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Session 20 Pricing (Objectives of Pricing)

Session 20 Pricing (Objectives of Pricing)

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Published by Narayana Reddy

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Published by: Narayana Reddy on May 21, 2010
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Pricing Objective

Session 20

Questions involved in pricing Pricing involves asking questions like: ► How much to charge for a product or service? ► What are the pricing objectives? ► Do we use profit maximization pricing? ► How to set the price? (cost-plus pricing, value-based pricing, rate of return pricing, or competitor indexing) ► Should there be a single price or multiple pricing? ► Should prices change in various geographical areas, referred to as zone pricing?

► Should there be quantity discounts? ► What prices are competitors charging? ► Do you use a price skimming strategy or a penetration pricing strategy? ► What image do you want the price to convey? ► Do you use psychological pricing? ► How important are customer price sensitivity (e.g. "sticker shock") and elasticity issues? ► Can real-time pricing be used? ► Is price discrimination or yield management appropriate? ► Are there legal restrictions on retail price maintenance, price collusion, or price discrimination? ► Do price points already exist for the product category

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Pricing Objectives: ► Profit Maximization in the Short term. ► Profit Optimization in the long term. ► A minimum return on Investment. ► A minimum return on sales turnover. ► Achieving a particular sales volume. ► Achieving particular market share. ► Deeper penetration of the market. ► Entering new markets. ►

► Target profit on the entire product line, irrespective of profit level in individual products. ► Keeping competition out, or keeping it under check. ► Keeping parity with competition. ► Fast turnaround and early cash recovery. ► Stabilizing prices and margins in the market. ► Providing the commodities at prices affordable by weaker sections. ► Providing the commodities/services at prices that will stimulate economic development.

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Firms use Pricing for objectives: ► Asian Paints pricing to protect market share. ► British Airways pricing to Enhance Profitability. ► LG shifts its pricing objectives to profitability from volume/Market share.

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Factors influencing Pricing Internal Factors : ► Corporate and marketing objectives of the firm. ► The image sought by the firm through pricing. ► The characteristics of the product. ► Price elasticity of demand of the product. ► The stage of the product in its life cycle.

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► Use pattern and turnaround rate of the product. ► Costs of manufacturing and marketing. ► Extent of distinctiveness of the product and extent of differentiation practiced. ► Other elements of the marketing mix of the firm and their interaction with pricing. ► Composition of the product line of the firm.

External Factors: ► Market characteristics (relate to demand, customer and competition) ► Buyer behaviour in respect of the product. ► Bargaining power of major customers. ► Bargaining power of major suppliers. ► Competitor’s pricing policy. ► Government controls/regulation on pricing ► Societal considerations ► • •
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