[MUSIC] Hi. We are now going to discuss pricing strategy. Remember we're in the marketing mix part of the marketing plan. And we're discussing basically the second element of the marketing plan, which is pricing strategy. Let me begin with a definition, again. Pricing strategy usually refers to the methods that we use in companies or institutions to set a price for a product or service. Pricing is probably the most sensible variable in the marketing plan. because setting the right price can make the difference, can actually mean that you succeed or you fail. The marketing plan is going to be very much determined by the price that you set. The question always is what is the right price? Usually, the answer is the right price is the price that my target segment is willing to pay. That's it. The big question, of course, is what is the right price? As you can see here, the right price is not a single question of, this is the price they're willing to pay, is basically the price the segment is willing to pay? We have to know what is my target segment, and then decide, or try and determine, what is the price they're willing to pay. How can we make sure that we are setting the right price, or that we're pricing the right way? We have to use criteria. Let's try and identify a set of criteria that we should use when defining the pricing strategy. By the way, remember that in the assessment that we're going to have at the end of this model, you have to actually use this criteria. What are the criteria that we use for pricing? What are the things that we have to consider? Let me try and develop a checklist. We make sure that we are considering all the things that we need to consider when defining the pricing strategy in your marketing plan. Criteria, first, the competition. What is the price of my competitor, or my set of competitors? The company. What is the role of this brand in the company portfolio? Many times, remember, companies have different brands in the market, so what is the role of this brand? Third thing, the costs, the production costs or the cost of goods sold of the product. Why? Because we want to make money. So we need to do our pricing which is cost plus something. The context, is there any regulation affecting us? Is there any law, any regulation that is going to affect the way I'm pricing? One of the most important thing, the positioning of the brand. What is the positioning that we're trying to build in the market? Why? Because depending on the positioning, we may price it in different ways. And, of course, the type of segment. What is a segment that are trying to reach with this marketing plan? What is the price that they might be wiling to pay? Two things about the type of segment that are interesting in the pricing analysis. The price sensitivity. Can we determine the level of sensitivity they have to the pricing strategy? And the second thing is, what is the value they're perceive in my product? With these, we might be able to infer what is the price they're willing to pay. Another thing that is interesting and we can see it here in this product life cycle graph, is basically where are we in the life cycle? because depending on where you are, you’re probably going to price differently. Why? Because pricing usually changes along the life cycle of the brand. It's very different to be in the introduction stage, growth, maturity, or declining stages. Let me give you a brief description of how the pricing strategy should be moving. Usually, in the introduction stages, we begin with two options. Penetration pricing or skimming pricing. I will explain this a little later. In the growth state, we usually talk about price segmentation. So identifying different segments and actually pricing different for the different segments. In the maturity stage, you get usually to a price match or price beat. Where basically you compare yourself with the competition and you try to actually gain market share from your competitors by pricing more aggressively, usually. And the final stages, usually, we tend to reduce prices in order to clear stocks. Let me explain you a little more about the initial stage, the introduction stage. Why? Because many times, probably some of your marketing plans are going to be about new brands getting into the market. We tend to define two basic pricing strategies here. Penetration pricing strategy, where basically we are going to enter the market with a low price, low margin, looking for high volume. So, gain market share quickly. Basically the advantages or the positive things about this strategy is basically gaining economies of the scale, growing fast and reducing production costs quickly. It's going to help us gain a large portion of the market share and probably gain first mover advantage. Also, it can discourage new competitors from entering the market. Problems of the penetration pricing strategy. Well, the first one is usually if there is a strong relationship between price and quality, remember you're pricing low. So you may be perceived as low quality, could be. And of course, it limits the price flexibility. Meaning that increasing prices later is going to be pretty much impossible. That will be the option of the penetration pricing. What is the other option? The skimming pricing. What do we mean when we say skimming pricing? That we price high. We enter the market with a high price, looking for high margins, and many times, low volume. Or lower than if we are going with a penetration pricing strategy. What are the advantages of the skimming strategy? That you're going to get the best of the market. You are going to capture customers that are willing to pay more, so less price sensitive. Especially, it's interesting when you having something that is quite unique, or you have a unique competitive advantage. Finally, another advantage is that it can give you more pricing flexibility because it will allow you, potentially in the future, to decrease your prices. Disadvantages or negative things about this. It may attract competitors because the market is attractive. It could mean a slower initial growth. Maybe you're losing some of your first mover advantage. Some customers will not be willing to buy the product basically because it's going to be expensive. That's the idea about penetration pricing or skimming pricing. That is basically the option when introducing a new brand. Let me just finish with some pricing considerations that could be interesting in your marketing plan. Psychological pricing. As you know, when you price 1.99 or 19.99, basically you're looking for a perception of price which is lower than the real price. Because the perception of 1.99 or 199 is way lower than 200 so basically that is one thing. Another thing that's interesting is segmented prices. We mentioned this in growth strategy. Is when we price differently for different segments of customers. I don't know, for example, a museum that has a different price for the seniors. That is segmented pricing. Finally, pricing level, which is basically the overall amount that you want the customer to pay versus the pricing structure. This is how the pricing strategy is presented to the customer. One final idea to close this pricing discussion is don't forget your pricing strategy should be well-aligned with your target segment definition, and that's the whole point. Identify the target, and then find a price which is good for this target segment. Thank you, very much. [MUSIC]
