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GROUP MEMBERS:

FAIZAN AMJAD
&
SHAHZADO WAQAR
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
INTRODUCTION

• Narrowly, price is the amount of money charged for a product or service.


• Broadly, price is the sum of all the values that consumers exchange for the benefits of having or
using the product or service.
• Dynamic Pricing: charging different prices depending on individual customers and situations.

Price is the one element of the marketing mix that produce revenue ; the other element produce cost, prices
are the easiest marketing mix element to adjust ; product features, channels and even promotion take more
time .price also communicating to the market the company’s intended value positioning of its product or
brand.

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. They make these common mistakes; price is to cost-
oriented ; price is not revised often enough to capitalize on market changes; price is set independent of
the rest of the marketing mix rather than as an intrinsic element of marketing positioning strategy; and
price is not varied enough for different product item ,market segmentation , distribution channels, and
purchase occasions.

Companies do their pricing in a variety of ways. In small companies, price is often set by the boss. In
larger companies, pricing is handling by division and product line managers. Even here, top
management sets general objectives and policies and often approve the prices proposed by lower level
of management.

PRICING-INTRODUCTION

Setting the right price is an important part of effective marketing. It is the only part of the marketing mix
that generates revenue (product, promotion and place are all about marketing costs).

Price is also the marketing variable that can be changed most quickly, perhaps in response to a competitor
price change.

Put simply, price is the amount of money or goods for which a thing is bought or sold.

The price of a product may be seen as a financial expression of the value of that product.

For a consumer, price is the monetary expression of the value to be enjoyed/benefits of purchasing a
product, as compared with other available items.

The concept of value can therefore be expressed as:

(Perceived) VALUE = (perceived) BENEFITS – (perceived) COSTS


A customer’s motivation to purchase a product comes firstly from a need and a want: e.g.

• 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.g.
"I really fancy a McDonalds").

The perception of the value of a product varies from customer to customer, because perceptions of benefits
and costs vary.

Perceived benefits are often largely dependent on personal taste (e.g. spicy versus sweet, or green versus
blue). In order to obtain the maximum possible value from the available market, 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.

In general, a products perceived value may be increased in one of two ways – either by:

(1) Increasing the benefits that the product will deliver, or,

(2) Reducing the cost.

For consumers, the PRICE of a product is the most obvious indicator of cost - hence the need to get product
pricing right.

IMPORTANCE OF PRICING

When marketers talk about what they do as part of their responsibilities for marketing products, the tasks
associated with setting price are often not at the top of the list. Marketers are much more likely to discuss
their activities related to promotion, product development, market research and other tasks that are viewed
as the more interesting and exciting parts of the job.

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. Some reasons pricing is important include:

• Most Flexible Marketing Mix Variable – For marketers price is the most adjustable of all
marketing decisions. Unlike product and distribution decisions, which can take months or years
to change, or some forms of promotion which can be time consuming to alter (e.g., television
advertisement), 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. For instance, a marketer can agree to a field salesperson’s request to
lower price for a potential prospect during a phone conversation. Likewise a marketer in charge
of online operations can raise prices on hot selling products with the click of a few website
buttons.
• Setting the Right Price – Pricing decisions made hastily without sufficient research, analysis, and
strategic evaluation can lead to the marketing organization losing revenue. 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. Additionally, 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 attempting to take advantage of their customers. Prices set too high can also impact
revenue as it prevents interested customers from purchasing the product. Setting the right price
level often takes considerable market knowledge and, especially with new products, testing of
different pricing options.
• Trigger of First Impressions - Often times customers’ perception of a product is formed as soon
as they learn the price, such as when a product is first seen when walking down the aisle of a
store. While the final decision to make a purchase may be based on the value offered by the
entire marketing offering (i.e., entire product), it is possible the customer will not evaluate a
marketer’s product at all based on price alone. It is important for marketers to know if customers
are more likely to dismiss a product when all they know is its price. If so, 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.
• 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. However, as we noted in our
discussion of promotional pricing in Part: 15: Sales Promotion tutorial, 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, consequently,
withhold purchase until the price reduction occurs again.

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. Stabilization
of margin is basically a cost-plus approach in which the manager attempts to maintain the same margin
regardless of changes in cost.
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, brand, 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"
Build store traffic
Help prepare for the sale of the business (harvesting)
Social, ethical, 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.e. not perfect competition)

• Product research and development

• Advertising & sales promotion

• Training and organization of the sales force

• Effectiveness of distribution (e.g. access to retail outlets; trained distributor agents)

• Quality of after-sales service (e.g. 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, therefore, 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. The clearer a firm’s objectives, the
easer is to set price. A company can pursue any of five major objectives through pricing: survival,
maximum current profit, maximum market share, maximum market skimming, or product quality
leadership.
Company purchase survival as their major objective if they are plagued with over capacity,
intense competition, or change in consumer wants. As long as prices cover variable costs and some
fixed costs, a company stays in business. Survival is a short run objective; in the long run, a firm must
learn how to add value or face extinction.
Many companies try to set prices that will maximize current profits. They estimate the
demand and costs associated with alternative prices and choose the price that produces maximum
current profit, cash flow, or Rate of return on investment. This strategy assumes that the firm has
knowledge of its demand and cost functions; in reality, these are difficult to estimate. In emphasizing
current performance, a company may sacrifice long run performance by ignoring the effects of other
marketing mix variables, competitors’ reactions, and legal restraints on price.
Some companies want to maximize their market share. 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.
It often happens that companies unwilling a new technology favor setting high prices to
“skim “the market. Sony is a frequent practitioner of market skimming pricing.

When Sony introduced the world’s first high definition television (HD-TV) to the Japanese market in
1990, the high-tech sales cost $43000.This television were purchased by customers who could afford
to pay a high price for the new technology. Sony rapidly reduced the price over the next three years to
attract new buyers, and by 1993a 28-inch H-D tv cost Japanese buyers just over $6000.In 2001 a
customer cold buy a 40-inch H-D TV for about $2000.A price many could afford. In this way, Sony
skimmed the maximum amount of revenue from the various segments of the markets.

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. The relation between alternative prices and the resulting current
demand is captured in demand curve. In the normal case, demand and price are inversely related; the
higher the price, the lower the demand. In this case of prestige goods the demand curve sometimes
slopes upward. Perfume Company raised its price and sold more perfumes rather than less! Some
customer takes the higher price to signify a better product. However if the price is too high, the level of
demand may fall.
On the other hand, the impact of internet has been to increase customers’ price sensitivity. In
buying a specific book online, for e.g. , a customer can compare the price offered by over 2 dozen
online book stores by just taking mysimon.com. These prices can differ by as much as 20 percent. The
internet increases the opportunity for price sensitive buyers to find and favor lower-price sites. At the
same time, many buyers are not that price sensitive. McKinsey conducted a study and found that 89
percent of internet customers visit only 1 book site, 84 percent visited only 1 toy site, and 81 percent
visited only 1 music site, which indicates that there is a less price comparison shopping taking place on
the internet that is possible.
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. Costs set
the floor. The company wants to charge a price that covers its cost of production, distributing, and
selling the product, including a fair return for its efforts and risks.

TYPES OF COSTS AND LEVELS OF PRODUCTION:

A company’s costs take two firms, fixed and variable. Fixed costs (also known as over head) are costs
that do not vary with production or sales revenue. Accompany must pay bills each month for rent ,
heat, and trust, salaries, and so on , regardless of output .
Variable costs vary directly with the level of production. For example, each hand calculator
produced by Texas Instruments involves a cost of plastic, macro-processing chips, packaging, and the
like. These costs tend to be constant per unit produced; they are called variable because their total
varies with the number of unit produced.
Total cost consists of the sum of the fixed and variable costs for any given level of
production. Average costs is the cost per unit at that level of production; if is equal to total cost
divided by production. Management wants to charge a price that will at least cover a total production
cost at a given level of production.

ACCUMULATED PRODUCTION:

Suppose TI runs a plant that produces three thousand hand calculators per day. As TI gains experience
producing hand calculators, its methods improve. Workers learn shortcuts, materials flow more
smoothly, and procurement costs falls. The result shows, in that average cost falls with the
accumulated production experience.

DIFFERENTIATED MARKETING OFFERS:


Today’s companies try to adopt their offers and terms to different buyers. Thus a
manufacturer will negotiate different terms with different retail chains. 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. The manufacturer’s costs will differ with each chain, and so will its profits.

TARGET COSTING
Costs change with production sale and experience. They can also change as a result of
concentrated efforts by designers, engineers and purchasing agents to reduce them.

STEP 4: ANALYZING COMPETITORS COSTS, PRICES, &OFFERS:


Within the range of possible prices determined by market demand and company’s costs, a
firm must take the competitor’s costs, prices, and possible price reactions into account. The firm should
first consider the nearest competitor’s price. If the firm offers contains positive differentiation features
not offered by the nearest competitors, their worth to the customer should be evaluated and added to
the competitor’s price. If the competitor’s offers contains some features not offered by the firm, their
worth o the customer should be evaluated and subtracted from the firm’s price. Now the firm can
decide whether it can charge more, the same, unless than the competitor. A firm must be aware,
however, that competitors can change their prices in reaction to the price set by the firm.

STEP 5: SELECTING THE PRICING METHOD:


Given the three cs- the customers’ demand schedule, the cost function, the competitors’
prices- a company is now ready to select a price.
Companies select a pricing method that includes one or more of various considerations. We
will examine seven price setting methods: mark-up pricing, target return pricing, perceive value
pricing, value pricing, going rate pricing, action type pricing and group pricing.

MARK-UP PRICING:
The most elementary pricing method is to add a standard mark-up to the product’s cost.
Construction companies submit job bids by estimating the total project cost and adding a standard
mark-up for profit.

Suppose a toaster manufacture has a following cost and sale expectation

Variable cost per unit …………….. $10


Fixed cost ………………. 300,000
Expected unit sales ……………. 50,000

The manufacturer’s unit cost is given by:

Unit cost= variable cost + fixed cost =$10+ $300,000 =$16


Unit sales 50,000

Now assume the manufacturer wants to earn a 20 % markup on sales. The manufacturer’s markup
price is given by:

Markup price = unit cost = $16 =$20


(1-desired return on sales) 1-0.2

TARGET-RETURN PRICING:
In target return pricing the firm determines the price that would yield its target
rate of return on investment (ROI). Target pricing is used to general motors, which price its auto-
mobiles to achieve a 15-20 percent ROI.

PERCIVED-VALUE PRICING:
In increasing number of companies based their price on the customer’s perceived
value. They must deliver the value promised by their value proposition, and the customer must
perceived this value. They use the other marketing mix elements, such as advertising and sales force, to
communicate and enhance perceive value in buyer’s mind.

VALUE-PRICING:
In recent years, several companies have adopted value pricing, in which they win loyal
customers by charging a fairly low price for a high quality offering. Among the best practitioners of
value pricing are WALL-MART, IKEA, and SOUTH-WEST airlines.

GOING RATE-PRICING:
In going rate pricing, the firm basis its price largely on competitors prices. The firm might
charge the same, more, or less than major competitors. In oligopolistic industries that sell a commodity
such as steel, paper, or fertilizers, firms normally charge the same price.
ACTION TYPE PRICING:
Is growing more popular, especially with the growth of the internet. There are over 2000
electronic market places selling everything from pigs to use vehicles to cargo to chemicals. One major
use of actions is to dispose of excess inventories or to use good. 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. Consumer can go to volumebuy.com to buy electronics, computers,
subscriptions, and another item.

STEP 6: SELECTING THE FINAL PRICE:


Pricing method narrow the range from which the company must select its final price. In selecting that
price, the company must consider additional factors including physiological pricing, gain and risk
sharing pricing, the influence of other marketing mix-elements on price, company pricing policy and
the impact of price on other parties.

PHYSIOLOGICAL PRICING:
Many customers use price as an indicator of quality. Image pricing is especially effective with ego-sensitive
products such as perfumes and expensive cars.

GAIN-RISK-SHARING PRICING:
Buyer may resist accepting a seller’s proposals because of the high perceive level of a risk. The seller has
the option of offering to absorb part or all of the risk if he does not deliver the full promised value.

THE INFLUENCE OF OTHER MARKETING MIXES ELEMENTS:

The final price must take into account the brand’s quality and advertising relating to competition.

*Brands with average relative quality but high relative advertising budgets were able to charge premium
prices.

IMPACT OF PRICING ON OTHER PARTIES:

Management must also consider he reaction of other parties to the contemplated price. 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

In order to make a profit, a business should ensure that its products are priced above their total average
cost. In the short-term, 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.

(2) Competitors

If the business is a monopolist, then it can set any price. At the other extreme, if a firm operates under
conditions of perfect competition, it has no choice and must accept the market price. The reality is usually
somewhere in between. In such cases the chosen price needs to be very carefully considered relative to
those of close competitors.

(3) Customers

Consideration of customer expectations about price must be addressed. Ideally, 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, rather than lead the market

PRODUCT PRICING STRATEGIES

Developing a pricing strategy perplexes many CEOs, marketing and sales executives, and brand
managers. It's not surprising really: real businesses don't always follow the pricing strategy models that
business schools and books on pricing strategy present. 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.

We consider that there are four basic components to a successful pricing strategy:

1. Costs. Focus on your current and future, not historical, costs to determine the cost basis for your
pricing strategy.
2. Price Sensitivity. The price sensitivities of buyers shift based on a number of factors and your
pricing strategy must shift with them.

3. Competition. Pay attention to them, but don't copy them . . . when it comes to pricing strategy
they may have no idea what they're doing.

4. Product Lifecycle. How you price, and what value you provide for that price, will change as you
move through the product lifecycle.

Pricing before you build


Establishing a pricing strategy is an activity that should be completed before you start product
development. The only way to accurately determine how much money you can afford to spend on
development, support, promotion and the other costs associated with a product is to analyze how much of
that product you will sell, and at what price. 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 of recovering costs spent a year
ago. Don't use the cost of developing your current product as the basis for its price. Instead, use the current
costs of developing your new products as the basis of the price of your current product.

Raise Price to Exploit a Reticence to Switch


Once the customer is yours, the situation switches in your favor. One of the resistance factors your sales
force encounters on a new sale is reticence to switch. An existing customer is still unwilling to learn
something new, only now they're afraid to switch FROM you, not TO you. They would much prefer to add
the functionality of your product enhancements instead of learning how to use something new. For you,
price sensitivity is much lower as comfort and ease factors increase. So you might raise your update pricing
accordingly.

Study the Competition


Study the competition, but don't react and don't copy them, since they're likely making mistakes anyway.
Let them guide you in terms of where you set your boundaries, and in terms of counter offensives you can
launch to deal with obvious bonehead pricing on their part. And remember this as well: any move you make
can be countered by them just as easily. Don't get caught in a no-win price war--which may hurt your
product, their product and devalue your marketplace.

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. In
general, the farther along you go toward the Decline phase the lower your price should be, since your
market will be (a) saturated with product and (b) have increased price sensitivity as their knowledge of the
products increases. One technique to consider is unbundling support, training and services from the product
itself, which will allow you to lower price without discounting.

Strategic pricing is the effective, proactive use of product pricing to drive sales and profits, and to help
establish the parameters for product development. Used wisely it is a clearly powerful tool for successful
marketing strategies.

NEW PRODUCT-PRICING STRATEGY


Pricing strategies usually change as the product passes through its life cycle. The introductory stage is
especially challenging. Companies bringing out new product face the challenge of setting prices for the first
time.

1 ) Market-skimming pricing

The practice of ‘price skimming’ involves charging a relatively high price for a short time where a new,
innovative, or much-improved product is launched onto a market.

The objective with skimming is to “skim” off customers who are willing to pay more to have the product
sooner; prices are lowered later when demand from the “early adopters” falls.

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, or by certain market segments.

High prices can be enjoyed in the short term where demand is relatively inelastic. In the short term the
supplier benefits from ‘monopoly profits’, but as profitability increases, 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.

The main objective of employing a price-skimming strategy is, therefore, to benefit from high short-term
profits (due to the newness of the product) and from effective market segmentation.

There are several advantages of price skimming

• Where a highly innovative product is launched, research and development costs are likely to be high, as
are the costs of introducing the product to the market via promotion, advertising etc. In such cases, the
practice of price-skimming allows for some return on the set-up costs

• By charging high prices initially, a company can build a high-quality image for its product. Charging
initial high prices allows the firm the luxury of reducing them when the threat of competition arrives. By
contrast, 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. A firm can divide the market into a
number of segments and reduce the price at different stages in each, thus acquiring maximum profit from
each segment

• Where a product is distributed via dealers, the practice of price-skimming is very popular, since high
prices for the supplier are translated into high mark-ups for the dealer

• For ‘conspicuous’ or ‘prestige goods’, the practice of price skimming can be particularly successful, since
the buyer tends to be more ‘prestige’ conscious than price conscious. Similarly, where the quality
differences between competing brands is perceived to be large, or for offerings where such differences are
not easily judged, the skimming strategy can work well. 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, rather than higher prices in order to achieve a large, if not
dominant market share.

This strategy is most often used businesses wishing to enter a new market or build on a relatively small
market share.

This will only be possible where demand for the product is believed to be highly elastic, i.e. demand is
price-sensitive and either new buyer will be attracted, or existing buyers will buy more of the product as a
result of a low price.

A successful penetration pricing strategy may lead to large sales volumes/market shares and therefore lower
costs per unit. The effects of economies of both scale and experience lead to lower production costs, which
justify the use of penetration pricing strategies to gain market share. Penetration strategies are often used by
businesses that need to use up spare resources (e.g. factory capacity).

A penetration pricing strategy may also promote complimentary and captive products. The main product
may be priced with a low mark-up to attract sales (it may even be a loss-leader). Customers are then sold
accessories (which often only fit the manufacturer’s main product) which are sold at higher mark-ups.

Before implementing a penetration pricing strategy, a supplier must be certain that it has the production and
distribution capabilities to meet the anticipated increase in demand.

The most obvious potential disadvantage of implementing a penetration pricing strategy is the likelihood of
competing suppliers following suit by reducing their prices also, thus nullifying any advantage of the
reduced price (if prices are sufficiently differentiated the impact of this disadvantage may be diminished).

A second potential disadvantage is the impact of the reduced price on the image of the offering, particularly
where buyers associate price with quality.

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. In this case the firm looks for a set of prices that maximizes the profit on the total product
mix. 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. 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. 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…..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….or Gillette offering set of additional blades with its razors)

By-Product: Pricing low value by product to get rid of them (for example. 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)

PRICE ADJUSTMENT STRATEGIES

A company usually adjusts their basic prices to account for various customers’ differences and changing
situations. Here we examine the six price adjustment strategies.

1) Discount & Allowance: reduced prices to reward customer responses such as paying early or
promoting the product. (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, products, and locations (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. Ex: $299 vs. $300 (for example. 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.)

4) Value: adjusting prices to offer the right combination of quality and service at a fair price. (For
example a person shopping in Zainab market might seek value and quality at fair price. This process helps
to deliver value and satisfaction to customers.)

5) Promotional: temporarily reducing prices to increase short-run sales. (For example. 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. (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, the
customer pays the freight from the factory to the destination. (For example. 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, regardless of their location.( for example . 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. All
customers within a zone pay the same total price; the more distant zone, the higher the price.( 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.)

*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. ( for example. 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. (For example. 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.)

SETTING THE PRICE

A firm must set a price for the first time when it develops a new product, when it introduces its
regular product into a new distribution channel or geographical area, and when it enters bids on new
contract work. The firm must decide where to position its product on quality and price. In some markets,
such as the auto markets, as many as eight price points can be found.

SEGMENT EXAMPLE

Ultimate Rolls-Royce
Gold standard Mercedes Benz
Luxury Audi
Special need Volvo
Middle Buick
Price alone Kia

Figure 16.1 shows nine price quality strategies. The diagonal strategies 1,5,and 9 can all co-exit in the same
market; that is , one firm offer a high quality product at a high price , another offers an average quality
product at an average price and still another offers a low quality product at a low price. All three
competitors can co-exit as long as the market consists of three groups of buyers: those who insist on
quality, those who insist on price, and those who balance the too.

Strategies 2,3and 6 are ways to attack the diagonal positions. Strategy to say’s “Our product has the
same high quality as product 1 but we charge less”. Strategy 3 says the same thing and offers and even
greater saving. If quality-sensitive customers believe these competitors, they will sensibly buy from them
and save money (unless firm earns 1’s product has acquirable snob appeal.

Positioning strategies 4,7and 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.
PHILIP KOTLER HAVE IDENTIFIED 9 PRICE QUALITY STRATEGIES:

NINE PRICE QUALITY STRATEGIES:

PRICE

HIGH MEDIAM LOW

1. PREMIUM 2.HIGH-VALUE 3.SUPER- VALUE


STRATEGY STRATEGY STRATEGY

4.OVER- 5.MEDIUM-VALUE 6. GOOD-VALUE STRATEGY


CHARGING STRATEGY
STRATEGY

7. RIP-OFF 8. FALSE-ECONOMY 9.ECONOMY-STRATEGY


STRATEGY STRATEGY

HIGH

MEDIUM

LOW
FACTORES AFFECTING PRICING DECISION

For the remainder of this tutorial we look at factors that affect how marketers set price. The final price for
a product may be influenced by many factors which can be categorized into two main groups:

• Internal Factors - When setting price, marketers must take into consideration several factors
which are the result of company decisions and actions. To a large extent these factors are
controllable by the company and, if necessary, can be altered. However, while the organization
may have control over these factors making a quick change is not always realistic. For instance,
product pricing may depend heavily on the productivity of a manufacturing facility (e.g., how
much can be produced within a certain period of time). 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 - There are a number of influencing factors which are not controlled by the
company but will impact pricing decisions. 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.
• 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

Pure Monopoly:

Market consists of a

single seller

Cost-Plus Pricing

• Adding a standard markup to the cost of the product.


• Popular because:
– Sellers more certain about cost than demand
– Simplifies pricing
– When all sellers use, 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.
• Sealed-Bid Pricing:
– Firm bases its price on how it thinks competitors will price rather than on its own costs or
on demand.

INITIATING AND RESPONDING TO PRICE CHANGES:

Companies often face situations where they may need to cut or raise prices.
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, a product importance, or
other majors. It may resort to aggressive pricing, but in initiating a price cut, the company may trigger a
price war. Another circumstance is declining market share. A general motor, for examples, cuts its sub-
compact car prices by 10 percent on the west coast when Japanese competition kept making in roads.

Price cutting strategy involves possible traps:

*Low quality trap: Customer will assume that the quality is low

*Shallow-pocket trap: The higher price competitors may cut their prices and may have longer staying
power because of deeper cash reserves.

INITIATING PRICE INCREASES:


A successful price increase can raise profit considerably for example: if the company’s profit margin is 3
percent of sales, 1 percent price increase will increase profit by 33 percent if sales volume is unaffected.
A major circumstance provoking price increases is cost inflation .rising cost unmatched by
productivity gains squeeze profit margin and lead companies to regular rounds of price increases.
Companies often raise their price by more than the cost increases ,in anticipation of further inflation or
government price control, in a practice called anticipatory pricing.

REACTION TO PRICE CHANGES:


Any price change can provoke a response from customers, competitors, distributors,
suppliers and even government.

CUSTOMER REACTION:
Customer often question the motivation behind price changes, a price cut can be interpreted
in different ways : The item is about to be replaced by a new model ; the item is faulty and is not
selling well ; the firm is in financial trouble ; the price will come down even further ; the quality has
been reduced.
The price increase, which could normally deter sales, may carry some positive meaning to
customers: the item is “hot” and represents and usually good values.

COMPETITORS REACTION:
Competitors are most likely to react with the number of firms are few, the product is
homo-genius and buyers are highly informed.

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, the firm should search for ways to enhance its augmented products.
Market leaders frequently face aggressive price cutting by smaller firms trying to built market
share. Using price, FUJI attracts KODAK, BIC attract GILLETE, and COMPAQ attract IBM.
Brand leaders also face lower priced private-store brands. The brand leader can respond in several
ways:
• Maintain price: A leader might maintain its price and profit margins, believing that (1) it would
lost too much profit if it reduces its price (2) it would not lost much market share, and (3) it could
regain market share when necessary.
• Maintaining price and add value: The leader could improve its products and services,
communication. 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.
• Reduced price: A leader might drop its price to match the competitors price. It might do so
because (1) its cost falls with volume ,(2) it would lost market share because the market is price
sensitive, (3) it would be hard to rebuild market share once it is lost. This action will cut profit in
the short-run.

PRICING STRATEGY OF “SURF EXCEL”

PRICE QUANTITY

10Rs 35 grams

70Rs 1/5 Kg (500 grams)

120Rs 1Kg (1000 grams)

It targets upper class of consumers and markets and its segmentation if or high and potential markets.
It is a product of Unilever. It is available in different sizes and quantities in the market for different
prices. 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). Its market-oriented statement is “Daagh
NHI to seekhna NHI” The company has offered 1kg of Surf excel in the market for 120 rupees.
Besides that it is also available in the market in sachets pricing from 5-10 rupees and in ½ kg for about
70 rupees. It is a quality oriented product providing value to their customers.
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. But as its competitors also reacted for this change through customizing their offerings and
price cuts Surf Excel was finally focused towards price increases. 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. 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.
Several offers have also been introduced by Ariel and Brite in the market using
Promotional, discount, and psychological pricing strategies and for that Surf Excel have also
responded efficiently through its strategies.

PRICING STRATEGY OF “JAZZ”

\\

RATES NETWORKS

2.12 Paisa JAZZ TO JAZZ CALL RATES

2.88 Paisa JAZZ TO OTHER NETWORK CALL RATES

1.00 Rs JAZZ TO JAZZ SMS RATES

1.25 Rs JAZZ TO OTHER NETWORK SMS RATES

It is well known brand of Mobilink. Previously Mobilink was offering Jazz connection for about
3000 rupees 5 years ago. Its market oriented statement is “Aur Sunao” But through the passage of time
\now Mobilink is offering Jazz connections for about 100 rupees. In 2002 Ufone which is one of the
leading competitor of Jazz introduced it’s prepay connection for about 2500 rupees. In 2005 Telenor
came into existence in Pakistani market and offered its connections for about 500 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. Previously it was Jazz’s oligopoly as they offered their
prices. In 2005 Jazz offered a cellphone+connection+prepaid card implementing a product-bundle
pricing strategy for creating more attention and attraction. The major shift in the pricing strategy came
in when they started 30.second operations using the promotional pricing strategy. 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.
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. Recently Jazz introduced its offerings of 0.99 per minute call rates in their
“happy hour package” which represents their operations with the promotional as well as psychological
pricing of their services.
Through its happy hour package they are also operating with promotional strategy as they are
engaged in continuous promotion through their offerings. 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. As Ufone, Telenor and Zem are
offering great offers of call rates and sms rates, day by day Jazz in also responding efficiently through
its strategic pricing offers.

PRICING STRATEGY OF “PEPSI”

In Pakistan Pepsi cola is being operated by Pakistan Beverages. Pepsi is available in the majority of
stores, outlets, restaurants, and hotels. It has a huge market of customers. 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.
Its market oriented statement is “Dare for more”

PRICES QUANTITY
12 Rs 250ml
20Rs 300ml
20 Rs 500ml
40Rs 1.5 lit
55 Rs 2.25lit

In our society Pepsi often reduces its prices during the holy month of Ramadan and at the time of Eid. In
this way they adopt promotional pricing strategy. 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. In
different sectors Pepsi have also adopted segmented pricing strategy as its prices are much higher in
luxurious hotels and other sectors. Its main competitor is Coca-cola when it comes to soft-drinks. 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. 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. However buyer’s reactions have not been much affected
the company in the long-run. 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
2.25 litre of pepsi in 55rupees.

REFERENCES:
www.google.com

www.wikipedia.com

www.yahoo.com

www.bcg.com

www.tutor2u.com

www.echeats.com

www.knowthat.com

BOOKS:

Principles of marketing (Gary Armstrong and Philip Kotler 10th edition)

Marketing Management (Philip Kotler 11th edition)