Pricing 

Decisions

3 key decision areas
• How to Fix the Price
• How to Adapt the Price
• How to Initiate & Respond to Price Changes

1
 Setting Price
1. Selecting the pricing
objective

2. Determining demand

3. Estimating costs

4. Analyzing competitors’
costs, prices, and offers

5. Selecting a pricing
method

6. Selecting final price

Pricing Methods
• Markup Pricing (unit cost/ (1‐desired return on sales))
• Target Return Pricing (unit cost + (desired 
return*invested capital/ unit sales))
• Perceived Value Pricing
• Going‐Rate Pricing
• Sealed‐Bid Pricing

2
 Adapting the Price
• Discounts and Allowances (Cash/ Qty/ Seasonal)
• Promotional Pricing (special event/ financing/ Longer 
payment terms/ Warranty & service contracts)
• Discriminatory Pricing (Customer‐segment pricing, 
Product‐form, Channel, Location, Timing)
• Product Mix Pricing (optional‐feature pricing, captive‐
product pricing, 2‐part pricing, product bundling)
• Geographical pricing (Counter trade – barter, 
Compensation deal, buyback, offset)

Discriminatory Pricing

3
 Initiating Price changes

• Initiating Price cuts
• Low‐quality trap
• Fragile MS trap
• Shallow‐pocket trap

• Initiating Price increases
• Delayed Quotation Pricing
• Escalator Clauses
• Unbundling
• Reduction of Discounts
• Others (Shrink the product, less expensive raw material, 
reduce product features/ services, less expensive packaging 
material)

Metabical Pricing, Packaging, 
Demand Estimation

4
 Questions to Ponder
• What are the benefits of Metabical?
• Who is the target segment?
• What price should Barbara keep for 
Metabical?
•What is the packsize?
•Price that Meets the Goal

Metabical – What's the value?
• Target Segment: Over weight (BMI 25‐30)
• Competition
• No prescription drug
• FDA Approved OTC Drugs
» Liver failure reports
• Herbal dietary supplements
» No FDA approval, Food safety concerns
» Ephedra – sudden cardiac deaths!
» Deceptive claims/ Unsubstantiated claims - $25 mn.
settlement
• Weight control programs
• Pre‐packaged diet foods
• Exercise Programs and Gymnasium

5
 Metabical – What's the value?
• FDA approval – credibility
• Prescription drug – additional credibility
• Fewer side effects
• Clinically proven weight‐loss results
• Better weight maintenance (with 10% of 
results for 3 years)
• Low dose – requires only one pill a day

Demand Forecasting
• NQP approach
• Number of individuals *Quantities purchased* Price
• Optimum treatment period – 12 weeks
• Goals achieved and after that only minimum loss
• Packaging could be 1 (7),2 (14),3 (21),4 (28),8 (56),12 (84) week 
treatment
• Estimation of potential = Number of individuals with need
• Overweight, trying to lose weight, comfortable using drugs to lose weight
• Estimated penetration
• Tied to marketing plan
• Pricing, availability and communication/ promotion
• Likely to increase in following years
• Estimation of Quantities
• Repeat purchases
• Loyalty – Exit barriers/ switching 
• Superiority of value
• Test market/ other benchmarks / experience

6
• Method 1 & 2: 
•230 mn. 2008 population* 34% overweight
» 78,200,000
» Growth rate of Population for next 5 years - CAGR of
over-weights’ population from 1999-2008
» A = P(1+R)^N
•Narrow down to target audience
• Method 3:
•4.3mn*30%
•Growth rate of segment

Pricing Methods
• Option 1: Going‐Rate Pricing /Competitive Benchmark 
Oriented Pricing
• Compare with Alli
• Option 2: Markup Pricing/ Cost Plus Pricing
• Standard margin of CSP
• (unit cost/ (1‐desired return on sales))
• Option 3: Perceived Value Pricing/Demand Oriented 
Pricing
• How much consumers are willing to pay?
• Target Return Pricing 
• (unit cost + (desired return*invested capital/ unit sales))

7
 High Low

P Rapid  Slow 
High
r Skimming Skimming
i
c
e Rapid  Slow 
Low
Penetration Penetration

Promotion