DERIVATIVES OF PRICING APPROACHES

By: aakinyem@deakin.edu.au

WordPress username: aakinyem

 

Pricing

 

pricing

Pricing involves measuring  perceived value i.e. benefit versus sacrifice that customers are prepared to pay. Although pricing innovation is often neglected, studies have suggested that it may be a company’s most powerful source of competitive advantage(Hinterhuber and Liozu 2014).Pricing strategies can help to increase organizational profits and customer satisfaction conjointly (Hinterhuber and Liozu 2014) Only 5percent of all companies implement new-to-the-industry innovation pricing strategy, even among those companies said to have high product innovation (Hinterhuber and Liozu 2014) The importance of a good pricing approach can include:

  • Profitability
  • Increased competition
  • Understanding customers
  • Serves a s a quality cue
  • Helps to seek market share e.g. stimulate sales by low price

The subject of pricing calls for knowledge of important parameters. Price sensitivity is the measure of awareness of price of a particular product. Price sensitivity involves knowing the association between price and other variables in a study like sales (Kumar 2016). Luxury goods for example tend to have higher price sensitivity. Different segment values different things hence different prices.  A lot of internal or external factors can affect pricing decisions.  Sales forecasting and price sensitivity are one of the major tool used to formulate an effective pricing strategy (Kumar 2016) Consumer shopping practices and price sensitivity has been said to differ substantially across cultures (Pickle and Van 2009).

Customers’ willingness to pay is another important consideration. Customers’ willingness to pay is one of the major reasons that accounts for why football ticket prices in Germany in the secondary market is going for roughly twice the actual fee (Kemper and Breuer).Other factors that can affect formation of a pricing strategy includes:

  • Companies cost (Variable and Fixed)
  • Demand
  • Competitive price mix
  • Product quality
  • Competitive price
  • Sales Volume or traffic
  • Manufacturers price, sales promotion
  • Price elasticity (Kumar 2016)

Nagle and Holden (2002) spoke about four types of customers: convenience, value, relationship, and price. A successful global manager must first learn and understand a foreign customer’s own style and characteristics when setting up appropriate prices (Pickle and Van 2009).

 

Uber

TRANSPORT-ROAD-SERVICES-DEMO

Uber’s expansion has seen it operating in more than 50 countries in the last 6 years, and bringing in a whopping 50 billion dollars in revenue but the secret is not far-fetched. A dynamic pricing strategy/approaches has been said to be the secret of Uber’s success and competitive advantage (Pricingsolution.com). When there’s high demand for Uber’s vehicle on some days like weekend nights or holidays like Halloween, they introduce surge pricing said to be twice normal fare (BI 2015). When surge pricing is happening, customers are notified before they can even hail the car (BI 2015). The higher fares during peak periods are well accepted to the customers since they must tap the accept button before a car can be even be requested (Pricingsolution.com)

 

Starbucks

starbucks

Starbucks is an old hand in the field of organizational branding, business and international marketing. Their success is highly attributed to the efficiency and sophistication of their pricing strategy. In 2013 in the US, the company only increase their price by 1 percent however this alone translated into a 25 percent increase in income to 417.8 million dollars from 333.1 million dollars.

EBay

ebay-logo

EBay is one of the major business platform that its pricing is centered on customers’ willingness to pay (Kemper and Breuer 2015). It has a platform for bidding and auctioning. There is free shipping approach that captures the mind of a lot of customers. Goods can be listed by different sellers for a specified duration of time allowing bidders to make different offers. The strategy is to give bidders enough time to discover the auction, so they can push the price up themselves.

 

References

Hinterhuber, A & Liozu, SM 2014, ‘is innovation in pricing your next source of competitive advantage?’ Business Horizons, vol. 57, no. 3, pp. 413-23.

Kemper, C & Breuer, C 2015, ‘What Factors Determine the Fans’ Willingness to Pay for Bundesliga Tickets? An Analysis of Ticket Sales in the Secondary Market Using Data from ebay.de’, Sport Marketing Quarterly, vol. 24, no. 3, pp. 142-58.

Kumar, A 2016, ‘A conceptual model for automation of product dynamic pricing and sales promotion for a retail organization’, Kybernetes, vol. 45, no. 3, pp. 490-507.

Nagle, T. Thomas & Holden, K. Reed (2002). The strategy and tactics of pricing: A guide to profitable decision making. New Jersey: Prentice Hall.

Pickle, L & Dinh Thi Thanh, V 2009, ‘A COMPARATIVE STUDY OF VIETNAMESE AND AMERICAN CUSTOMERS’ BEHAVIOR IN NEGOTIATION STYLE AND IMPLICATIONS FOR GLOBAL PRICING STRATEGY’, Asia Pacific Journal of Finance & Banking Research, vol. 3, no. 3, pp. 53-65.

http://www.businessinsider.com.au/uber-surge-pricing-on-new-years-eve-2015-10?r=US&IR=T

http://www.pricingsolutions.com/lessons-in-pricing-from-uber/

 

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