Pricing strategy

•Ankita Pujari - 35•Annuradha Gupta – 13•Omkar Sansare – 37•Shambhu kumar - 58 •Vaibhav Jangale - 18

WHAT IS PRICING ?

WHAT IS RIGHT PRICE FOR THE PRODUCT?

INTRODUCTION

FACTORS AFFECTING PRICING DECISION

I. Cost of ProductionII. The Demand for the productIII. Objective of the firmIV. Market structureV. Government policy pertaining to the

productVI. Pricing of competitors product.

PRICING METHODS

I. Cost plus pricingII. Marginal cost pricing

1. Cost-based pricing

It includes the cost of ingredients and cost of operating the business.

Types of cost based pricing

Cost plus pricing

I. The selling price is fixed by adding Mark-up or

Margin to its cost.

II. Price=Average variable cost + net profit margin + average fixed cost

Marginal Cost Pricing

I. Consider Incremental cost of production.II. It allows flexibility.III. Particularly relevant in transport where fixed costs may be

relatively high.

2. DEMAND BASED PRICINGI. The pricing decision is also depending on

Demand and supply of the commodity. II. Demand-based pricing is any pricing method

that uses consumer demand - based on perceived value - as the central element.

Types of Demand based pricing are:

I. Skimming pricing II. Penetration pricing III. psychological pricingIV. Discrimination pricingV. value-based pricing

Skimming Pricing

I. Initially the products will be introduced in a high price and subsequently settle down for a lower price.

II. Example: Mobile Phones, Televisions etc.. Most of the electronic items.

Penetration pricingI. Initially introduced at a lower price and increases its price

as its demand in the market increases. II. Good to capture new market. III. Opposite of skimming. IV. Keep the product out of competition for longer time.V. Example: DTH Services, Magazines, Mcdonald.

I. Used to play on consumer perceptions

II. Classic example – Rs.599 instead of Rs.600.

Psychological Pricing

I. Charging a different price for the same good/service in different markets at different point of time.

II. Requires different price elasticity of demand in each market

III.For example: vegetable vendor and railway ticket fare in foreign countries.

Prices for rail travel differ for the same journey at different times of the day

Price Discrimination

I. Price set in accordance with customer perceptions and not the sellers cost

II. Examples include status products/ exclusive products.

Value Pricing

3.COMPETITION BASED PRICINGIn Competition Based Pricing the price covers costs (cost of raw materials and the cost of operating the business) and is comparable to the competitor’s price.

I. Premium pricingII. Discounted Pricing III.Parity Pricing/going rate pricingIV.Product Bundling(packaging) pricingV. Loss Leader pricing.

Types of Competition Based pricing

Premium pricing

I. Setting the price of a product higher than similar productII. Is not used where is direct competitionIII. Unique productIV. For example: Rolls Royce and Rolex watches.

Discounted pricingI. Businesses use Discount pricing to sell low price products in high quantitiesII. Frequent use of this strategy may eventually damage your ability to sell the product at full price.

I. Setting price for a product or services using the prevailing market price as a basis.

II. Going rate pricing is a common practice with homogeneous product with very little variation from one producer to another, such as aluminium, steel, Banks, soft drink and petrol.

Going rate pricing

Product Bundling (or packaging)

I. Two or more products bundled together for a single price.

II. It saves cost of spreading awareness.

III. Useful when the product demand starts falling.

IV. Examples: Tourist agency, Indian railway, Newspapers and soap

Loss leader pricingI. Under this multi product

firms sell one product at a lower price and compensate the loss by other product.

II. One Product cannot be utilized without the other product.

III. Example: pen and ink, printer and cartridge, photocopier and toner, etc..