Transcript The Value of Pricing.ppt

The Value of Pricing
The Economist
Josh Emmerling
Mi Jung Kim
Ronan Vallee
Price Shifts
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“Microsoft cuts xbox price in fight with rival,” “Nokia cuts prices to
grab back lost market.”
Recent shifts of pricing strategies show more involvement of upper
management on an international level.
Increased regulation on pricing in the EU and the US. Implications?
 More companies centralizing prices
Global vs. Local Arguments
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Global (Centralized)
 Extremely
difficult to analyze huge volumes of sales
with varied prices across the globe.
 Better pricing policies and better internal
management controls can yield large increases on
the bottom line.
 Gearing Effect: states that a 1% increase in average
price will lead to a 10% increase in operating profit.
Global vs. Local Arguments
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Local
 Though
products are global, markets are local and
the application of pricing in each country needs to be
considered and negotiated separately.
Corporate view of pricing
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Pricing process can be divided into three levels:
 Tactical
 The
life cycle or market strategy pricing
 The industry strategy
The Tactical Level
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Nearest the customer
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Pure transactional pricing
Encompassing volume discounts
Promotional offers
Delivery charges …
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Problem: margins are frequently eroded at the local
level
The life cycle or market strategy
pricing
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Definition: How much consumers are willing to pay
and what they perceive as value for money
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Pricing merchandise depends on:
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Position vis-à-vis competitors
Strength of brand competitors
Overpriced: sales will be blighted
Underpriced: the company loses valuable revenue for ever
The industry strategy
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Definition: based on trends in the industry
and economy as a whole, and how the
company can take advantage of long-term
trends
Three Levels Cont.
The three levels fit naturally into different parts of
the organization, but at a moment, pricing
tends to be scattered among
 Finance
 Marketing
 Line
management
 Production …
Enter the CPO?
Chief Pricing Officer (CPO) ’s Roles and Responsibilities
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Liaison across internal boundaries
Collecting and interpreting information from the market
Checking net margins
Sounding the alarm if the marketing team is out of line
A good networking culture, as well as good information, is vital.
Enter the CPO? Cont.
Complexity – “You can’t have one person deciding on price”
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Purchasing, Estimating
R&D, Manufacturing
Customer Service, Distribution
Remuneration, Training
Major Accounts, etc.
Foreign Operation
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Country subsidiaries need the freedom in price setting.
Total freedom is not an attractive option in international market.
Setting the limits
“Price Corridor”
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“Hard” Lower Limit
- the local prices are not allow to fall
“Soft” Upper Limit
- the local management can keep their price higher
Price “Frames” - A Central Pricing Department
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If necessary to go outside the frame, they can get cooperated.
Reference
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The Economist Intelligence Unit