Pricing Concepts--

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By GROUP-3

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Price is the only Revenue….

….. Rest are costs

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WHAT IS PRICE FOR AN OFFERING ?

RENT FOR A BUILDING

Tariff for phone

Airlines,Rly.,Bus, Cab….Fare

Express way…..Toll

Can it be price ?

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Price is what customers pay for what they get. It is the only marketing mix element that produces revenue which determines profit and loss. Price may be in terms of interest, wages and salary, commission, fee, rent etc.

PRICINGSetting the pricing objectives

1) Survival- Measure objectives for pricing- Long run objectives - Most learn to add value or extention

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2) Maximizing current profit:- Try to set price that will maximize current profits.- Estimate demand and cost assosiation

3) Maximize market share:-Belives that higher sales volume will lead to lower unit cost and higher long term profit.-Save low price-For eg: mero mobile practiced market panitration over a year

PRICING4) Maximum market skimming:- Companies set high pirce for the services or product at first time then lowar price over time- Relates when new technology is invented by the company. For eg: sony tv.

5) Non profit organization:-Organizations rely on private gifts and public grants to cover its remaining cost

PRICING-As museums, govt. hospitals, INGO, Red cross, Rottary club, Lions club

6) Product quality leadership:-Many branch struggle to be “ affordable luxurious” product or service.-Company might focus on quality leadership in market.-Brands such as: Rado, BMW cars, IBM computers, caterpillar shoe, D’Damas jwellary, pasmina products etc..

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Price settings factors

PRICINGPrice• Price is the amount of money charged for a

product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service.

• Rent, fee, commission

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Factors to consider while setting price

Internal• Marketing objectives• Marketing Mix• costs• Organizational

Consideration

External• Nature of market and

demand• Competitor costs• Prices and offers• Other environmental

elements

PRICINGMarketing objective• Marketing positioning influences pricing

strategies• Survival• Market share leadership

PRICINGMarketing Mix• Pricing must be carefully coordinated with other

marketing mix elements• Target costing is often used to support product

pricing.

PRICINGCost

• How cost varies at different levels will influence price setting.

PRICINGOrganizational Consideration

Who sets the price?• Small companies- CEO or top level

management.• Large companies- Divisional or product line

manager.

PRICINGNature of market demand• Consumer perception of price and value• Price and demand relationship

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Competitors costs, prices and offers• Pricing strategy influence the nature of

competition• Benchmarking costs against the competitor

PRICINGOther environmental elemets• Economic conditions• Reseller reaction to prices must be considered.

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PRICE SETTING METHODS

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Cost Oriented Methods

Value Oriented Methods

Market-Based Methods

PRICINGCost Oriented Methods

1. Cost-plus or Mark-up pricing

This is the simplest method of pricing which involves a calculation of the fixed and variable cost per unit and adding the desired profit margin on the total cost.

PRICING2. Target return on investment pricing

Under this method the desired return on investment is added to the total cost to arrive at the price.

PRICING3. Target profit or Break-even pricing

•This method uses the break even analysis (BEA) to evaluate the revenue and profit scenarios at several pricing alternatives.

• In BEA total cost is segregated in Fixed cost which is assumed to remain unchanged at difference scale of production & Variable cost is constant per unit.

PRICINGValue Oriented Methods

1. Perceived value pricing•In this method the

manufacturer collects buyer’s perception of the value (price) and fixes the price

around the average perceived value.

•Cost and demand are secondary factors in this method of pricing.

PRICINGDifference Between Cost-based and Value-based Pricing

Product Cost

PriceValue

CreationCustomers

CustomersValue

Creation PriceProduct

Cost

COST-BASED PRICING

PERCEIVED VALUE PRICING

PRICING2. Customer value pricing

•Organization charge very low price to create special customer value for the product.

• Adopted by those organizations who have substantial width and depth in their product line or mix.

PRICINGMarket-Based Methods

1. Going-rate pricing

• The organization simply bases its price at the prevailing market price.

• Organizations selling undifferentiated product may determine the price equal to competitive level.

PRICING2. Pricing above competition

• If the product can be differentiated to some extent, it may price slightly above the prevailing market price.

• If the marketer has higher image or goodwill, it can afford to set the price above competitive level.

PRICING3. Pricing below competition

• It is popular in highly competitive market.

• Organizations believe that more buyers can be attracted by the lower price.

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Adapting thePrice

Geographical demand & costsMarket Segment RequirementsPurchase TimingsOrder levelsDelivery FrequencyService ContractsGuarantees………

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AdaptingThe Price

Geographical

Discounts & Allowances

Promotional

Discriminatory

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Geographical

Different or same price…… How to get paid

•Barter•Compensation Deal•Buyback•offset

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Price Discounts&

Allowances

Cash Discounts Quantity Discounts Functional Discounts Seasonal Discounts Allowance Trade-in-Allowance Promotional Allowance

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PromotionalPricing

Loss LeaderSpecial EventsCash RebatesLow interest FinancingLonger Payment TermsWarranties & Service ContractsPsychological Discounting

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DiscriminatoryPricing

Customer Segment Pricing-Museums Product Form Pricing-Cola Packing Image Pricing-Perfumes Channel Pricing-Rly Station..Theatre…5 star Location Pricing-Balcony..Dress circle Time Pricing..seasons….day…night

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INITIATING PRICE INCREASE

Over Demand Inflation

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Response To Over demandWithout Raising Price

Shrinking the product Substitute materials Reducing product

features Red. Product services Using less Pac. Mat. Red. The No. of sizes Creating economy

brand

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COMPETITORSCUSTOMERS

ReactionsTo

Price Changes

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Responding to Competitors

Price changes

Maintain price &Maintain price & add valueReduce priceIncrease price & Improve qualityLaunch a low price fighter line

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