PRICING

Agenda

Definition

Major Pricing Strategy

Other Considerations affecting

pricing decisions

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Other Internal and External Considerations
affecting price decisions
Internal factors affecting pricing include the company’s overall marketing
strategy, objectives, and marketing mix, as well as other organizational
considerations.
External factors include the nature of the market and demand and other
environmental factors.

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Overall Marketing Strategy, Objectives,
and Mix

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Overall Marketing Strategy, Objectives,
and Mix

 Price is only one element of the company’s broader marketing strategy.

 So, before setting price, the company must decide on its overall marketing
strategy for the product or service.
 Pricing may play an important role in helping to accomplish company objectives
at many levels.
 Target costing is the pricing that starts with an ideal selling price, then targets
costs that will ensure that the price is met.

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Organizational Considerations

 Top management sets the pricing objectives and policies, and it often approves
the prices proposed by lower level management or salespeople.
 In industries in which pricing is a key factor, companies often have pricing
departments to set the best prices or help others set them.
 These departments report to the marketing department or top management.
 Others who have an influence on pricing include sales managers, production
managers, finance managers, and accountants.

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The Market and Demand

 In this section, we take a deeper look at the price-demand relationship and how
it caries for different types of markets.
 We then discuss methods for analyzing the price-demand relationship.

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Pricing in Different Types of Markets

Four types of market

Pure
monopoly
Pure
competitio
n
Oligopolistic
competition Monopolistic
competition

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Pricing in Different Types of Markets

Pure Monopoly
• The market is dominated by one seller.
• The seller may be a government monopoly, a private regulated monopoly, or
a private unregulated monopoly.

Oligopolistic Competition
• The market consists of only a few large sellers.
• Because there are few sellers, each seller is alert and
responsive to competitors’ pricing strategies and
marketing moves.

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Pricing in Different Types of Markets

Monopolistic Competition
• It consists of many buyers and
sellers who trade over a range
Pure Competition
of prices rather than a single • It consists of many
market price. buyers and sellers
• A range of prices occurs trading in a uniform
because sellers can commodity, such as
differentiate their offers to wheat, copper, or
buyers. financial securities.
• Sellers try to develop • No single buyer or
differentiated offers for different seller has much effect
customer segments and, in on the going market
addition to price, freely use price.
branding, advertising, and
personal selling to set their
offers apart. 10
Steps in Setting Pricing

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New-Product Pricing Strategies

 Market-skimming pricing
 Market- penetration pricing

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Market Skimming

Market-skimming pricing is a strategy for setting a high price for a new product
to skim maximum revenues layer by layer from the segments willing to pay the
high price, the company make fewer but more profitable sales.
 Product quality and image must support the price
 Buyers must want the product at the price
 Costs of producing the product in small volume should not cancel the advantage
of higher prices
 Competitors should not be able to enter the market easily

For example when Sony introduced the world first high definition
television (HDTV) to the Japanese market , the high tech sets cost
43,000$ . These televisions were purchased only by customers who
really wanted the new technology and afford to pay high prices.

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Market penetration

Market-penetration pricing sets a low initial price in order to penetrate the

market quickly and deeply to attract a large number of buyers quickly to gain
market share
 Price sensitive market
 Production and distribution costs must fail as sales volume increases.
 Low prices must keep competition out of the market

For example , Dell used penetration pricing to enter the

personal computer market, selling high quality computer
products through lower cost direct channels.

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 Product Mix Pricing Strategies

Optional- Captive-
Product
product product
line pricing
pricing pricing

Product
By-product
bundle
pricing
pricing

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Product Mix Pricing Strategies:
Product Line Pricing

Product line pricing takes into account the cost differences between products in
the line, customer evaluation of their features, and competitors’ prices
* For example channel offers 20 different collections of bags of all shapes and
sizes at price that range from under $50 to more than $1,250.

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Optional Product pricing

 Optional-product pricing takes into account optional or accessory products

along with the main product
 For example : a car buyer may choose to order a GPS navigation system &
Bluetooth wireless communication.
 Refrigerators come with optional ice maker

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Captive Product pricing

 Captive-product pricing
involves products that
must be used along with
the main product
 Examples of Captive
products are razor blade
cartridges , Gillette once
you bought the razor, you
are committed to buying
replacement cartridges at
$25 an eight pack

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Product Mix Pricing Strategies

 Two-part pricing involves breaking the price into:

 Fixed fee
 Variable usage fee
 For example : Jawwal company charge a flat rate for a basic calling
plan, then charge for minutes over what the plan allows.
The service firm must decide how much to charge for the basic service
and how much for the variable usage.
 Another example is when you visit a park , you pay a ticket charge
+ fee for food and additional features

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Price Mix Pricing Strategies

 By-product pricing refers to products with little or no value produced as a

result of the main product. Producers will seek little or no profit other than the
cost to cover storage and delivery.
 petroleum products often results in by-products.

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Price Mix Pricing Strategies

Product bundle pricing combines several products at a reduced price

For example : fast food restaurants bundle a burger , fries and a soft drink at a
combo price

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Price-Adjustment Strategies

Discount and
Segmented Psychological
allowance
pricing pricing
pricing

Promotional Geographic Dynamic

pricing pricing pricing

International
pricing

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Price-Adjustment Strategies

Discount and allowance pricing reduces prices to reward customer responses

such as paying early or promoting the product
 Discounts
 Allowances

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Price Discounts and Allowances

Quantity discount: The more you buy, the cheaper it becomes--

cumulative and non-cumulative.
Trade discounts” functional”: Reductions from list for functions
performed-- storage, promotion.
Cash discount: A deduction granted to buyers for paying their bills
within a specified period of time, (after first deducting trade and
quantity discounts from the base price)

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Price-Adjustment Strategies
Functional discount: discount offered by a manufacturer to
trade-channel members if they will perform certain functions.
Seasonal discount: a price reduction to those who buy out of
season.
Allowance: an extra payment designed to gain reseller
participation in special programs.
a) Trade in allowances: are price reductions given for turning in
an old item when buying a new one ( Automobiles industry)
b) Promotional allowances: are payments or price reductions
to reward dealer for participating in advertising and sales
support program

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Price-Adjustment Strategies

Segmented pricing is used when a

company sells a product at two or
more prices even though the
difference is not based on cost

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Segmented pricing
a) Customer segment pricing: different customers pay different prices for
the same product or service . For ex. Museums charge a lower
admission for students .
b) Product from pricing: different versions of the product are priced
differently but not according to differences in their costs
c) Location pricing: company charges different prices for different locations
d) Time pricing : a firm varies it prices by the season , the month , the day
and even the hour

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Price-Adjustment Strategies

To be effective:
 Market must be segmentable
 Segments must show different degrees of demand
 Watching the market cannot exceed the extra revenue obtained from the price
difference
 Must be legal

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Price-Adjustment Strategies

 Psychological pricing occurs when sellers consider the

psychology of prices and not simply the economics” the
price is used to say something about the product”
 Reference prices are prices that buyers carry in their
minds and refer to when looking at a given product
 Noting current prices
 Remembering past prices
 Assessing the buying situations
 For example : a company could display its product next
to more expensive ones in order to imply that it belongs
in the same class

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Price-Adjustment Strategies

Promotional pricing is when prices are

temporarily priced below list price or cost to
increase demand
 Loss leaders
 Special event pricing
 Cash rebates
 Low-interest financing
 Longer warrantees
 Free maintenance

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Price-Adjustment strategies

Promotional Pricing
 Loss-leader pricing: supermarkets and department stores often drop the price
on well known brands to stimulate additional store traffic
 Special-event pricing: sellers well establish special pricing in certain seasons
to draw in more customers
 Cash rebates: companies offer cash rebates to encourage purchase of the
manufacturers products within a specified time period
 Low-interest financing: the company can offer customers low-interest
financing

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Price-Adjustment Strategies

Geographical pricing is used for customers in different parts of the country or the
world
 FOB pricing
 Uniformed-delivery pricing
 Zone pricing
 Basing-point pricing
 Freight-absorption pricing

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Price-Adjustment Strategies

 FOB (free on board) pricing means that the goods are delivered to the
carrier and the title and responsibility passes to the customer
 Uniformed-delivery pricing means the company charges the same price
plus freight to all customers, regardless of location
 Zone pricing means that the company sets up two or more zones where
customers within a given zone pay a single total price
 Basing-point pricing means that a seller selects a given city as a “basing
point” and charges all customers the freight cost associated from that city to
the customer location, regardless of the city from which the goods are
actually shipped

 Freight-absorption pricing means the seller absorbs all or part of the actual
freight charge as an incentive to attract business in competitive markets

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Price-Adjustment Strategies

Dynamic pricing is when prices are

adjusted continually to meet the
characteristics and needs of the
individual customer and situations

Ex. Alaska airlines creates

unique prices and
advertisements for people as
they surf the web

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 Price Adjustment Strategies

International pricing is when prices are set in a

specific country based on country-specific factors
 Economic conditions
 Competitive conditions
 Laws and regulations
 Infrastructure
 Company marketing
objective For example : Boeing sells its jetliners at
about the same price everywhere, whether
in the United states , Europe or the third
world
A pair of Levi’s selling for $30 in Canada
might go for $ 63 in Tokyo and $ 88 in Paris
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Price Changes
Initiating Pricing Changes

 Price cuts
( to boost sales and
shares)
 Price increases

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Price Changes
Initiating Pricing Changes

Price cuts occur due to:

• Excess capacity
• Increased market share
Price increase from:
• Cost inflation
• Increased demand
• Lack of supply

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Price Changes
Buyer Reactions to Pricing Changes

Price increases Price cuts

• Product is “hot” • New models
that means will be available
better made • Models are not
• Company is selling well
greedy • Quality issues

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Responding to price changes

Questions
Why did the competitor change the price?
Is the price cut permanent or temporary?
What is the effect on market share and profits?
Will competitors respond?

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Price Changes

Solutions
 Reduce price to match competition
 Maintain price but raise the perceived value through communications
 Improve quality and increase price
 Launch a lower-price “fighting” brand

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Price Changes

Responding to Price Changes

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Thank you
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