Marketing Management Text and Cases

Pricing Concepts, Strategies and Price Setting Approaches

20 Chapter
Pricing Concepts,
Strategies and
Price Setting
Approaches © SHH Kazmi, 2007

20-1 Marketing Management Text and Cases, S H H Kazmi

20-1 Excel
ExcelBooks
Books
 Pricing Concepts, Strategies and Price Setting Approaches

Price setting is a very critical area in marketing mix decisions of a company. It is

the only element that generates revenues for the company, and all others
involve only costs.
Price represents the value that is exchanged in a marketing transaction.

© SHH Kazmi, 2007

20-2 Marketing Management Text and Cases, S H H Kazmi Excel Books

 Pricing Concepts, Strategies and Price Setting Approaches

Price Competition: price-based competition occurs when consumers cannot

readily differentiate between competitive offerings. In this situation companies
use price as a tool to differentiate its products from competitors’ products to beat
or match prices set by competitors.

Non-Price Competition: Non-price competition focuses on other than price

factors of a product such as distinctive product features, quality, service,
packaging, and promotion to make it meaningfully differentiated from competing
brands.

© SHH Kazmi, 2007

20-3 Marketing Management Text and Cases, S H H Kazmi Excel Books

 Pricing Concepts, Strategies and Price Setting Approaches

Pricing Objectives
Pricing objectives focus on what a company wants to achieve through
establishing prices.

 Survival

 Profit

 Return on Investment (ROI)

 Market Share

 Product Quality

© SHH Kazmi, 2007

20-4 Marketing Management Text and Cases, S H H Kazmi Excel Books

 Pricing Concepts, Strategies and Price Setting Approaches

Objectives Typical Actions

Survival Price adjustment to enable company to increase
sales volume to meet company expenses.

Profit Determine price and cost levels that permit

Pricing Objectives
company to realise maximum profits.
and Typical
Company Actions Return on Determine price levels that allow company to yield
Investment targeted Return on Investment.

Market Adjust prices to maintain or increase sales volume

Share relative to competitors.

Product Company sets prices to recover R&D expenditures

Quality and high product quality. Establish high-quality
image.

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20-5 Marketing Management Text and Cases, S H H Kazmi Excel Books

 Pricing Concepts, Strategies and Price Setting Approaches

Factors Affecting Pricing Decisions

A number of different internal and external factors affect pricing decisions
and this may pose some complexity.

Competitive Structure

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20-6 Marketing Management Text and Cases, S H H Kazmi Excel Books

 Pricing Concepts, Strategies and Price Setting Approaches

Price Setting Procedure

The steps involved in price setting include:
(1) Development of Pricing Objectives
(2) Determination of Demand
(3) Estimation of Costs
(4) Examining Competitors’ Costs, Prices, and Offers
(5) Selecting a Pricing Strategy
(6) Selection of Pricing Method
(7) Final Price Decision.

© SHH Kazmi, 2007

20-7 Marketing Management Text and Cases, S H H Kazmi Excel Books

 Pricing Concepts, Strategies and Price Setting Approaches

Determination of Demand
Demand forecasts furnish estimates of sales potential of a product reflecting
the quantity that can be sold in a specified period.

 The Demand Curve

 Assessing Price Elasticity of Demand

© SHH Kazmi, 2007

20-8 Marketing Management Text and Cases, S H H Kazmi Excel Books

 Pricing Concepts, Strategies and Price Setting Approaches

High
Classic Demand
Curve Showing
Price-Quantity
Relationship
P1
Price

D1 D2
Low
Q1 Q2
Quantity
© SHH Kazmi, 2007

20-9 Marketing Management Text and Cases, S H H Kazmi Excel Books

 Pricing Concepts, Strategies and Price Setting Approaches

P3
Price/Quantity
Relationship for
Status Products
Price P2

P1

Q1 Q2
Quantity

© SHH Kazmi, 2007

20-10 Marketing Management Text and Cases, S H H Kazmi Excel Books

 Pricing Concepts, Strategies and Price Setting Approaches

Elastic Inelastic
Demand demand P1 demand
P2
Elasticity
P1 P2

Price Price

Q1 Q2 Q1 Q2
Quantity Quantity

© SHH Kazmi, 2007

20-11 Marketing Management Text and Cases, S H H Kazmi Excel Books

 Pricing Concepts, Strategies and Price Setting Approaches

Estimation of Costs
The purpose of price setting for a company is to set a price to cover costs
involved in a product’s production, selling, and distribution and some desired
level of profit for its efforts and risks.

 Fixed costs

 Variable costs

 Total cost

 Marginal cost

© SHH Kazmi, 2007

20-12 Marketing Management Text and Cases, S H H Kazmi Excel Books

 Pricing Concepts, Strategies and Price Setting Approaches

Break Even Analysis is the point at which the cost of making a product
is equal to the revenue generated from selling that product.

© SHH Kazmi, 2007

20-13 Marketing Management Text and Cases, S H H Kazmi Excel Books

 Pricing Concepts, Strategies and Price Setting Approaches

Selecting a Pricing Strategy

A pricing strategy is a course of action framed to affect and guide price
determination decisions.

There are many different strategies companies adopt for accomplishing pricing
objectives. Some of the important ones and often used are discussed here.

© SHH Kazmi, 2007

20-14 Marketing Management Text and Cases, S H H Kazmi Excel Books

 Pricing Concepts, Strategies and Price Setting Approaches

Selecting a Pricing Strategy

 New Product Pricing

 Price skimming

 Penetration pricing

 Psychological Pricing

 Promotional Pricing

 Loss Leader Pricing

 Superficial Discounting

 Special Event Pricing

© SHH Kazmi, 2007

20-15 Marketing Management Text and Cases, S H H Kazmi Excel Books

 Pricing Concepts, Strategies and Price Setting Approaches

Selection of a Pricing Method

A pricing method is a systematic procedure for setting the prices on a regular
basis.
 Cost-Based Pricing
 Markup Pricing
 Target Return Pricing (Cost-Plus)
 Competition-Based Pricing
 Demand Based Pricing
 Perceived-Value Pricing
 Product Range Pricing
 Optional Additional Items
 Captive Product Pricing
 Two-Part Pricing
 Bid Pricing
 Discount Policies
© SHH Kazmi, 2007
 Allowance Policies
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