus how much you would have made without the discount. When looking at the short-term effect, factor in the increase in unit sales that resulted from the discount. When evaluating long-term profit, factor in the increase in future sales due to word of mouth and repeat purchases by new customers. Additionally, if your product has a limited shelf life, consider the risk of unsold inventory if you do not run the discount.

Pros and Cons of Discount Pricing.

To most, the downside of offering a discount is obvious: you make less money per unit sold. This may lead you to think you will make a lower profit with discount pricing. It CAN happen, but not necessarily. The advantages can be great. Here are the pros to consider before running a price promotion:

The pros related to giving a discount:

A discounted price will increase the number of items you sell.
Promotions increase the attention you receive from potential customers. More people will hear about your product, resulting in more current and future sales.
Online coupon codes increase the number of Websites that mention your company. This increases the number of people who come across you while surfing online.
If your competitors are discounting and you are not (during the holiday season, for example), you may lose customers you may normally sell to at full price.
How to Compute Your Discount’s Short-Term Breakeven Point

When figuring the short-term breakeven point for a discount, you must answer the question “How many more items do I have to sell to make up for the price decrease?” The formula that answers this question is:

% increase to breakeven = 100 x (decrease in profit at the discount price) / (profit at the discount price)

For example, say an item costs you $55 and you normally sell it for $100. If you discount it at 25% off, at a price of $75, how many more would you have to sell in order to break even?

Profit at regular price: $100 – $55 = $45
Profit at the discount price: $75 – $55 = $20
Decrease in profit at discount price: $45 – $20 = $25

100 x $25/$20 = 125%

Under this scenario, to make a short-term profit your discount would have to bring in 125% more volume compared to your sales without the discount. In other words, if you normally sell 100 widgets you must sell more than 225 as a result of the discount to make a short-term profit.

What About Long-Term Profit?

The calculations above capture the directly measurable, quantifiable numbers. But what about other, less direct, benefits? Those should play into your decision as well. You may be in a situation, for example, where doing “business as usual” with respect to pricing will result in a decrease in sales. Or you may be overstocked on an item that is only sellable for the next six months, and is worthless afterward. These situations, while expremely relevant to any pricing decision, are not captured in short-term considerations.

Whatever your final decision, know that management is an iterative process. Make a decision and evaluate at certain intervals, adjusting if needed.

Link: http://www.powerhomebiz.com/blog/2009/11/price-discount-considerations/