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TABLE OF CONTENTS TOPICS PAGES
INTRODUCTION ………………………………………………………………..3 PRICING INTRODUCTION ………………………………………………………3 IMPORTANCE OF PRICING …………………………………………………….4 SOME OF THE MORE COMMON OBJECTIVES OF PRICING………………..5 FACTORES EFFECTING DEMAND……………………………………………. 6 SETTING PRICING POLICY …………………………………………………… 6 PRICING INFLUENCES ON PRICING POLICY……………………………….. 10 PRODUCT PRICING STRATEGY ……………………………………………… 11 NEW PRODUCT PRICING STRATEGIES …………………………………….. 12 PRODUCT MIX PRICING STRATEGIES ……………………………………… 14 PRICE ADJUSTMENT STRATEGIES …………………………………………. 14 SETTING THE PRICE …………………………………………………………. 16 FACTORES EFFECTING PRICING DECISION ………………………………..17 INITIATING AND RESPONDING TO PRICE CHANGES …………………….19 PRICING STRATEGY OF SURF EXCEL………………………………………..20 PRICING STRATEGY OF JAZZ………………………………………………….21 PRICING STRATEGY OF PEPSI…………………………………………………22 REFRENCES ………………………………………………………………………23
Broadly. The concept of value can therefore be expressed as: (Perceived) VALUE = (perceived) BENEFITS – (perceived) COSTS . as compared with other available items. price is not revised often enough to capitalize on market changes. In small companies.price also communicating to the market the company’s intended value positioning of its product or brand. product features. price is to costoriented .INTRODUCTION • • • Narrowly. PRICING-INTRODUCTION Setting the right price is an important part of effective marketing. price is the amount of money charged for a product or service. top management sets general objectives and policies and often approve the prices proposed by lower level of management. distribution channels. price is often set by the boss. pricing is handling by division and product line managers. and price is not varied enough for different product item . Price is the one element of the marketing mix that produce revenue . For a consumer. prices are the easiest marketing mix element to adjust . perhaps in response to a competitor price change. The price of a product may be seen as a financial expression of the value of that product. channels and even promotion take more time . Price is also the marketing variable that can be changed most quickly. Companies do their pricing in a variety of ways. and purchase occasions. promotion and place are all about marketing costs). It is the only part of the marketing mix that generates revenue (product. price is the sum of all the values that consumers exchange for the benefits of having or using the product or service. price is set independent of the rest of the marketing mix rather than as an intrinsic element of marketing positioning strategy. Dynamic Pricing: charging different prices depending on individual customers and situations. Even here. Put simply. the other element produce cost.market segmentation . They make these common mistakes. In larger companies. price is the amount of money or goods for which a thing is bought or sold. Today companies are wrestling with a number of difficult pricing tasks • How to respect to aggressive price cutters • How to price the same product when it goes through different channels • How to price the same product in different countries • How to price on improved product while still selling the previous version Many companies do not handle pricing well. price is the monetary expression of the value to be enjoyed/benefits of purchasing a product.
and strategic evaluation can lead to the marketing organization losing revenue. IMPORTANCE OF PRICING When marketers talk about what they do as part of their responsibilities for marketing products. In general. or some forms of promotion which can be time consuming to alter (e.g. Likewise a marketer in charge of online operations can raise prices on hot selling products with the click of a few website buttons. the PRICE of a product is the most obvious indicator of cost . For instance. market research and other tasks that are viewed as the more interesting and exciting parts of the job.hence the need to get product pricing right. television advertisement). Additionally. Perceived benefits are often largely dependent on personal taste (e. spicy versus sweet.g. businesses try to ‘segment’ the market – that is to divide up the market into groups of consumers whose preferences are broadly similar – and to adapt their products to attract these customers. Prices set too low may mean the company is missing out on additional profits that could be earned if the target market is willing to spend more to acquire the product. analysis. Some reasons pricing is important include: • Most Flexible Marketing Mix Variable – For marketers price is the most adjustable of all marketing decisions. a products perceived value may be increased in one of two ways – either by: (1) Increasing the benefits that the product will deliver. which can take months or years to change. price can be changed very rapidly. The flexibility of pricing decisions is particularly important in times when the marketer seeks to quickly stimulate demand or respond to competitor price actions. because perceptions of benefits and costs vary. • Need: "I need to eat • Want: I would like to go out for a meal tonight") The second motivation comes from a perception of the value of a product in satisfying that need/want (e. • Setting the Right Price – Pricing decisions made hastily without sufficient research. the tasks associated with setting price are often not at the top of the list.g. or. Yet pricing decisions can have important consequences for the marketing organization and the attention given by the marketer to pricing is just as important as the attention given to more recognizable marketing activities. attempts to raise an initially low priced product to a higher price may be met by customer resistance as they may feel the marketer is . Marketers are much more likely to discuss their activities related to promotion. For consumers.g. Unlike product and distribution decisions.A customer’s motivation to purchase a product comes firstly from a need and a want: e. The perception of the value of a product varies from customer to customer.. or green versus blue). (2) Reducing the cost. "I really fancy a McDonalds"). In order to obtain the maximum possible value from the available market. a marketer can agree to a field salesperson’s request to lower price for a potential prospect during a phone conversation. product development.
It is important for marketers to know if customers are more likely to dismiss a product when all they know is its price. marketers must guard against the temptation to adjust prices too frequently since continually increasing and decreasing price can lead customers to be conditioned to anticipate price reductions and. as we noted in our discussion of promotional pricing in Part: 15: Sales Promotion tutorial.. • Trigger of First Impressions . it is possible the customer will not evaluate a marketer’s product at all based on price alone.Often times customers’ perception of a product is formed as soon as they learn the price. brand. withhold purchase until the price reduction occurs again. consequently. • Important Part of Sales Promotion – Many times price adjustments is part of sales promotions that lower price for a short term to stimulate interest in the product. pricing may become the most important of all marketing decisions if it can be shown that customers are avoiding learning more about the product because of the price.attempting to take advantage of their customers. Some of the more common pricing objectives are: Maximize long-run profit Maximize short-run profit Increase sales volume (quantity) Increase dollar sales Increase market share Obtain a target rate of return on investment (ROI) Obtain a target rate of return on sales Stabilize market or stabilize market price: an objective to stabilize price means that the marketing manager attempts to keep prices stable in the marketplace and to compete on nonprime considerations.e. such as when a product is first seen when walking down the aisle of a store. If so. Setting the right price level often takes considerable market knowledge and. Stabilization of margin is basically a cost-plus approach in which the manager attempts to maintain the same margin regardless of changes in cost. entire product). Prices set too high can also impact revenue as it prevents interested customers from purchasing the product. especially with new products. However. testing of different pricing options. or product Be perceived as “fair” by customers and potential customers Create interest and excitement about a product Discourage competitors from cutting prices Use price to make the product “visible" . Company growth Maintain price leadership Desensitize customers to price Discourage new entrants into the industry Match competitors prices Encourage the exit of marginal firms from the industry Survival Avoid government investigation or intervention Obtain or maintain the loyalty and enthusiasm of distributors and other sales personnel Enhance the image of the firm. While the final decision to make a purchase may be based on the value offered by the entire marketing offering (i.
the easer is to set price.e. access to retail outlets. which affects demand from repeat-business) Factors outside the control of business include: • The price of substitute goods and services • The price of complementary goods and services • Consumers’ disposable income • Consumer tastes and fashions Price is. A company can pursue any of five major objectives through pricing: survival. or ideological objectives Get competitive advantage FACTORS EFFECTING DEMAND Consider the factors affecting the demand for a product that are (1) Within the control of a business and (2) Outside the control of a business: Factors within a businesses’ control include: • Price (assuming an imperfect market – i. trained distributor agents) • Quality of after-sales service (e. not perfect competition) • Product research and development • Advertising & sales promotion • Training and organization of the sales force • Effectiveness of distribution (e. a critically important element of the choices available to businesses in trying to attract demand for their products SETTING PRICING POLICY STEP 1: SELECTING THE PRICING OBJECTIVES: The company first decides where it wants to position it market offering.g.g. therefore.Build store traffic Help prepare for the sale of the business (harvesting) Social. . The clearer a firm’s objectives. ethical.
and selling the product. cash flow. or product quality leadership. In emphasizing current performance. a firm must learn how to add value or face extinction. Some companies want to maximize their market share. .In 2001 a customer cold buy a 40-inch H-D TV for about $2000. the high-tech sales cost $43000. a company may sacrifice long run performance by ignoring the effects of other marketing mix variables. McKinsey conducted a study and found that 89 percent of internet customers visit only 1 book site. competitors’ reactions. On the other hand. As long as prices cover variable costs and some fixed costs. It often happens that companies unwilling a new technology favor setting high prices to “skim “the market. In the normal case. many buyers are not that price sensitive. these are difficult to estimate. When Sony introduced the world’s first high definition television (HD-TV) to the Japanese market in 1990. Perfume Company raised its price and sold more perfumes rather than less! Some customer takes the higher price to signify a better product. the impact of internet has been to increase customers’ price sensitivity. which indicates that there is a less price comparison shopping taking place on the internet that is possible. for e. maximum market skimming. Many companies try to set prices that will maximize current profits. The company wants to charge a price that covers its cost of production. the lower the demand.This television were purchased by customers who could afford to pay a high price for the new technology. the level of demand may fall. Sony is a frequent practitioner of market skimming pricing. or change in consumer wants. In this way. Costs set the floor. Company purchase survival as their major objective if they are plagued with over capacity. and by 1993a 28-inch H-D tv cost Japanese buyers just over $6000. in the long run. in reality. maximum market share. a customer can compare the price offered by over 2 dozen online book stores by just taking mysimon. . demand and price are inversely related. and 81 percent visited only 1 music site. intense competition. They estimate the demand and costs associated with alternative prices and choose the price that produces maximum current profit. the higher the price. In this case of prestige goods the demand curve sometimes slopes upward. However if the price is too high.com. In buying a specific book online. STEP 2: DETERMING DEMAND: Each price will lead to different level of demand and therefore have a differ impact on a company’s marketing objectives. This strategy assumes that the firm has knowledge of its demand and cost functions. including a fair return for its efforts and risks.g. and legal restraints on price. Sony skimmed the maximum amount of revenue from the various segments of the markets. a company stays in business. or Rate of return on investment. At the same time. Companies need to understand the price sensitivity of their customers and prospects and their trade-offs peoples are willing to make between price and product’s characteristics. STEP 3: ESTIMATING COSTS: Demand sets a ceiling of a price on the price the company can charge for its product. Survival is a short run objective. The internet increases the opportunity for price sensitive buyers to find and favor lower-price sites. distributing. Sony rapidly reduced the price over the next three years to attract new buyers.A price many could afford. They believe that a higher sales volume will lead to lower cost and higher long run profit they set the lowest price assuming the market is price sensitive. These prices can differ by as much as 20 percent. 84 percent visited only 1 toy site.maximum current profit. The relation between alternative prices and the resulting current demand is captured in demand curve.
Thus a manufacturer will negotiate different terms with different retail chains. Average costs is the cost per unit at that level of production.TYPES OF COSTS AND LEVELS OF PRODUCTION: A company’s costs take two firms. For example. If the firm offers contains positive differentiation features not offered by the nearest competitors. Variable costs vary directly with the level of production. and the like. however. PRICES. their worth o the customer should be evaluated and subtracted from the firm’s price. that competitors can change their prices in reaction to the price set by the firm.a company is now ready to select a price. macro-processing chips. prices. Now the firm can decide whether it can charge more. Total cost consists of the sum of the fixed and variable costs for any given level of production. if is equal to total cost divided by production. and procurement costs falls. ACCUMULATED PRODUCTION: Suppose TI runs a plant that produces three thousand hand calculators per day. . The manufacturer’s costs will differ with each chain. their worth to the customer should be evaluated and added to the competitor’s price. fixed and variable. and so will its profits. If the competitor’s offers contains some features not offered by the firm. DIFFERENTIATED MARKETING OFFERS: Today’s companies try to adopt their offers and terms to different buyers. The firm should first consider the nearest competitor’s price. its methods improve. A firm must be aware. One retailer may want daily delivery (to keep stock lower) while an other may accept twice a week delivery in order to get a lower price. They can also change as a result of concentrated efforts by designers. Management wants to charge a price that will at least cover a total production cost at a given level of production. salaries. and trust. As TI gains experience producing hand calculators. STEP 5: SELECTING THE PRICING METHOD: Given the three cs. Accompany must pay bills each month for rent . Fixed costs (also known as over head) are costs that do not vary with production or sales revenue. unless than the competitor. packaging. TARGET COSTING Costs change with production sale and experience. and so on . in that average cost falls with the accumulated production experience. the cost function. These costs tend to be constant per unit produced. the competitors’ prices. they are called variable because their total varies with the number of unit produced. materials flow more smoothly. Workers learn shortcuts. The result shows. and possible price reactions into account. a firm must take the competitor’s costs. &OFFERS : Within the range of possible prices determined by market demand and company’s costs. regardless of output . each hand calculator produced by Texas Instruments involves a cost of plastic.the customers’ demand schedule. STEP 4: ANALYZING COMPETITORS COSTS. engineers and purchasing agents to reduce them. heat. the same.
several companies have adopted value pricing.000 50. ACTION TYPE PRICING: . VALUE-PRICING: In recent years.2 =$20 TARGET-RETURN PRICING: In target return pricing the firm determines the price that would yield its target rate of return on investment (ROI). value pricing. such as advertising and sales force. Among the best practitioners of value pricing are WALL-MART. PERCIVED-VALUE PRICING: In increasing number of companies based their price on the customer’s perceived value. They use the other marketing mix elements. In oligopolistic industries that sell a commodity such as steel. the firm basis its price largely on competitors prices. Suppose a toaster manufacture has a following cost and sale expectation Variable cost per unit …………….Companies select a pricing method that includes one or more of various considerations. Fixed cost ………………. Target pricing is used to general motors. They must deliver the value promised by their value proposition. action type pricing and group pricing. to communicate and enhance perceive value in buyer’s mind. perceive value pricing. or fertilizers. The manufacturer’s markup price is given by: Markup price = unit cost (1-desired return on sales) = $16 1-0. more. IKEA. firms normally charge the same price.. The manufacturer’s unit cost is given by: Unit cost= variable cost + fixed cost =$10+ $300. or less than major competitors. MARK-UP PRICING: The most elementary pricing method is to add a standard mark-up to the product’s cost. going rate pricing. paper. The firm might charge the same. We will examine seven price setting methods: mark-up pricing. and the customer must perceived this value.000 =$16 Unit sales 50.000 Now assume the manufacturer wants to earn a 20 % markup on sales. target return pricing. Expected unit sales ……………. in which they win loyal customers by charging a fairly low price for a high quality offering. which price its automobiles to achieve a 15-20 percent ROI. and SOUTH-WEST airlines.000 $10 300. GOING RATE-PRICING: In going rate pricing. Construction companies submit job bids by estimating the total project cost and adding a standard mark-up for profit.
subscriptions. especially with the growth of the internet. THE INFLUENCE OF OTHER MARKETING MIXES ELEMENTS: The final price must take into account the brand’s quality and advertising relating to competition.com to buy electronics. computers. company pricing policy and the impact of price on other parties. There are over 2000 electronic market places selling everything from pigs to use vehicles to cargo to chemicals. The seller has the option of offering to absorb part or all of the risk if he does not deliver the full promised value. IMPACT OF PRICING ON OTHER PARTIES: Management must also consider he reaction of other parties to the contemplated price. Consumer can go to volumebuy. Image pricing is especially effective with egosensitive products such as perfumes and expensive cars. In selecting that price. the company must consider additional factors including physiological pricing. and another item.Is growing more popular. Company needs to be aware of the three major types of actions and their separate pricing procedures *ENGLISH ACTIONS (ascending bids) *DUTCH ACTIONS (descending bids) *SEALED BIDS ACTIONS GROUP PRICING: The internet is facilitating methods where by consumers are business buyers can join groups to buy at a lower price. gain and risk sharing pricing. the influence of other marketing mix-elements on price. STEP 6: SELECTING THE FINAL PRICE: Pricing method narrow the range from which the company must select its final price. PHYSIOLOGICAL PRICING: Many customers use price as an indicator of quality. How will distributors and dealers feel about it? Will the sales force be willing to sale at that price? How will competitors react? Will supplier raise their prices when they see the company’s price? Will the government intervene and prevent this price from being charged? PRICING-INFLUENCES ON PRICING POLICY The factors that businesses must consider in determining pricing policy can be summarized in four categories: (1) Costs . One major use of actions is to dispose of excess inventories or to use good. GAIN-RISK-SHARING PRICING: Buyer may resist accepting a seller’s proposals because of the high perceive level of a risk. *Brands with average relative quality but high relative advertising budgets were able to charge premium prices.
(3) Customers Consideration of customer expectations about price must be addressed.In order to make a profit. rather than lead the market PRODUCT PRICING STRATEGIES Developing a pricing strategy perplexes many CEOs. It's not surprising really: real businesses don't always follow the pricing strategy models that business schools and books on pricing strategy present. 2. not historical. In such cases the chosen price needs to be very carefully considered relative to those of close competitors. Costs. marketing and sales executives. The reality is usually somewhere in between. a business should attempt to quantify its demand curve to estimate what volume of sales will be achieved at given prices (4) Business Objectives Possible pricing objectives include: • To maximize profits • To achieve a target return on investment • To achieve a target sales figure • To achieve a target market share • To match the competition. Price Sensitivity. it has no choice and must accept the market price. a business should ensure that its products are priced above their total average cost. In the short-term. if a firm operates under conditions of perfect competition. then it can set any price. (2) Competitors If the business is a monopolist. . costs to determine the cost basis for your pricing strategy. But there are a few basic guidelines that can help take some of the mystery out of the process of establishing a successful pricing strategy. The price sensitivities of buyers shift based on a number of factors and your pricing strategy must shift with them. At the other extreme. Ideally. it may be acceptable to price below total cost if this price exceeds the marginal cost of production – so that the sale still produces a positive contribution to fixed costs. We consider that there are four basic components to a successful pricing strategy: 1. Focus on your current and future. and brand managers.
support. Pay attention to them. How you price. . but don't copy them . Product Lifecycle. when it comes to pricing strategy they may have no idea what they're doing. They would much prefer to add the functionality of your product enhancements instead of learning how to use something new. Let them guide you in terms of where you set your boundaries. 4. One technique to consider is unbundling support. proactive use of product pricing to drive sales and profits. promotion and the other costs associated with a product is to analyze how much of that product you will sell. training and services from the product itself. Raise Price to Exploit a Reticence to Switch Once the customer is yours.3. That's the heart of a successful pricing strategy. Use the Right Costs A successful pricing strategy is your means of making a profit today. not TO you. Align with the Product Life Cycle How high or low you set your price is also going to be driven by where your product is in its life cycle. and at what price. use the current costs of developing your new products as the basis of the price of your current product. Companies bringing out new product face the challenge of setting prices for the first time. . Pricing before you build Establishing a pricing strategy is an activity that should be completed before you start product development. which will allow you to lower price without discounting. One of the resistance factors your sales force encounters on a new sale is reticence to switch. So you might raise your update pricing accordingly. since they're likely making mistakes anyway. and what value you provide for that price. the farther along you go toward the Decline phase the lower your price should be. Don't use the cost of developing your current product as the basis for its price. Don't get caught in a no-win price war--which may hurt your product. will change as you move through the product lifecycle. For you. Used wisely it is a clearly powerful tool for successful marketing strategies. their product and devalue your marketplace. since your market will be (a) saturated with product and (b) have increased price sensitivity as their knowledge of the products increases. The introductory stage is especially challenging. Instead. The only way to accurately determine how much money you can afford to spend on development. An existing customer is still unwilling to learn something new. In general. NEW PRODUCT-PRICING STRATEGY Pricing strategies usually change as the product passes through its life cycle. And remember this as well: any move you make can be countered by them just as easily. and to help establish the parameters for product development. price sensitivity is much lower as comfort and ease factors increase. . Study the Competition Study the competition. and in terms of counter offensives you can launch to deal with obvious bonehead pricing on their part. Competition. the situation switches in your favor. Strategic pricing is the effective. not of recovering costs spent a year ago. but don't react and don't copy them. only now they're afraid to switch FROM you.
where the quality differences between competing brands is perceived to be large. The objective with skimming is to “skim” off customers who are willing to pay more to have the product sooner. or by certain market segments. High prices can be enjoyed in the short term where demand is relatively inelastic. In such cases.1) Market-skimming pricing The practice of ‘price skimming’ involves charging a relatively high price for a short time where a new. An example of the latter would be for the manufacturers of ‘designer-label’ clothing. 2) Market-Penetration pricing Penetration pricing involves the setting of lower. since high prices for the supplier are translated into high mark-ups for the dealer • For ‘conspicuous’ or ‘prestige goods’. but as profitability increases. Similarly. or for offerings where such differences are not easily judged. the practice of price-skimming allows for some return on the set-up costs • By charging high prices initially. A firm can divide the market into a number of segments and reduce the price at different stages in each. competing suppliers are likely to be attracted to the market (depending on the barriers to entry in the market) and the price will fall as competition increases. research and development costs are likely to be high. the practice of price-skimming is very popular. if not dominant market share. The success of a price-skimming strategy is largely dependent on the inelasticity of demand for the product either by the market as a whole. prices are lowered later when demand from the “early adopters” falls. as are the costs of introducing the product to the market via promotion. This strategy is most often used businesses wishing to enter a new market or build on a relatively small market share. rather than higher prices in order to achieve a large. innovative. . advertising etc. a lower initial price would be difficult to increase without risking the loss of sales volume • Skimming can be an effective strategy in segmenting the market. or much-improved product is launched onto a market. There are several advantages of price skimming • Where a highly innovative product is launched. the skimming strategy can work well. The main objective of employing a price-skimming strategy is. therefore. In the short term the supplier benefits from ‘monopoly profits’. since the buyer tends to be more ‘prestige’ conscious than price conscious. thus acquiring maximum profit from each segment • Where a product is distributed via dealers. Charging initial high prices allows the firm the luxury of reducing them when the threat of competition arrives. By contrast. to benefit from high short-term profits (due to the newness of the product) and from effective market segmentation. a company can build a high-quality image for its product. the practice of price skimming can be particularly successful.
Before implementing a penetration pricing strategy. A second potential disadvantage is the impact of the reduced price on the image of the offering. A penetration pricing strategy may also promote complimentary and captive products. PRODUCT-MIX PRICING STRATEGIES The strategy for setting the product’s price often has to be changed when the product is part of a product mix.or another example can be a person buying a personal computer and paying extra amount of money for the video card inside of it…) Captive Product: Pricing products that must be used with the main product (for example. Colgate offering its toothbrush along with its toothpaste…. factory capacity). If a person buys a new Nokia’s 6600 cell phone and if he also tends to pay extra amount of money for the memory card inside of it than it is optional pricing for that product…. which justify the use of penetration pricing strategies to gain market share. demand is price-sensitive and either new buyer will be attracted. A successful penetration pricing strategy may lead to large sales volumes/market shares and therefore lower costs per unit. Customers are then sold accessories (which often only fit the manufacturer’s main product) which are sold at higher mark-ups. a supplier must be certain that it has the production and distribution capabilities to meet the anticipated increase in demand. In this case the firm looks for a set of prices that maximizes the profit on the total product mix.or Gillette offering set of additional blades with its razors) By-Product: Pricing low value by product to get rid of them (for example.. Penetration strategies are often used by businesses that need to use up spare resources (e. Honda Civic is implementing product line pricing strategy for their cars as they are offering different models of same line for different prices with different features) Optional Product: Pricing optional or accessory products (for example. i. The most obvious potential disadvantage of implementing a penetration pricing strategy is the likelihood of competing suppliers following suit by reducing their prices also. particularly where buyers associate price with quality. The effects of economies of both scale and experience lead to lower production costs. or existing buyers will buy more of the product as a result of a low price. Many companies obtain soap during the refining process of cooking oils and then manufactures beauty soaps and sells it along with the cooking oils as their by-products…. As Unilever is obtains Lux through Dalda) Product Bundle: Pricing bundles of products sold together (for example Nescafe is offering its coffee along with its cup for 100 rupees thus their offer is similar to product bundle…besides that different combo deals of KFC which includes different offerings under one state is also an example of product bundle pricing) .This will only be possible where demand for the product is believed to be highly elastic.e.g. The main product may be priced with a low mark-up to attract sales (it may even be a loss-leader). thus nullifying any advantage of the reduced price (if prices are sufficiently differentiated the impact of this disadvantage may be diminished). Pricing is difficult because the various products have related demand and cost and face different degrees of competition: Product Line: Setting price steps between product line items (for example.
the higher the price. Ex: $299 vs. (For example a person shopping in Zainab market might seek value and quality at fair price. Prices of Levi’s or Nike might not be same in dolmen mall and in international stores…it will be definitely differ according to the environmental offerings. $300 (for example. Price of Pepsi in Pearl Continental Hotel as it is much higher than its actual value in the hotel just because of the segment and environmental change in this case the cost is the same but according to the segment pricing is different) 3) Psychological: adjusting prices for psychological effects. and locations (for example. (For example.) 5) Promotional: temporarily reducing prices to increase short-run sales. ( for example.( for example . DHL charges different rates according to the destination) *FOB Origin Pricing: Geographical pricing strategy in which goods are placed free on board a career.( for example. Different seasonal or occasional offers of Nike or Chen one offering certain discount on different range of shopping) 2) Discriminatory: adjusting prices to allow for differences in customers. (For example. regardless of their location. All customers within a zone pay the same total price. every customer have to pay a similar and specified amount of money to Nike if they are transacting from abroad) *Zone Pricing: A geographical pricing strategy in which the company sets up to or more zones. Here we examine the six price adjustment strategies. This process helps to deliver value and satisfaction to customers. 1) Discount & Allowance: reduced prices to reward customer responses such as paying early or promoting the product. Pepsi reduces its prices during the month of Ramadan and also offers different schemes and similarly Warid Zem offers nights free offers to their customers) 6) Geographical: adjusting prices to account for geographic location of customer.) .) *Basing Point Pricing: A geographical pricing strategy in which the seller designs some city as a basing point and charges all customers the freight cost from that city to the customer.) 4) Value: adjusting prices to offer the right combination of quality and service at a fair price. the more distant zone. the customer pays the freight from the factory to the destination. Dell computers established their basing point in India and then delivers their products in the Asian regions charging freight from that region) 7) International: adjusting prices in international markets. products. A person buying a compact disc from abroad in which he have to pay the transport expense for bringing it in access) *Uniform Delivered Pricing: A geographical pricing strategy in which the company charges the same price plus frightened to all customers. English toothpaste reduced its prices from 12 to 10 just to attract their customers and increase their sales in this way they implemented physiological pricing strategy besides that different offers in the market pricing like just 99 rupees or 999 rupees in various stores is also physiological pricing strategy. (For example. If Adidas is transacting with its customers from abroad regions then they will charge freight according to the distance of the region and as the distance will increase freight charges will also increase. (For example.PRICE ADJUSTMENT STRATEGIES A company usually adjusts their basic prices to account for various customers’ differences and changing situations. (For example.
such as the auto markets. Strategy to say’s “Our product has the same high quality as product 1 but we charge less”. they will sensibly buy from them and save money (unless firm earns 1’s product has acquirable snob appeal. that is . All three competitors can co-exit as long as the market consists of three groups of buyers: those who insist on quality. when it introduces its regular product into a new distribution channel or geographical area. and those who balance the too.and 9 can all co-exit in the same market. Strategy 3 says the same thing and offers and even greater saving. and when it enters bids on new contract work.SETTING THE PRICE A firm must set a price for the first time when it develops a new product. those who insist on price.3and 6 are ways to attack the diagonal positions. In some markets. If quality-sensitive customers believe these competitors.7and 8 amount to over-pricing the product in relation to its quality. The customer will feel “taken “and will probably complain or spread bad words of mouth about the company. Strategies 2. The firm must decide where to position its product on quality and price. Positioning strategies 4. another offers an average quality product at an average price and still another offers a low quality product at a low price. as many as eight price points can be found. SEGMENT Ultimate Gold standard Luxury Special need Middle Price alone EXAMPLE Rolls-Royce Mercedes Benz Audi Volvo Buick Kia Figure 16.1 shows nine price quality strategies. one firm offer a high quality product at a high price . .5. The diagonal strategies 1.
PREMIUM STRATEGY 2.PHILIP KOTLER HAVE IDENTIFIED 9 PRICE QUALITY STRATEGIES: NINE PRICE QUALITY STRATEGIES: PRICE HIGH MEDIAM LOW 1.HIGH-VALUE STRATEGY 3.MEDIUM-VALUE STRATEGY 6. while the organization may have control . To a large extent these factors are controllable by the company and.When setting price.SUPER. can be altered. GOOD-VALUE STRATEGY 8.VALUE STRATEGY 4.OVERCHARGING STRATEGY 7. RIP-OFF STRATEGY 5. marketers must take into consideration several factors which are the result of company decisions and actions. The final price for a product may be influenced by many factors which can be categorized into two main groups: • Internal Factors . FALSE-ECONOMY STRATEGY 9. However. if necessary.ECONOMY-STRATEGY HIGH MEDIUM LOW FACTORES AFFECTING PRICING DECISION For the remainder of this tutorial we look at factors that affect how marketers set price.
Understanding these factors requires the marketer conduct research to monitor what is happening in each market the company serves since the effect of these factors can vary by market. product pricing may depend heavily on the productivity of a manufacturing facility (e. • Pricing in Different Types of Markets Pure Competition: Many buyers and sellers where each has little effect on the going market price Monopolistic Competition: Many buyers and sellers who trade over a range of prices Oligopolistic Competition: Few sellers who are sensitive to each other’s pricing/marketing strategies . For instance. The marketer knows that increasing productivity can reduce the cost of producing each product and thus allow the marketer to potentially lower the product’s price. But increasing productivity may require major changes at the manufacturing facility that will take time (not to mention be costly) and will not translate into lower price products for a considerable period of time. • External Factors .. how much can be produced within a certain period of time).There are a number of influencing factors which are not controlled by the company but will impact pricing decisions.over these factors making a quick change is not always realistic.g.
the company may trigger a price war. Another circumstance is declining market share. cuts its subcompact car prices by 10 percent on the west coast when Japanese competition kept making in roads. It may resort to aggressive pricing. • Sealed-Bid Pricing: – Firm bases its price on how it thinks competitors will price rather than on its own costs or on demand. for examples. Popular because: – Sellers more certain about cost than demand – Simplifies pricing – When all sellers use. Price cutting strategy involves possible traps: *Low quality trap: Customer will assume that the quality is low . or other majors. a product importance.Pure Monopoly: Market consists of a single seller Cost-Plus Pricing • • Adding a standard markup to the cost of the product. INITIATING AND RESPONDING TO PRICE CHANGES: Companies often face situations where they may need to cut or raise prices. A general motor. prices are similar and competition is minimized – Some feel it is more fair to both buyers and sellers Competition-Based Pricing • Going-Rate Pricing: – Firm bases its price largely on competitors’ prices. with less attention paid to its own costs or to demand. INITIATING PRICE CUTS: Several circumstances might lead a firm to cut prices one is exceed plant capacity: the firm needs additional business and cannot generate it throw increased sales efforts. but in initiating a price cut.
may carry some positive meaning to customers: the item is “hot” and represents and usually good values. This action will cut profit in the short-run. FUJI attracts KODAK. COMPETITORS REACTION: Competitors are most likely to react with the number of firms are few. competitors. It might do so because (1) its cost falls with volume . Using price. suppliers and even government. The price increase. The firm may find it cheaper to maintain price and spend money to improve perceived quality then to cut price and operate at a lower margin. communication. Maintaining price and add value: The leader could improve its products and services. the quality has been reduced. A major circumstance provoking price increases is cost inflation . the price will come down even further . INITIATING PRICE INCREASES: A successful price increase can raise profit considerably for example: if the company’s profit margin is 3 percent of sales. the firm should search for ways to enhance its augmented products. and (3) it could regain market share when necessary. Reduced price: A leader might drop its price to match the competitors price. The brand leader can respond in several ways: • • • Maintain price: A leader might maintain its price and profit margins. (3) it would be hard to rebuild market share once it is lost. the firm is in financial trouble . a price cut can be interpreted in different ways : The item is about to be replaced by a new model . believing that (1) it would lost too much profit if it reduces its price (2) it would not lost much market share. CUSTOMER REACTION: Customer often question the motivation behind price changes.in anticipation of further inflation or government price control. distributors. RESPONDING TO COMPETITORS PRICE CHANGES: How should a firm respond to a price cut initiated by a competitor? In markets characterized by high product homogeneity. Market leaders frequently face aggressive price cutting by smaller firms trying to built market share. in a practice called anticipatory pricing. BIC attract GILLETE.(2) it would lost market share because the market is price sensitive. 1 percent price increase will increase profit by 33 percent if sales volume is unaffected. .*Shallow-pocket trap: The higher price competitors may cut their prices and may have longer staying power because of deeper cash reserves. and COMPAQ attract IBM. REACTION TO PRICE CHANGES: Any price change can provoke a response from customers. the product is homo-genius and buyers are highly informed. the item is faulty and is not selling well . Companies often raise their price by more than the cost increases . Brand leaders also face lower priced private-store brands. which could normally deter sales.rising cost unmatched by productivity gains squeeze profit margin and lead companies to regular rounds of price increases.
discount. Besides that it is also available in the market in sachets pricing from 5-10 rupees and in ½ kg for about 70 rupees.PRICING STRATEGY OF “SURF EXCEL” PRICE 10Rs 70Rs 120Rs QUANTITY 35 grams 1/5 Kg (500 grams) 1Kg (1000 grams) It targets upper class of consumers and markets and its segmentation if or high and potential markets. and psychological pricing strategies and for that Surf Excel have also responded efficiently through its strategies. Its market-oriented statement is “Daagh NHI to seekhna NHI” The company has offered 1kg of Surf excel in the market for 120 rupees. Its competitors in its upper-class segments are Ariel which is a product of P&G and Brite Total which is a product of Colgate-Palmolive (Laksons group). It is a product of Unilever. It is a quality oriented product providing value to their customers. It is available in different sizes and quantities in the market for different prices. Beside that the company has also implemented product line pricing strategy as their offerings are in different quantities along with different prices in the market for Surf Excel. But as its competitors also reacted for this change through customizing their offerings and price cuts Surf Excel was finally focused towards price increases. PRICING STRATEGY OF “JAZZ” . Several offers have also been introduced by Ariel and Brite in the market using Promotional. Besides that Surf Excel pricing strategy have also been to provide value and recently the company improvised their strategy as they focused toward more promotion through campaigns. In 2005 Unilever adopted one of the price-adjustment strategies which was discount & allowance pricing as they offered 1kg of Surf Excel for 105 rupees. Through this strategy promotional pricing strategy also came in progress as their product was promoted through it and the sales increased rapidly.
Previously Mobilink was offering Jazz connection for about 3000 rupees 5 years ago.25 Rs JAZZ TO JAZZ JAZZ TO OTHER NETWORK JAZZ TO JAZZ JAZZ TO OTHER NETWORK CALL RATES CALL RATES SMS RATES SMS RATES It is well known brand of Mobilink. In 2005 Jazz offered a cellphone+connection+prepaid card implementing a product-bundle pricing strategy for creating more attention and attraction.\\ RATES NETWORKS 2. In the early days Jazz was offering its sim-cards for a high-price using captive-product pricing strategy as its sim-card is a main product that must be used along with the cell phone. Its market oriented statement is “Aur Sunao” But through the passage of time \now Mobilink is offering Jazz connections for about 100 rupees. Then in 2005 Warid also entered the market offering its connections for 250 rupees. In this way price war started between these telecom brands in the market. In 2002 Ufone which is one of the leading competitor of Jazz introduced it’s prepay connection for about 2500 rupees.00 Rs 1.99 per minute call rates in their . Initially Jazz’s call rates and sms charges were also reduced using discount and allowance strategy and initially directing towards promotional strategy as the competition between cellular brands in the market grew faster. Previously it was Jazz’s oligopoly as they offered their prices. Recently Jazz introduced its offerings of 0.12 Paisa 2. In 2005 Telenor came into existence in Pakistani market and offered its connections for about 500 rupees.88 Paisa 1.second operations using the promotional pricing strategy. The major shift in the pricing strategy came in when they started 30.
Even if you notice on their offerings they are using product-line pricing strategy as they are offering different quantities with different amount of money. Its market oriented statement is “Dare for more” PRICES 12 Rs 20Rs 20 Rs 40Rs 55 Rs QUANTITY 250ml 300ml 500ml 1. REFERENCES: . It has a huge market of customers. PRICING STRATEGY OF “PEPSI” In Pakistan Pepsi cola is being operated by Pakistan Beverages. In this way they adopt promotional pricing strategy. In different sectors Pepsi have also adopted segmented pricing strategy as its prices are much higher in luxurious hotels and other sectors.25lit In our society Pepsi often reduces its prices during the holy month of Ramadan and at the time of Eid. In the month of Ramadan whenever Coca-cola reduces their prices Pepsi also responds through price cuts and then eventually after that period it rises its prices. and hotels. However buyer’s reactions have not been much affected the company in the long-run.25 litre of pepsi in 55rupees. Its main competitor is Coca-cola when it comes to soft-drinks.“happy hour package” which represents their operations with the promotional as well as psychological pricing of their services. As Ufone. restaurants. Pepsi is available in the majority of stores. Besides that Jazz adopted segmented pricing strategy as they were charging different call rated from one city to another but its competitors have emerged tremendously they have responded efficiently towards their actions through cutting their pricing mainly applying promotional and psychological strategy. Telenor and Zem are offering great offers of call rates and sms rates. outlets. Basically it is segmented for the younger generation of Pakistan but because of its customized offerings it is being consumed by different age groups in our society. The company has offered Pepsi in different quantities and prices in our market. Coca-cola have also made various efforts through different pricing strategies and offerings but Pepsi have also responded effectively towards their actions through initiating price cuts at the right time for example. Through its happy hour package they are also operating with promotional strategy as they are engaged in continuous promotion through their offerings. Pepsi have always operated their sales through promotional and phsycologilical pricing strategy and the great example for this can be their recently offered deal which is 2.5 lit 2. day by day Jazz in also responding efficiently through its strategic pricing offers.
com www.bcg.wikipedia.com www.com www.com BOOKS: Principles of marketing (Gary Armstrong and Philip Kotler 10th edition) Marketing Management (Philip Kotler 11th edition) .www.yahoo.google.echeats.knowthat.tutor2u.com www.com www.com www.
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