STRATEGY AND

PRICING
Pricing and Market
orientation
 Pricing is dependent upon customers
reaction to the price set
 Customers don’t buy cheap or expensive
products they buy those which they
perceive as good value for money
 Problem for marketing lies in deciding what
the customers will see a good value for
money while still allowing the company to
make profit
Pricing Approaches

 COST BASED
 CUSTOMER BASED

 COMPETITION BASED

Cost based method is least market

oriented yet most popular
Cost Plus Pricing
 Works by calculating the cost of the
manufacturing the product + overheads +
fixed % profit = Price ( easy-clear)
 It assures known profit margin provided
sales targets are reached
 It is self centered; market is ignored
 It may produce a price below or higher than
the customers willing to pay
 It ignores competition
Mark-up pricing
 Mostly used in retailing similar to CPP
 Fixed % is added to products bought in
price in order to arrive at a shelf price
 It could be 0% to 100%
Customer based Pricing

 Does not necessarily mean offering

products at the lowest possible price
but it does means taking into account
customers needs and wants
Demand
Pricing
 It is the most customer oriented method of
pricing because its starting point is the
demand for the product at different price
levels
 The demand curve may be used to decide
the most appropriate price
Product Line Pricing
 Setting prices within linked products groups
usually depended
 Selling one item at low price to capture and
build traffic and making profit on other
product
 Camera , Films and accessories
Skimming pricing
 Starting out with a high price for a product then
reducing it progressively as sales level off
 Relies on not all customers have the same
perception of value of money
 Relies on that the company has a technological
lead over its competitors which can be
maintained for long enough to satisfy the market
 Enough customers demand for high price
 Development costs are recovered early stage
Psychological Pricing
 Relies on emotional responses from the
customers
 Higher prices are often indicator of quality and
prestige
 Common in services , restaurants
 It can be used as a tool to create strategic
competitive advantage
 Product must match to the raised expectations
 In price war firm may actually increase its prices
Competitor based pricing
 Recognizes the influence of competition in
the market
 The marketer must decide how close the
competition is in meeting the consumers
needs
 If the products are close then price need to
be similar to those of the competition
 Telecom Industry in Pakistan
Odd-Even Prices
 It is the practice of ending price with an odd
number like 3.99 rather than 4
 Consumers mind sets on 3 not on 4
 Customer associates it with discounts or sale price

 Second-Market Discounting
Penetration Pricing

 Lower Prices will be perceived as the

better Value for money
 Offering the products at cheaper rates
while cutting the profits
Predatory Pricing
 Setting the price below the cost of
production to Bankrupt the
competition – illegal Practice
Stages of setting price
 Development of pricing objectives
 Assessment of the target markets ability to
pay and evaluation of the price
 Determination of demand
 Analysis of demand, cost, and profit
relationships
 Evaluation of competitor’s prices
 Selection of pricing policy
 Development of Pricing method
 Determining a specific price
PRICE AS A STRATEGIC
TOOL
 Price is a major component in customer’s
judgment of both product and company
 It is guideline to the positioning of a product
 It acts a a guide to quality
 It is an absolute indicator against competition
 Cost leadership versus differentiation
 Market leadership and follower
 Price is the main driver of sales, share
holders value and profitability