Pricing

MARKETING MANAGEMENT

Pricing: Relating Objectives to Revenue and Costs

Pricing: Arriving at the Final Price 

WORD OF WISDOM

Study while others are sleeping ; work while others are loafing ; prepare while others are playing; and dream while others are wishing .

~ William Arthur Ward ~

SPECIFIC OBJECTIVES :

After the completion of the report, co –masterand will be able to understand the following:

The three major pricing strategies & pricing of new products.

The importance of customers- value perceptions, company costs and competitor strategies when setting prices.

The other important external and internal factors affecting a firm in pricing decisions.

SPECIFIC OBJECTIVES :

The strategy planning for prices and its pricing objectives.

How companies find a set of prices that maximizes profits from the total product mix.

How companies adjust their prices to take into account different types of customers and situations.

SAMSUNG GALAXY

POCKET iPhone 5 & 5s

PRICE

is the amount of money charged for “something of a

value ”.

It is the sum of all values that customers give up to

gain the benefits of having or using the product or

service.

4 P’s of MARKETING

MAJOR PRICING STRATEGIES

1. Customer value based pricing – uses buyer’s perception of value, not the seller’s cost, as the key to pricing.

Good Value Pricing – offering the right combination of quality and

good service at a fair price. It involves redesigning existing brands to

offer more quality for a given price or same quality for less.

Value Added Pricing – attaching valued added features and

service to differentiate a company’s offers and charging higher

prices.

MAJOR PRICING STRATEGIES

Value Added Pricing Good value pricing

Customer based value pricing

CUSTOMER BASED PRICING

Assess customer needs and

value perceptions

Set target price to match customer

perceived value

Determine costs that can

be incurred

Design product to deliver

desired value at target price

2. Cost Based Pricing – involves setting prices based on cost for

producing, distributing and selling the product plus a fair rate

of return of effort and risk.

Cost – Plus Pricing – the simplest pricing method. It involves adding a standard mark up to the cost of the product.

Break Even Pricing – another cost oriented approach (or a variation called target return pricing).

MAJOR PRICING STRATEGIES

Cost based pricing

COST BASED PRICING

Design a good Product

Determine Product Cost

Set Priced based on

Cost

Convince buyers of

product value

MAJOR PRICE STRATEGIES

3. Competition Based Pricing – involves setting prices based on competitor’s strategies, costs, prices and market offering.

Consumers will be base their judgments of a product’s value on the prices that competitors charge for similar products.

ASSESSING COMPETITOR’S PRICING STRATEGIES

How does the company’s market offering compare with competitor’s offering in terms of customer value?

How strong are the current competitors?

What are their current pricing strategies?

OTHER INTERNAL AND EXTERNAL

CONSIDERATIONS AFFECTING PRICE

DECISIONS

Price is the only one element of the company’s broader marketing strategy . Thus , before setting price ,the company must decide on its overall marketing strategy for the product or services .

Management should decide who within the organization should set prices .

1

1.Overall Marketing Strategy , Objectives and Mix

2. Organizational Considerations

Good Pricing starts with an understanding of how customer’s perception of value affects the price they are willing to pay .

The relationship between the price charge and the resulting demand level is shown in the demand curve .

3. The Market and Demand

4 . Analyzing the Price – Demand Relationship

Pure Competition – Seller in these markets does not spend much time on marketing strategy.

Monopolistic Competition – A range of prices occurs because sellers can differentiate their offers to buyers.

Oligopolistic Competition – the market consists of a few sellers who are highly sensitive to each other’s pricing and marketing strategies.

Pure Monopoly – The seller may be a government monopoly, a private regulated monopoly, or a private non – regulated monopoly.

5. Pricing in Different Type of Markets

It is measure of the sensitivity of demand changes in price.

Economic conditions can have strong impact on firms pricing strategies .

The company must consider several other factors in its external environment when setting prices.

6. Price Elasticity of Demand

7. The Economy

8. Other External Factors

PRICING OBJECTIVES &

NEW PRODUCT PRICING STRATEGIES

STRATEGY PLANNING FOR PRICE

TARGET MARKET

PRICEPROMOTIONPLACEPRODUCT

PRICING OBJECTIVES

GEOGRAPHIC TERM

DISCOUNTS&ALLOWANCES

PRICE LEVEL

PRICEFLEXIBILTY

PRICING OBJECTIVES

It should flow from – and fit in with – company level and marketing objectives .

Pricing Objectives should be explicitly stated because they have a direct effect on pricing policies as well as the methods used to set prices.

POSSIBLE PRICING OBJECTIVES

NEW PRODUCT PRICING STRATEGIES

1. Market Skimming Pricing

setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price. The company makes fewer but more profitable sales.

Market skimming make sense only under certain conditions :

1. The product’s quantity & image must support its higher price & enough buyers must want the product at the price.

NEW PRODUCT PRICING STRATEGIES

2 . The cost of producing a smaller volume cannot be so high that they can cancel the advantage of charging it.

3. Competitors should not be able to enter the market easily and undercut the high price.

NEW PRODUCT PRICING STRATEGIES

2. Market – Penetration Pricing

setting a low price for a new product to attract a large number of buyers and a large market share.

Several conditions must be met for this low – price strategy to work :

1. The market must be highly price sensitive so that a low price produces more market growth.

NEW PRODUCT PRICING STRATEGIES

2. Product and Distribution cost must decrease as volume increases.

3. The low price must help out the competition and the penetration prices must maintain its low price position otherwise the price advantage may temporarily.

PRODUCT MIXING STRATEGIES

PRODUCT MIXING STRATEGIES

1. Product Line Pricing

setting the price steps various product line based on cost differences between products, customer evaluations of different features and competitor’s prices.

PRODUCT MIXING STRATEGIES

2. Optional Product Pricing

the pricing of optional or accessory products along with a main product.

PRODUCT MIXING STRATEGIES

3. Captive Product Pricing

setting a price for products that must be used along with main products.

PRODUCT MIXING STRATEGIES

4. By Product Pricing

setting a price for by products to make the main products price more competitive.

PRODUCT MIXING STRATEGIES

5. Product Bundle Pricing

combining several products and offering the bundle at a reduced price.

PRICE ADJUSTMENT STRATEGIES

PRICE ADJUSTMENT STRATEGIES

1. Discount and Allowances Pricing

most of the companies adjust their basic price to reward customers for certain responses ,such as early payment of bills , volume purchases and off – season buying.

FORM OF PRICE DISCOUNTS

Cash Discount – price reductions to buyers who pay their bills promptly.

Quantity Discount – is a price reduction to buyers who buy large volumes.

Functional Discount – trade channel members who perform certain functions such as selling, storing and record keeping.

Seasonal Discount – is a price reduction to buyers who buy merchandise or services out of season.

FORM OF ALLOWANCES

Trade in Allowances – are price reduction given for turning in an old items when buying new one.

Promotional Allowances – are payments or price reduction to reward dealers participating in advertising and sales support programs.

2. Segmented Pricing

selling a product or service at two or more prices, where the difference in price is not based on differences in costs.

TYPES OF SEGMENTED PRICING

Customer – segment pricing – different customers pay different prices for the same product or services.

Product – form pricing – different versions of product are priced differently but not according to differences in their costs.

Location – based pricing – company charges different prices for different locations, even though the cost offering each location is the same.

Time – based pricing – a firm varies it price by the season, the month, the day, and even the hour.

TYPES OF SEGMENTED PRICING

Product Form Pricing Time – based pricing

Locaton based pricing

3. Psychological Pricing

pricing that considers the psychology of prices, not simply the economics, and the price says something about the product.

Reference Pricing – prices that the buyers carry in their minds and refer to when they look at a given product.

4. Promotional Pricing

temporarily pricing products below the list price and sometimes even below cost, to increase short run sales.

5. Geographical Pricing

setting prices for customers located in different parts of the country or world.

TYPES OF GEOGRAPHICAL PRICING

FOB – origin pricing – a geographical pricing strategy in which the goods are placed free on board a carrier. The customer pays the freight from the factory to the destination.

Uniform – delivered pricing –a geographical pricing strategy in which the company charges the same price plus freight to all customers, regardless of their location.

Zone Pricing – a geographical pricing strategy in which the company sets up two or more zones. All customers within a zone pay the same total price, the more distant the zone, the higher the price.

TYPES OF GEOGRAPHICAL PRICING

Basic – Point Pricing – a geographical pricing strategies in which the seller designates some city as a basing point and charges all customers the freight cost from that city to the customer.

Freight – absorption pricing – a geographical pricing strategy in which the seller absorbs all or part of the freight charger to get the desired business.

6. Dynamic Pricing

adjusting prices continually to meet the characteristics and needs of individual customers and situations.

7. International Pricing

companies that market their products internationally must decide what prices to charge in the different countries in which they operate.

PRICE CHANGES

PRICE CHANGES

1. Initiating Price Cuts

Several situations may lead a firm to consider cutting its price. Following are:

Excess Capacity

Falling demand in the face of strong price competition or a weakened economy.

To dominate the market through lower costs.

PRICE CHANGES

2. Initiating Price Increases

A successful price increase can greatly improve profits. Major situations which may lead to price increase are as follows:

Cost Inflation

Over- demand

PRICING POLICIES

FOUR RESPONSES OF PRICE CHANGE

Reduce its price

Raise the perceived value

Improve quality and increase price

Launch a low price fighter brand

PRICING POLICIES

A. Pricing within Channel Levels

Sellers are prohibited on price fixing.

Sellers are prohibited from using predatory pricing.

B. Pricing Across Channel Levels

Unfair Price Discrimination.

Retail (resale) price maintenance

Deceptive Pricing

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