6.

Introduction to Pricing
Agenda of the session
▪ Forms of Pricing
▪ Two perspectives of pricing
▪ Importance of pricing
▪ Pricing in new environment
▪ Psychology behind Pricing

Price – Various Forms

▪ Narrowly, price is the amount of money charged for a product or a service.
▪ On a broader level, price is the sum of all the values that customers give up to gain the benefits of having
or using a product or service.
▪ Price can be charged in various forms such as
Rent, Fares, Fees, Rates, Tolls, Brokerage, Wages, and Commissions

PRICING ELEMENTS
1. Deposit
2. Consumption charges
3. Late fees
4. Surcharges
5. Meter rent
6. Penalties
7. Arrears
8. GST
9. Discounts / Adjustments

DEFINING PRICE – TWO PERSPECTIVES

▪ Price represents the quantity of money received from the customer or buyer of its product. ……….
Manufacturer’s perspective
▪ Price represents monetary sacrifice; hence his perception of the value of the product. (Price is the sum of all
the values that buyer exchange for the benefits of having or using or experiencing the market offering.) ………
Customer's perspective

Definition - Price
Quantity of money received by the seller
Price = -------------------------------------------------
Quantity of goods or services
received by the customer

(Marketer can change this ratio by changing numerator / denominator,

value perception of the product, Quality of the product, sales promotion / discounts, place / time / mode of
payment)

IMPORTANCE OF PRICING
▪ Most Flexible & dynamic Marketing Variable.
▪ Setting the Right Price is complex decision - Pricing decisions requires sufficient research, analysis, and
strategic evaluation. Improperly taken pricing decisions may lead to revenue erosion.
▪ Trigger the First Impressions - Often customers' perception of a product is formed as soon as they learn
the price.
▪ Important Part of (linked with) Sales Promotion - Many times price adjustments are part of sales
promotions (short term inducement for buyer to buy).

PRICING PRACTICES HAVE TRANSFORMED SIGNIFICANTLY IN THE RECENT PAST

1. Easy access to credit
2. Bundling unique product combinations
3. Trends in the technological environment
▪ Buyers can get instant price comparisons from thousands of vendors / suppliers.
▪ Buyers can wish their price and seller would try to match those ones.
▪ Buyers can get sample products for trial purpose.
▪ Seller can monitor customer behavior and modify offers accordingly.
▪ Sellers give certain customers access to special prices.
▪ Sellers can negotiate prices in online auctions and exchanges or even in person.

Environmental changes embarked a new pricing environment which is more challenging and also
full of opportunities for marketers.

CONSUMER PSYCHOLOGY AND PRICING

▪ Though economists traditionally assumed that consumers were “price takers”, however, recognize that
consumers usually process price information.
▪ While processing price information Consumers consider factors such as
a) prior purchasing experience,
b) formal communications (advertising, sales calls, and brochures),
c) informal communications (friends, colleagues, or family members),
d) point-of-purchase or online resources, and
e) other factors while processing & interpreting price information.

PRICE PERCEPTIONS – REFERENCE PRICE

▪ Consumers may have fairly good knowledge of price ranges, but few can accurately remind specific prices.
▪ When examining products, consumers often use a reference price that is comparing an observed price to an
internal reference price they remember or an external frame of reference .
▪ Marketers often attempt to influence reference prices.

Imagine that you went to vegetable market to buy onion. Vendor is offering onion at Rs 100/- per kg. How you
will react to this price? Why?
Vendor is offering onion at Rs 100/- per kg. How you will react to this price? Why?
Few reactions can be – shocked, Exorbitant, Very high prices
Why? - I never bought at this price
My typical price range is between Rs 10 to Rs. 40
Last time I bought at much lesser than this

PRICE PERCEPTIONS – REFERENCE PRICE

▪ Consumers may have fairly good knowledge of price ranges, but few can accurately remind specific prices.
▪ When examining products, consumers often use a reference price that is comparing an observed price to
an internal reference price they remember or an external frame of reference.
▪ Marketers often attempt to influence reference prices.

PRICE PERCEPTIONS – PRICE-QUALITY INFERENCES

Many consumers consider price as a indicator of quality. Image pricing is especially effective with products
such as
▪ perfumes,
▪ expensive cars, and
▪ designer clothing.

PRICE PERCEPTIONS – PRICE ENDINGS

▪ Many sellers consider prices should end in an odd number.
Customers see an item priced at Rs. 2999 as being in the Rs. 2000 rather than the Rs. 3000 range.
▪ Customers tend to process prices “left-to-right” rather than by rounding.

▪ Another explanation for the popularity of “9” endings is that they convey a discount or
bargain,
▪ Prices that end with 0 and 5 are also popular and are to be easier for consumers to
process and recover from memory.