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/servic e correspondin g to what it delivers

Price Quality Segments
PRICE
Price Quality Segments

High

Medium

Low

PRODUCT QUALITY

High

1. Premium Strategy

2. High Value Strategy

3. Super Value Strategy 6. Good Value Strategy

Medium

4. 5. Medium Overcharging Value Strategy Strategy 7. Rip off Strategy

Low

8. False 9. Economy economy Strategy Strategy

Price Quality Segments
PRICE
Price Quality Segments

High

Medium

Low

PRODUCT QUALITY

High

1. Premium Strategy

2. High Value Strategy

3. Super Value Strategy 6. Good Value Strategy

Medium

4. 5. Medium Overcharging Value Strategy Strategy 7. Rip off Strategy

Low

8. False 9. Economy economy Strategy Strategy

Price Quality Segments
PRICE
Price Quality Segments

High

Medium

Low

PRODUCT QUALITY

High

1. Premium Strategy

2. High Value Strategy

3. Super Value Strategy 6. Good Value Strategy

Medium

4. 5. Medium Overcharging Value Strategy Strategy 7. Rip off Strategy

Low

8. False 9. Economy economy Strategy Strategy

Price Quality Segments
PRICE
Price Quality Segments

High

Medium

Low

PRODUCT QUALITY

High

1. Premium Strategy

2. High Value Strategy

3. Super Value Strategy 6. Good Value Strategy

Medium

4. 5. Medium Overcharging Value Strategy Strategy 7. Rip off Strategy

Low

8. False 9. Economy economy Strategy Strategy

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

Price elasticity of demand

Inelastic Demanded
Price in Rs. Price in Rs.

Elastic Demanded

10 5

10 5

95 100

50

100

Quantity Demanded

Quantity Demanded

Step 3

Estimating Cost

Estimating Cost

Types of Costs

Fixed Variabl e 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

Step 4

Analyzing Competitors’ Costs, Prices, and Offers

Analyzing Competitors’ Costs, Prices, and Offers  Identify price of nearest competitors  Compare the features and prices of competitors  Make decision to charge more, 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 Going Rate Pricing Sealed-Bid Pricing

Pricing method s

Markup Pricing
Elementary method - add standard markup to product cost

Most popular pricing method e.g. Resellers / Retailers

Target Return Pricing

Break-even Volume e.g. MHADA

Determine the price that would yield its target rate of Return on Investment (ROI)

Target-Return Pricing

Break-even volume = fixed cost / (price – variable cost)

Break-Even Chart for Determining TargetReturn Price and Break-Even Volume

Perceived-Value Pricing

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

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. Bottled water, Soft Drink, Toothpaste etc.

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

Counter-trade Barter Compensation Deal Buyback arrangement Offset

Geographi cal Pricing

Geographical Pricing

Offset Offset
Buyback arrangement

Compensation Deal Barter Counter-trade

Price Discounts and Allowances

1. 2. 4. 3.

5.

Cash Discount Quantity Discount

Allowance Seasonal Discount

Functio nal Discoun

Promotional Pricing

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

Promotion al Pricing

Discriminatory Pricing

irst-degree price discrimination Second-degree price discriminatio Third-degree price discrimination As in the following cases:

Customersegment pricing Productform pricing Image pricing Channel pricing Location pricing

Time pricing

Discriminatory Pricing (continued…)
F Segmentable & different intensities of demand No resell of product Competitors - not undersell firm Cost of segmenting and policing Not breed customer resentment Not be illegal

Product-mix Pricing
(six situations involving product-mix pricing)

Product-Line Pricing Optional-Feature Pricing

CaptiveProduct Pricing
Product + Ancillary / Captive, products

Main product + Optional products, Features, Services

Product-mix Pricing (continued…)

Two-Part Pricing By-Product Pricing
Fixed fee + Variable usage fee

ProductBundling 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

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

Initiating Price Increases
Delayed Quotation Pricing

B

Cost inflation & Anticipatory Pricing

A Overdemand E D

C

Escalator Clauses

Reduction of Discounts

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

Customer s’ Reactions

Competito r’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 augmentin g the product

Responding to Competitors’ Price Changes If competitors raise price
In a Homogeneous Market, follow if whole market is likely to follow In a non-Homogeneous Market

Evaluate

Why a change?

Is change temporar y/ Permanen t ?

Effect on Mkt Share / Profit

Response(s ) from competitor s

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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