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Pricing Strategy

Pricing Strategy

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Published by: Balaji Sundar on Mar 18, 2013
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Marketing Management

Pricing Strategy
LOGO
Minal Agarwal R. No. 3 Aditya Desai – R. No 18 Shaun Fernandes R. No. 23 Nidhi Gopalani R. No. 27 Prem Joshi R. No. 29 Dharmesh Kharwar R. No. 35 Veenit Kunder R. No. 38 Vidhi Mehta R. No. 44 JBIMS MMM-I

Contents
Introduction
Steps in Pricing Selecting pricing objective Determining Demand Estimating Costs Analyzing competitors costs, prices and offers Selecting a pricing method Selecting the final price

Adapting the price Inititating and responding to price changes

Introduction

Pricing Strategy

Price
It is the monetary value of a product

Pricing
A strategically correct value attached to a product/service corresponding to what it delivers

Price Quality Segments
PRICE

PRODUCT QUALITY

Price Quality Segments

High
1. Premium Strategy

Medium
2. High Value Strategy 5. Medium Value Strategy 8. False economy Strategy

Low
3. Super Value Strategy 6. Good Value Strategy

High

Medium

4. Overcharging Strategy

Low

7. Rip off Strategy

9. Economy Strategy

Economy Strategy . Medium Value Strategy 8. Super Value Strategy 6. High Value Strategy 5. Rip off Strategy 9.Price Quality Segments PRICE PRODUCT QUALITY Price Quality Segments High 1. Premium Strategy Medium 2. Good Value Strategy High Medium 4. False economy Strategy Low 3. Overcharging Strategy Low 7.

Rip off Strategy 9. Super Value Strategy 6. Good Value Strategy High Medium 4. Medium Value Strategy 8. Premium Strategy Medium 2. Overcharging Strategy Low 7. High Value Strategy 5. Economy Strategy . False economy Strategy Low 3.Price Quality Segments PRICE PRODUCT QUALITY Price Quality Segments High 1.

Economy Strategy . Medium Value Strategy 8. Good Value Strategy High Medium 4. False economy Strategy Low 3. Super Value Strategy 6. Overcharging Strategy Low 7. Rip off Strategy 9. Premium Strategy Medium 2.Price Quality Segments PRICE PRODUCT QUALITY Price Quality Segments High 1. High Value Strategy 5.

Price Quality Segments High Missed Opportunity PRICE PAID Medium Price = Value Low Low Medium Unharvested Value High VALUE RECIVED .

Step 1 Pricing Objectives .

Pricing Objectives Profit Maximization Market Share Maximization Maximize Quantity Quality Leadership Partial Cost Recovery Survival Status Quo Selecting Pricing Objectives .

Step 2 Determining Demand .

10 5 10 5 95 100 50 100 Quantity Demanded Quantity Demanded . Price in Rs.Price elasticity of demand Inelastic Demanded Elastic Demanded Price in Rs.

Step 3 Estimating Cost .

Estimating Cost Types of Costs Fixed Variable Total Average Company Logo .

Cost Per Unit at Different Levels of Production .

Accumulated Production Experience curve (Learning curve) .

Target Costing  Starts with ‘The Right’ selling price  Reversal of the usual process  Selling price – desired profit = Target Cost  Evaluation of all costs  Profit achieved through cost cutting .

Prices.Step 4 Analyzing Competitors’ Costs. and Offers .

Analyzing Competitors’ Costs. and Offers  Identify price of nearest competitors  Compare the features and prices of competitors  Make decision to charge more. Prices. same or less than competitors  Monitor competitors’ reactions .

Step 5 Selecting a Pricing Method .

Selecting a Pricing Method Markup Pricing Target-Return Pricing Perceived-Value Pricing Value Pricing Pricing methods Going Rate Pricing Sealed-Bid Pricing .

Markup Pricing Elementary method .g.add standard markup to product cost Most popular pricing method e. Resellers / Retailers .

Target Return Pricing Determine the price that would yield its target rate of Return on Investment (ROI) Break-even Volume e.g. MHADA .

Target-Return Pricing Break-even volume = fixed cost / (price – variable cost) Break-Even Chart for Determining Target-Return Price and Break-Even Volume .

Luxury Brands .g.Perceived-Value Pricing Buyers perception of value – not seller’s cost Use of Marketing Elements – Advtg & Sales e.

Value Pricing Low price for a high-quality offering Everyday low pricing (EDLP) High-low pricing e.g. Supermarkets .

Going Rate Pricing Based on Competitor’s Pricing Follow the Leader e.g. Soft Drink. Toothpaste etc. . Bottled water.

Sealed Bid Pricing Pricing based on expectations how competitor’s will price rather than on costs or demand e.g. Bids for Government Project .

Step 6 Selecting the Final Price .

Selecting the Final Price PSYCHOLOGICAL PRICING A IMPACT OF PRICE ON OTHER PARTIES E Selecting the Final Price C B GAIN & RISK SHARING PRICING COMPANY PRICING POLICY D INFLUENCE OF OTHER MARKETING MIX ELEMENTS .

Adapting the Price .

Geographical Pricing Offset Offset Buyback arrangement Compensation Deal Barter Counter-trade .

Price Discounts and Allowances 1. 5. Cash Discount Quantity Discount Allowance Seasonal Discount Functional Discount . 3. 4. 2.

Promotional Pricing Loss-leader pricing Special-event pricing Cash rebates Low-interest financing Longer payment terms Warranties and service contracts Psychological discounting Promotional Pricing .

Discriminatory Pricing First-degree price discrimination Second-degree price discrimination Third-degree price discrimination As in the following cases: Customersegment pricing Time pricing Productform pricing Image pricing Channel pricing Location pricing .

not undersell firm Cost of segmenting and policing Not breed customer resentment Not be illegal .Discriminatory Pricing (continued…) For price discrimination to work. certain conditions must exist: Segmentable & different intensities of demand No resell of product Competitors .

Features.Product-mix Pricing (six situations involving product-mix pricing) Product-Line Pricing Optional-Feature Pricing Captive-Product Pricing Main product + Optional products. products . Services Product + Ancillary / Captive.

Product-mix Pricing (continued…) Two-Part Pricing By-Product Pricing Fixed fee + Variable usage fee Product-Bundling Pricing Pure bundling & Mixed bundling .

Initiating and Responding to Price Changes .

Initiating Price Cuts A B C Excess plant capacity Declining market share Aggressive Pricing Economic recession D E Drive to dominate the market through lower costs Circumstances leading to Price cuts .

marketshare trap: Initial gains to market share but no loyalty 3 Shallow-pockets trap: Higher priced competitors cut price and stay longer .Initiating Price Cuts Traps due to price cutting 1 Low quality trap: Consumers will assume quality is low 2 Fragile.

Initiating Price Increases Delayed Quotation Pricing B Cost inflation & Anticipatory Pricing A Over-demand C Escalator Clauses Reduction of Discounts E D Unbundling .

Initiating Price Changes Possible responses to higher costs or overhead without raising prices include:  Shrinking the amount of product instead of raising the price  Substituting less expensive materials or ingredients  Reducing or removing product features  Removing or reducing product services. such as installation or free delivery  Using less expensive packaging material or larger package sizes  Reducing the number of sizes and models offered  Creating new economy brands .

Reactions to price changes ▼ Customers’ Reactions ▼ Competitor’s Reactions .

Responding to competitors’ price changes If competitors lower price for homogenous products If it doesn’t work or if it is not likely to work. then meet the price cut head-on Try augmenting the product .

follow if whole market is likely to follow In a non-Homogeneous Market Evaluate Why a change? Is change temporary / Permanent ? Effect on Mkt Share / Profit Response(s) from competitors .Responding to Competitors’ Price Changes If competitors raise price In a Homogeneous Market.

When a Market Leader is Being Attacked on Price Manage Price A Launch a low-price fighter line E Options Available B Maintain price and add value Increase price & improve quality D C Reduce Price .

Price-Reaction Program for meeting a competitor’s price cut .

LOGO Ref. Marketing by Kotler .

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