Download Pricing Strategy PDF Book by Tim J. Smith . Soft Copy of Book Pricing Strategy author Tim J. Smith completely free.
Reviews of : Pricing Strategy by Tim J. Smith PDF Book
Inside this Book – Pricing questions are perhaps the most vexing decisions facing an executive. Few other strategic decisions will have a greater impact on the profitability of the firm, the demand customers will have for its products, and the latitude that the firm will develop to adjust its competitive position. Pricing questions span organizational boundaries because of their strategic importance, crossing over into marketing, sales, finance, and operations. Each new functional executive contributing to a pricing decision will add a differing perspective that may only complicate the pricing challenge. To address this challenging strategic decision and manage the competing organizational viewpoints, executives need a rational approach to setting prices. They need an approach to pricing that is grounded in the realities of the market environment, including issues of competition and customer preferences. When thinking of prices, it is useful to consider price as the value that the firm captures in a mutually beneficial exchange with its customers. The reason for the firm’s existence is to produce value for its customers in exchange for a price. All profits derive from delivering value to customers at a price that is greater than the cost of producing that value. Customers gain value when the benefits delivered to them through a product exceed the price that they pay for it. This exchange is made freely between the firm and its customers. In a free market, customers choose whether or not to purchase a product or service. It is illegal, if not unethical, to coerce customer purchases in free and open markets. Even when customers may not like the price, they ultimately have the choice to decline the exchange in a free market. Hence, prices are the value that the firm captures in a mutually beneficial exchange with its customers. We begin by demonstrating the impact of pricing and clarifying the challenge of making pricing decisions. We demonstrate the construction of an exchange value model as an initial means to make rational pricing decisions. Exchange value models reveal the boundaries of a good price that a firm should use to market a new product. In developing an exchange value model, we will reveal the importance of using the customer’s perspective of value in pricing decisions.
Inside this book –Pricing Strategy PDF Book by Tim J. Smith – Economic price optimization is useful in some markets. Unlike the broad range of prices developed from exchange value models, economic price optimization can provide price guidance down to a fraction of a cent. In markets for mature, commonly purchased products such as milk, fuel, chickens, and iron ore, customers will switch suppliers to capture even the slightest price break. To capture and retain customers, executives need the higher level of accuracy provided through economic price optimization than that provided through exchange value models. Despite the apparent ability of economic price optimization to pinpoint a price, it is not appropriate for all pricing decisions. Economic price optimization requires a highly accurate understanding of the relationship between prices and demand. One of the key differences between revolutionary products and more mature products is the availability of relevant information regarding the customer’s response to price changes. In revolutionary markets, the product will have very little track record from which to quantify the customer response to price changes. In more mature markets, research and statistical approaches may reveal an accurate relationship between prices and demand. A profit sensitivity analysis demonstrates the impact of a small change in price on profits. Price changes have both direct and indirect effects on profits. The direct effect is seen in linear relationship between profits and prices. The indirect effect derives from the influence of price changes on customer demand. In normal markets, higher prices lead to fewer purchases and lower prices lead to greater purchases. 1 Because profit depends on the quantity sold as well as price, and the quantity sold itself depends on prices, price changes indirectly affect profits through their influence on demand. From the profit sensitivity analysis, we can uncover volume hurdles. Volume hurdles define the required demand increase to justify a price cut and the allowable demand sacrifice to justify a price hike. In strategic decisions to attack a specific market at a new price point, volume hurdles enable executives to quantify the required selling goals and compare them against their expectations of potential demand. In tactical pricing decisions, volume hurdles are a routine procedure in setting sales targets for price promotions and discount practices and for evaluating the profitability of price concessions at the end of the promotion. The profit sensitivity analysis also lays the foundation for conducting economic price optimization. Economic price optimization is a method of identifying the price that maximizes profits. It will rely on quantifying the elasticity of demand, a measure of the relationship between price changes and sales volume. In this chapter, we continue our exploration of rational approaches to setting prices and managing price decisions. First, we conduct a profit sensitivity analysis to construct volume hurdles. In doing so, we will highlight the importance of understanding the relationship between prices and demand leading to an exploration of elasticity of demand. With an understanding of the elasticity of demand, executives are in a position to conduct economic price optimization and understand profit’s sensitivity to price.
Pricing Strategy by Tim J. Smith PDF : eBook Information
- Full Book Name – Pricing Strategy
- Author of this Book – Tim J. Smith
- Language – English
- Book Genre – Business, Reference
- Download Format – PDF
- Size – 14.4 MB
- eBook Pages – 346
- Price – Free