Project Report On Change in Strategy that Companies follow During Rise in Prices

Submitted to :- Prof. Pankaj Upadhayay

Submitted by :- Nidhu Anand Ritu Sahewalla Bhaskar Sharma

Apart from our efforts , the success of this project depends largely on the encouragement and guidelines of many others. I take this opportunity to express my gratitude to the people who have been instrumental in the successful completion of this project.

I would like to show my greatest appreciation to Prof. Pankaj Upadhayay. We can t say thank you enough for his tremendous support and help. We feel motivated and encouraged every time we attend his lecture. Without his encouragement and guidance this project would not have materialized.

The guidance and support received from all the friends in IIPM Gurgaon who contributed and are contributing to this project, was vital for the success of the project. We am grateful for their constant support and help.


Table of Contents

1.0 EXECUTIVE SUMMARY------------------------------------------------------------------------1.1 Objective-------------------------------------------------------------2.0 Introduction To Project -----------------------------------------------------------------------2.1 Definition 2.2 Demand pull and Cost pull Inflation 2.3 Causes of Inflation 3.0 INFLATION IN DIFFERENT INDUSTRIES---------------------------------------------------------------------3.1 Inflation in Automobile Industry 3.2Inflation in F.M.C.G 3.2 Inflation in Electronics Industry 4.0 MARKETING STRATEGY DURING INFLATION----------------------------------4.1Strategy of Automobile Industry 4.2Strategy of Electronics Industry 4.3Strategy of F.M.C.G 5.0 DATA COLLECTION------------------------------------------------------------6.0 RESULT & CONCLUSION-----------------------------------------------------7.0 REFERENCES ..

Objective :From time to time we come across instances where businesses are not realizing their full potential when setting prices. Sometimes this can mean missed revenue, in other cases it can have a negative effect on the brand± sending a mixed message of what it stands for. In either case profits can be lost. In this research paper , we take a look at the key factors to consider when reviewing your pricing strategy. Price is the only revenue generating element amongst the 4ps,the rest being cost centers. Pricing is the manual or automatic process of applying prices to purchase and sales orders, based on factors such as: a fixed amount, quantity break, promotion or sales campaign, specific vendor quote, price prevailing on entry, shipment or invoice date, combination of multiple orders or lines, and many others. Automated systems require more setup and maintenance but may prevent pricing errors. In setting pricing policy, a company estimates the demand curve, the probable quantities it will sell at each possible price. It estimates how its costs vary at different levels of output . In this paper , we also study situations when companies often face situations where they may need to cut or raise prices. The firm facing a competitor's price change must try to understand the competitor's intent and the likely duration of the change. So here we are taking example of 3 Industries i.e Automobile Industry, FMCG & Electronics Industry, which change there pricing strategy during rise in the prices or in inflation. Our main objective is to learn how these industries change there pricing strategy during Inflation.

Introduction :-

Strategic Planning
Plans and planning. Plans are needed to clarify what kinds of strategic objectives an organization would like to achieve and how this is to be done. Such plans must consider the amount of resources available. One critical resource is capital. Microsoft keeps a great deal of cash on hand to be able to ³jump´ on opportunities that come about. Small startup software firms, on the other hand, may have limited cash on hand. This means that they may have to forego what would have been a good investment because they do not have the cash to invest and cannot find a way to raise the capital. Other resources that affect what a firm may be able to achieve include factors such as:
y y y y

Trademarks/brand names: It would be very difficult to compete against Coke and Pepsi in the cola market. Patents: It would be difficult to compete against Intel and AMD in the microprocessor market since both these firms have a number of patents that it is difficult to get around. People: Even with all of Microsoft s money available, it could not immediately hire the people needed to manufacture computer chips. Distribution: Stores have space for only a fraction of the products they are offered, so they must turn many away. A firm that does not have an established relationship with stores will be at a disadvantage in trying to introduce a new product.

Plans are subject to the choices and policies that the organization has made. Some firms have goals of social responsibility, for example. Some firms are willing to take a greater risk, which may result in a very large payoff but also involve the risk of a large loss, than others. Strategic marketing is best seen as an ongoing and never-ending process. Typically:


y y


The organization will identify the objectives it wishes to achieve. This could involve profitability directly, but often profitability is a long term goal that may require some intermediate steps. The firm may seek to increase market share, achieve distribution in more outlets, have sales grow by a certain percentage, or have consumers evaluate the product more favorably. Some organizations have objectives that are not focused on monetary profit e.g., promoting literacy or preventing breast cancer. An analysis is made, taking into consideration issues such as organizational resources, competitors, the competitors strengths, different types of customers, changes in the market, or the impact of new technology. Based on this analysis, a plan is made based on tradeoffs between the advantages and disadvantages of different options available. This strategy is then carried out. The firm may design new products, revamp its advertising strategy, invest in getting more stores to carry the product, or decide to focus on a new customer segment. After implementation, the results or outcome are evaluated. If results are not as desired, a change may have to be made to the strategy. Even if results are satisfactory, the firm still needs to monitor the environment for changes.

Levels of planning and strategies. Plans for a firm can be made at several different levels. At the corporate level, the management considers the objectives of the firm as a whole. For

To achieve this goal. companies can define themselves in terms of a customer need. while Nordstrom s defines itself more in terms of high levels of customer service. Different managers will have responsibilities for different areas. and services to consumers.g. since this may result in loss of focus. For example. A firm¶s mission should generally include a discussion of the customers served (e. A firm may define its goal very narrowly and then miss opportunities in the market place. hardware.S. the better future possibilities. For example. Manufacturing may be charged with decreasing production costs by 5%. Each business unit is evaluated in terms of two factors: market share and the growth prospects in the market. How well these segments are being served by existing firms. Wal-Mart and Nordstrom¶s serve different groups). the firm also provides Internet access and makes video games.. Wal-Mart positions itself as providing value in retailing. plans will be made at the functional level. for example. and goals may best be made by those closest to the business area being considered. Sometimes. may be charged with increasing awareness of Microsoft game consoles to 55% of the U. it might miss an opportunity to branch into PDAs or Internet service. Boeing has both commercial aircraft and defense divisions.´ A company should not define itself too broadly. For example. the firm needs to consider issues such as: y y y y The size of various market segments. a balance must be made so that the firm¶s scope is not defined too narrowly or too broadly. Here. the kind of technology involved. plans are needed both at the corporate and at the business levels. For example. Microsoft may want seek to grow by providing high quality software. although Microsoft is best known for its operating systems and applications software. but for now. Thus. The firm needs to identify the business it is in.g. Occasionally.. however. Several issues are involved in selecting target customers. Marketing. and the greater the growth in a market. if Dell were to define itself only as a computer company. and the markets served. Each is run by different managers. This accounts for both Post-It notes and computer disks. Generally. It is also more practical to hold managers accountable for performance if the plan is being made at a more specific level. Plans can also be made at the business unit level. the larger a firm¶s share. to allow managers to specialize and to increase managerial accountability. a manufacturer of baking soda should probably not see itself as a manufacturer of all types of chemicals. or seen by customers. We will consider these in more detail within the context of segmentation. population or to increase the number of units of Microsoft Office sold. 3M sees itself as being in the business of making products whose surfaces are bonded together. Finance may be charged with raising a given amount of capital at a given cost. although there is some overlap in technology between the two. the stronger its position. Four combinations emerge: . they might instead define themselves as a provider of ³information solutions. The Boston Consulting Group (BCG) matrix provides a firm an opportunity to assess how well its business units work together. How the firm should be positioned. Changes in the market e. growth of segments or change in technology. Therefore. For example. the firm may be willing to invest aggressively.example.

Microsoft may also become a trusted source of consumer services. Microsoft also has some weaknesses. a huge staff of very talented engineers. and Threats´) analysis is used to help the firm identify effective strategies. A firm that has a number of promising stars in its portfolio may be in serious trouble if it does not have any cash cows to support it. For example. Opportunities. fewer operating systems and software packages. The firm can earn political good will by engaging in charitable acts. Rather than merely listing strengths. Firms are usually best of with a portfolio that has a balance of firms in each category. Microsoft currently faces several threats. For example. Successful firms such as Microsoft have certain strengths. It can forego temporary profits by reducing prices temporarily to increase demand. A question mark results when a unit has a small share in a rapidly growing market. and may even be shrinking. For example. Weaknesses. and threats. Brother has a large share of the typewriter market. Microsoft could either decide to put more resources into MSN or to abandon this unit entirely. a SWOT analysis should suggest how the firm may use its strengths and opportunities to overcome weaknesses and threats. a great deal of experience in designing software. Motorola has a large share in the rapidly growing market for cellular phones. Therefore. although dogs can still be profitable in the short run. and MSN has been unable to achieve desired levels of growth. This is generally a somewhat unattractive situation. stars generate some cash. however: The game console and MSN units are currently running at a loss. The cash cows tend to generate cash but require little future investment. so the option to put resources toward MSN is available. On the other hand. but there is an opportunity to grow. and a great deal of cash. for example. For example. then. Hewlett-Packard has a small share of the digital camera market. Microsoft. including the weak economy. A dog results when a business unit has a small share in a market that is not growing. which will need the cash to grow. but even more cash is needed to invest in the future²for research and development. this may be used to try to improve the market share of a question mark. weaknesses. Firms may face opportunities in the current market. Microsoft has a great deal of cash ready to spend. a very large market share. If a firm has cash cows that generate a lot of cash. Microsoft has donated software and computers to schools. or can ³hold out´ by maintaining current prices while not selling as many units. A SWOT (³Strengths. Decisions should also be made as to how resources should be allocated. a firm may take excess cash from the cash cow and divert it to the star.y y y y A star represents a business unit that has a high share in a growing market. For example. for example. A cash cow results when a firm has a large share in a market that is not growing. Microsoft. The firm s position. may have the opportunity to take advantage of its brand name to enter into the hardware market. but this is a very rapidly growing market. and building new manufacturing facilities. opportunities. which it has money available to fund. marketing campaigns. has a great deal of technology. Smith Corona how has a small share of the typewriter market. a well respected brand name. Because fewer new computers are bough during a recession. Brother could ³harvest´ its profits from typewriters and invest this in the unit making color laser printers. For example. Microsoft will also need to see how threats can be addressed. If it is about to run out of cash²regardless of how profitable it is² is becomes vulnerable as a takeover target from a firm that has the cash to continue running it. is not as strong as it would have been had its market share been greater. .

The truth is that implementing effective pricing strategy involves changing the expectations and behaviors of all of the actors involved in the sales process. and reducing manufacturing costs by 2% are all specific. pricing affects other marketing mix elements such as product features. increase profits. What a price should do : A well chosen price should do three things: Achieve the financial goals of the company (e.. Furthermore. The goals must be consistent. and reduce prices. one of the most powerful levers for behavioral change among salespeople. product features. A well-designed and marketed product can command a price premium and reap big profits. a firm cannot ordinarily simultaneously plan improve product features. Price also communicates to the market the company's intended value positioning of its product or brand. channel decisions. The above plans involve specific numbers. and even promotion take more time. Prices are perhaps the easiest element of the marketing program to adjust. Customers must learn that they will be treated fairly and that abusive purchase tactics will not be rewarded with ad hoc discounts. Marketing plans should meet several criteria: y y y y The plan must be specific enough so that it can be implemented and communicated to people in the firm.Criteria for effective marketing plans. channels. profitability) Fit the realities of the marketplace (Will customers buy at that price?) Support a product's positioning and be consistent with the other variables in the . cost. The goal must be achievable or realistic. One of the four major elements of the marketing mix is price. Motivation : Developing strategy is one thing-managing the change process to embed that strategy in the organization is quite another. increasing market share by 10%. Finance must learn to look beyond cost as a determinant of price to better understand the tradeoffs between price. The plan must be measurable so that one can see if it has been achieved. the other elements produce costs. Plans that are unrealistic may result in poor use of resources or lowered morale within the firm. Financial incentives are. without question. For example. gaining distribution in 2. and promotion.000 more stores. but increasing net profits by 5%. Improving profitability is usually too vague. and market response. Price is the one element of the marketing mix that produces revenue. Pricing is an important strategic issue because it is related to product positioning. Sales must learn that they will be rewarded for closing deals that increase firm profitability rather than using price as a tactical lever to increase sales volume.g.

marketing mix price is influenced by the type of distribution channel used. Although .. John Wanamaker. Computer technology is making it easier for sellers to use software that monitors customers' movements over the Web and allows them to customize offers and prices." because they carried so many items and supervised so many employees. Today the Internet is partially reversing the fixed pricing trend. many of us feel that income taxes are the price we pay for the privilege of making money. and the company that insures your car charges you a premium. taxi. Setting one price for all buyers is a relatively modern idea that arose with the development of large-scale retailing at the end of the nineteenth century. the type of promotions used. the local utilities call their price a rate. You pay rent for your apartment. As one industry observer noted. Tiffany and Co. and the product is supported by extensive advertising and promotional campaigns A low price can be a viable substitute for product quality. Understanding Pricing Price is not just a number on a tag or an item : Price is all around us. Your regular lawyer may ask for a retainer to cover her services. prices were set by negotiation between buyers and sellers. Clubs or societies to which you belong may make a special assessment to pay unusual expenses. distribution is exclusive. the price of a salesperson may be a commission. This is still the case in poorer nations. tuition for your education. "We are moving toward a very sophisticated economy. F. or an energetic selling effort by distributors From the marketers point of view. "Bargaining" is still a sport in some areas. an efficient price is a price that is very close to the maximum that customers are prepared to pay. Finally. and a fee to your physician or dentist. and the local bank charges you interest for the money you borrow. A good pricing strategy would be the one which could balance between the price floor(the price below which the organization ends up in losses) and the price ceiling(the price beyond which the organization experiences a no demand situation). among poorer groups. In economic terms. and the quality of the product Price will usually need to be relatively high if manufacturing is expensive. W. although economists would disagree. The "price" of an executive is a salary. and with commodity-type products. price has operated as the major determinant of buyer choice. and the price of a worker is a wage. The airline. Woolworth. and bus companies charge you a fare. It's kind of an arms race between merchant technology and consumer technology. railway. The guest lecturer charges an honorarium to tell you about a government official who took a bribe to help a shady character steal dues collected by a trade association. New software applications are also allowing buyers to compare prices instantaneously through online robotic shoppers. Throughout most of history. effective promotions. it is a price that shifts most of the consumer surplus to the producer. The price for driving your car on Florida's Sunshine Parkway is a toll. Traditionally. and others advertised a "strictly one-price policy.

Consumers and purchasing agents have more access to price information and price discounters. price is set independently of the rest of the marketing mix rather than as an intrinsic element of marketpositioning strategy. In industries where pricing is a key factor (aerospace.3 percent. These "power pricers" have discovered the highly leveraged effect of price on the bottom line.1 percent. and price is not varied enough for different product items. of only 7. Retailers put pressure on manufacturers to lower their prices." Other common mistakes are: Price is not revised often enough to capitalize on market changes. pricing is handled by division and product-line managers. finance managers. The importance of pricing for profitability was demonstrated in a 1992 study by McKinsey & Company. respectively. Others who exert an influence on pricing include sales managers. and purchase occasions. Even here. The result is a marketplace characterized by heavy discounting and sales promotion. 1 percent improvements in variable cost. production managers. 3.8 percent.3 percent. top management sets general pricing objectives and policies and often approves the prices proposed by lower levels of management. or top management. Effectively designing and implementing pricing strategies requires a thorough understanding of consumer pricing psychology and a systematic approach to setting. market segments. oil companies). Consumers put pressure on retailers to lower their prices. Price Supply . They customize prices and offerings based on segment value and costs. volume. By contrast.400 companies. finance department. and 2. Others have a different attitude: They use price as a key strategic tool. Examining 2. This department reports to the marketing department. How Companies Price : Companies do their pricing in a variety of ways. distribution channels. and changing prices. and accountants. and fixed cost produced profit improvements. and throw up their hands at "strategies" like this: "We determine our costs and take our industry's traditional margins. railroads. McKinsey concluded that a 1 percent improvement in price created an improvement in operating profit of 11. In small companies.nonprice factors have become more important in recent decades. Executives complain that pricing is a big headache²and one that is getting worse by the day. prices are often set by the boss. In large companies. adapting. companies will often establish a pricing department to set or assist others in determining appropriate prices. Many companies do not handle pricing well. price still remains one of the most important elements determining market share and profitability.

Pricing in Competitive Markets: . experiments can be performed at prices above and below the current price in order to determine the price elasticity of demand. it is important to understand the impact of pricing on sales by estimating the demand curve for the product. Inelastic demand indicates that price increases might be feasible.Demand Quantity Fig : Graph showing how the supply and demand for the goods generally affects prices Because there is a relationship between price and quantity demanded. For existing products.

Law of Demand: all other factors being the same.e.UVC] Consider this Matrix . BEP Quantity: F/[P . i. higher prices will lead to lower quantities being demanded.. TR = TC. Price Elasticity of Demand(e) = % change in Quantity Demanded / % change in Price. Break Even Point: Point of zero profits.

Common pricing mistakes : . It requires quantified models of customer decision-making. Product Bundle Pricing. Successful pricing strategy must be built on a solid analytical foundation which goes well beyond high-level customer values or competitive anecdotes. Optional Product Pricing. Value Pricing. Captive Products Pricing . Price Skimming. and segmented internal economics. Geographical Pricing. Economy Pricing.There are many ways to price a product which have been discussed in detail in the paper. Penetration Pricing. Premium Pricing. Psychological Pricing. Promotional Pricing. competitive economics. Product Line Pricing.

Companies do not take enough account of the overall market demand and consumer psychology. Objectives in Setting Price : ‡ Increase profits ± ± ± ± Attract new customers Maintain current customers Increase profit per customer Introduce new product ‡ Generate cash ‡ Improve ROI How to Attract New Customers : ‡ Introductory coupons / discounts ± provide incentive ± maintain reference price ‡ Trial offers ± increase familiarity ± reduce risk ‡ P r o b l em ± perceived as unfair Maintain Current Customers : ‡ Meet competition ± matching prices ± add to bundle (as long as customers want it!) ‡ Create barriers to exit ± ± ± ± contracts / subscriptions automatic billing phone numbers (no longer in the U.Pricing is too cost oriented. Prices are not revised often enough to take advantage of changed conditions in the marketplace.S. Prices are not varied enough for different product items and market segments. Prices are set independently of the rest of the marketing plan. Prices are set to match or better a competitor without justification or analysis.) family plans ‡ Provide loyalty programs ± frequent flyer ± Starbuck cards Increase Profit per Customer : ‡ Increase prices ± reduce product? (candy bar pricing) ± justify/ notify / base on costs .

Considered Fair 3. Most Common pricing method 1. Sub-optimal Profits Flat-Rate Pricing ‡ Single rate per time period: . Complicated to administer 4. Difficult to allocate fixed costs 4. Value-based Cost Based Value Based 1. Can be considered unfair 5. Optimal Profits 2. Requires Research 3. seniors ‡ Charge for extras ± what¶s valuable to customer and cheap to company ‡ Get money up front ± Prepaid subscriptions CONCERNS IN SETTING PRICE :4 C s Compitition Customer Cost Custom PRICING MODELS : ‡ ‡ ‡ ‡ ‡ ‡ ‡ Cost-based Pricing Value-based Pricing Flat-Rate Pricing Ala-Carte Pricing Two-Part Pricing Peak Load / Congestion Pricing Dynamic Pricing Cost-based vs. Easiest Pricing Method 2.‡ Adjust product mix ± sales incentives for more profitable business ‡ Adjust customer mix ± teenagers vs.

. monthly fee plus cost per minute (declining?) ± P R OS ‡ spreads costs more fairly ± C ONS ‡ perceived as hassle ‡ u np r edi c ta bl e Two-Part Pricing II Combines down-payment & flat rate per month: ± P R OS : ‡ covers fixed costs immediately ‡ spreads customer¶s costs ‡ fits customer¶s monthly budget ‡ generates financing revenues ‡ predictable / low risk ± C ONS : ‡ increases total cost to customer .± ‡ ‡ ‡ ‡ ± ‡ ‡ ‡ P R OS : provides unlimited use increases use simple to explain & bill popular with customers / low risk C ONS : difficult to predict average price unfair in that some people subsidize others fair in that charges are predictable Ala-Carte Pricing Variable rate depending on use: ± P R OS : ‡ considered fair ± greater choice ± greater control ± C ONS : ‡ ‡ ‡ more difficult to explain more difficult to bill more risk Two-part Pricing I Combines flat rate plus variable: e.g.

Purchase decisions are based on how consumers perceive prices and what they consider to be the current actual price²not the marketer's stated price. and brochures). price-quality inferences. and point-of-purchase or online resources. Understanding how consumers arrive at their perceptions of prices is an important marketing priority. or family members). colleagues. sales calls. as well as an upper price threshold above which prices are prohibitive and seen as not worth the money. They may have a lower price threshold below which prices may signal inferior or unacceptable quality. interpreting prices in terms of their knowledge from prior purchasing experience. Marketers recognize that consumers often actively process price information. Here we consider three key topics²reference prices.‡ requires long-term billing Peak Load / Congestion Pricing Variable rate depending on time of day or week: ± P R OS : ‡ ‡ ‡ ‡ spreads use encourages use in unpopular time considered fair easy to explain ± C ONS : ‡ difficult to bill Dynamic Pricing Variable rate for each customer: ± P R OS : ‡ maximizes profit per customer ± C ONS : ‡ ‡ ‡ ‡ difficult to implement requires detailed demand schedule difficult to explain considered unfair Consumer Psychology and Pricing Many economists assume that consumers are "price takers" and accept prices at "face value" or as given. formal communications (advertising. REFERENCE PRICES . informal communications (friends. and price endings.

Clever marketers try to frame the price to signal the best value possible. A $100 bottle of perfume might contain $10 worth of scent. For example. All types of reference prices are possible. Waiting lists. Sellers often attempt to manipulate reference prices. however. a relatively more expensive item can be seen as less expensive by breaking the price down into smaller units.Prior research has shown that although consumers may have fairly good knowledge of the range of prices involved. When examining products. a seller can situate its product among expensive products to imply that it belongs in the same class. Some brands adopt scarcity as a means to signify quality and justify premium pricing. When alternative information about true quality is available. Research on reference prices has found that "unpleasant surprises"²when perceived price is lower than the stated price²can have a greater impact on purchase likelihood than pleasant surprises. price becomes a less significant indicator of quality. Department stores will display women's apparel in separate departments differentiated by price. For example. PRICE-QUALITY INFERENCES Many consumers use price as an indicator of quality. consumers often compare it to an internal reference price (pricing information from memory) or an external frame of reference (such as a posted "regular retail price"). their perceived price can vary from the stated price. creating a buzz around them. or by pointing to a competitor's high price. Reference-price thinking is also encouraged by stating a high manufacturer's suggested price. Price and quality perceptions of cars interact. Some automakers have bucked the massive discounting craze that shook the industry and are producing smaller batches of new models. consumers often employ reference prices. A $500 annual membership may be seen as more expensive than "under $50 a month" even if the totals are the same When consumers evoke one or more of these frames of reference. Higher-priced cars are perceived to possess high quality. once reserved for limited-edition cars like Ferraris. In considering an observed price. are becoming more common for mass-market models. and using the demand to raise the sticker price. Image pricing is especially effective with ego-sensitive products such as perfumes and expensive cars. including Volkswagen and Acura SUVs and Toyota and Honda minivans. Higher-quality cars are likewise perceived to be higher priced than they actually are. but gift givers pay $100 to communicate their high regard for the receiver. When this information is not available. or by indicating that the product was priced much higher originally. price acts as a signal of quality. dresses found in the more expensive department are assumed to be of better quality. surprisingly few can recall specific prices of products accurately. .

3 Selecting the pricing method . Fairfield Inn (low price). items in a category have sale signs. Another explanation for "9" endings is that they convey the notion of a discount or bargain. it should avoid the odd-ending tactic. Research has shown that consumers tend to process prices in a "left-to-right" manner rather than by rounding. Many customers see a stereo amplifier priced at $299 instead of $300 as a price in the $200 range rather than $300 range. rounded price. Renaissance (medium-high price). and offers. prices. but only if not overused: Total category sales are highest when some. Marriott Hotels is good at developing different brands for different price points: Marriott Vacation Club²Vacation Villas (highest price). One study even showed that demand was actually increased onethird by raising the price of a dress from $34 to $39. Pricing Strategy 1 Estimating Cost 2 Analysing Compititor Costs. Marriott (high-medium price). The firm must decide where to position its product on quality and price. and when it enters bids on new contract work. Setting the Price A firm must set a price for the first time when it develops a new product. We will describe a six-step procedure: Selecting the pricing objective. Courtyard (medium price). past a certain point. but demand was unchanged when the price was increased from $34 to $44. when it introduces its regular product into a new distribution channel or geographical area.PRICE CUES Consumer perceptions of prices are also affected by alternative pricing strategies. suggesting that if a company wants a high-price image. Prices that end with "0" and "5" are also common in the marketplace as they are thought to be easier for consumers to process and retrieve from memory. Price encoding in this fashion is important if there is a mental price break at the higher. use of additional sale signs will cause total category sales to fall. Most markets have three to five price points or tiers. Towne Place Suites (medium-low price). Marriott Marquis (high price). Determining demand. but not all. "Sale" signs next to prices have been shown to spur demand. Many sellers believe that prices should end in an odd number. The firm has to consider many factors in setting its pricing policy.

assuming the market is price sensitive. in reality. In emphasizing current performance. these are difficult to estimate. MAXIMUM CURRENT PROFIT Many companies try to set a price that willmaximize current profits. MAXIMUM MARKET SHARE Some companies want to maximize their market share. A company can pursue any of five major objectives through pricing: survival. They believe that a higher sales volume will lead to lower unit costs and higher long-run profit. maximum market skimming. the company stays in business. Texas Instruments (TI) has . Survival is a short-run objective. The clearer a firm's objectives. maximum current profit. cash flow. competitors' reactions. As long as prices cover variable costs and some fixed costs. This strategy assumes that the firm has knowledge of its demand and cost functions. or product-quality leadership. maximum market share. the company may sacrifice longrun performance by ignoring the effects of other marketing-mix variables. the firm must learn how to add value or face extinction. and legal restraints on price. SURVIVAL Companies pursuesurvival as their major objective if they are plagued with overcapacity. or changing consumer wants. They set the lowest price. in the long run.4 Selecting the final price Pricing Over Product Life Cycle : Step 1: Selecting the Pricing Objective The company first decides where it wants to position its market offering. or rate of return on investment. intense competition. the easier it is to set price. They estimate the demand and costs associated with alternative prices and choose the price that produces maximum current profit.

the price dropped steadily through the years²a 28-inch HDTV cost just over $6. win a large market share. and cut its price further as costs fall. and status with a price just high enough not be out to consumers reach.000. Sony is a frequent practitioner of marketskimming pricing.200 in 2004. quantities sold.000 in 1993 and a 42-inch HDTV cost about $1. taste. it was priced at $43. The following conditions favor setting a low price: The market is highly price sensitive. Market skimming makes sense under the following conditions: A sufficient number of buyers have a high current demand. So that Sony could "skim" the maximum amount of revenue from the various segments of the market. The high price communicates the image of a superior product.practiced this market-penetration pricing. When Sony introduced the world's first high-definition television (HDTV) to the Japanese market in 1990. difficult to administer PRODUCT -QUALITY LEADERSHIP A company might aim to be theproduct quality leader in the market. Skimming: Adjusts prices down over time: PROS: skims off maximum profit for each segment & establishes high reference price CONS: attracts competition. Many brands strive to be "affordable luxuries"²products or services characterized by high levels of perceived quality. Penetration: Starts at lowest possible price PROS: penetrates market quickly . misses full profit potential MAXIMUM MARKET SKIMMING Companies unveiling a new technology favor setting high prices to maximize market skimming. set its price as low as possible. The high initial price does not attract more competitors to the market. keeps out competition CONS: creates low reference price . experience falling costs. and other factors can reveal their . TI would build a large plant. The unit costs of producing a small volume are not so high that they cancel the advantage of charging what the traffic will bear. Production and distribution costs fall with accumulated production experience. and a low price stimulates market growth. ESTIMATING DEMAND CURVES Most companies make some attempt to measure their demand curves using several different methods. and A low price discourages actual and potential competition. Statistical analysis of past prices. where prices start high and are slowly lowered over time.

This makes sense as long as the costs of producing and selling more units do not increase disproportionately. 35 percent. the greater the volume growth resulting from a 1 percent price reduction. Price experiments can be conducted.relationships. as happened when Amazon pricetested discounts of 30 percent. Nagle presents an excellent summary of the various methods for estimating price sensitivity and demand. sellers will consider lowering the price. if the company changes other marketing-mix factors besides price. Also. Demand is likely to be less elastic under the following conditions: There are few or no substitutes or competitors. Still another approach is to use the Internet. Buyers think the higher prices are justified. it must do this carefully and not alienate customers. In measuring the price-demand relationship. and 40 percent for DVD buyers. Buyers do not readily notice the higher price. With demand curve (b). we say the demand isinelastic. Bennett and Wilkinson systematically varied the prices of several products sold in a discount store and observed the results. the same price increase leads to a substantial drop in demand from 150 to 50. The data can be longitudinal (over time) or cross-sectional (different locations at the same time). A lower price will produce more total revenue. Surveys can explore how many units consumers would buy at different proposed prices. demand would be to a change in price. PRICE ELASTICITY OF DEMAND Marketers need to know how responsive. Building the appropriate model and fitting the data with the proper statistical techniques calls for considerable skill. The higher the elasticity. An e-business could test the impact of a 5 percent price increase by quoting a higher price to every fortieth visitor to compare the purchase response. the market researcher must control for various factors that will influence demand. Buyers are slow to change their buying habits. although there is always the chance that they might understate their purchase intentions at higher prices to discourage the company from setting higher prices. If demand is elastic. With demand curve (a). Consider the two demand curves in Figure . the effect of the price change itself will be hard to isolate. If demand hardly changes with a small change in price. or elastic. The competitor's response will make a difference. demand iselastic. only to find that those receiving the 30 percent discount were upset. An alternative approach is to charge different prices in similar territories to see how sales are affected. . If demand changes considerably. a price increase from $10 to $15 leads to a relatively small decline in demand from 105 to 100. However.

long-run price elasticity may differ from short-run elasticity. or the reverse may happen: Buyers may drop a supplier after being notified of a price increase but return later. microprocessor chips. Total costs consist of the sum of the fixed and variable costs for any given level of production. no matter what happens to the fare. each hand calculator produced by Texas Instruments involves the cost of plastic. Step 3: Estimating Costs Demand sets a ceiling on the price the company can charge for its product. suburban off-peak riders who used the subway the least. It may differ for a price cut versus a price increase. and selling the product. Fixed costs (also known as overhead) are costs that do not vary with production or sales revenue. Commuters' demand curve is perfectly inelastic. Price elasticity depends on the magnitude and direction of the contemplated price change. salaries. Yet. Costs set the floor. These costs tend to be constant per unit produced. TYPES OF COSTS AND LEVELS OF PRODUCTION A company's costs take two forms. and 2 percent for certificates of deposit. and there may be a price indifference band within which price changes have little or no effect. 9 percent for small appliances. including a fair return for its effort and risk. Variable costs vary directly with the level of production. Buyers may continue to buy from a current supplier after a price increase. the net result is not always profitability. The distinction between short-run and long-run elasticity means that sellers will not know the total effect of a price change until time passes. 13 percent for batteries. and so on. A McKinsey pricing study estimated that the price indifference band can range as large as 17 percent for mouthwash. Here demand is more elastic in the long run than in the short run. packaging. and the like. when companies price products to cover full costs. fixed and variable. regardless of output. distributing. Average cost is the cost per unit at that level of production. A company must pay bills each month for rent. the Metropolitan Transit Authority in New York introduced a new purchase plan for subway riders that discounted fares after passes were used 47 times in a month. The company wants to charge a price that covers its cost of producing. but they may eventually switch suppliers. In 1997. these people must get to work and get back home. Finally. It may be negligible with a small price change and substantial with a large price change. it is equal to total costs . They are called variable because their total varies with the number of units produced. For example.It is a mistake to not consider the price elasticity of customers and their needs in developing marketing programs. interest. Critics pointed out that the special fare did not benefit those customers whose demand was most elastic. heat.

Thus the average cost of producing the first 100. As production increases beyond 400. Workers learn shortcuts. When the company has produced the first 200. The smart move for TI would be to lower its price to $9. materials flow more smoothly. The result. The cost per unit is high if few units are produced per day. the average cost is $8. ACTIVITY-BASED COST ACCOUNTING . and procurement costs fall. It leads the company into building more plants to meet demand. TI's costs will drop still further and faster and more than restore its profits. This firm can charge a little less for its product and still earn the same return. including marketing costs. ACCUMULATED PRODUCTION Suppose TI runs a plant that produces 3. As TI gains experience producing hand calculators. If all three firms sell the calculator for $10. TI is the lowest-cost producer at $8.000 hand calculators a day. If three firms are each investing a large sum of money in telemarketing. nevertheless. This will drive B out of the market. Short-run average cost increases after 1. is that average cost falls with accumulated production experience. A makes $1 per unit. the firm that has used it the longest might achieve the lowest costs. and B. management needs to know how its costs vary with different levels of production. and workers get in each others' way . its methods improve. TI makes $2 profit per unit. Experience-curve pricing. Most experience-curve pricing has focused on manufacturing costs.000 units per day. having produced 400.divided by production.4 shows. To price intelligently. machines break down more often.000.000 hand calculators per day. because the plant becomes inefficient: Workers have to line up for machines.000 units. As production approaches 1. all other costs being equal. price-sensitive customers will enter the market at the lower price. TI. carries major risks. the average cost falls because the fixed costs are spread over more units. and B breaks even. A.000 units in the past. Now suppose three firms compete in this industry.000 calculators. Take the case in which a company such as TI has built a fixed-size plant to produce 1. The market leader is now stuck with the old technology. The strategy also assumes that competitors are weak followers. After its accumulated production experience doubles again to 400. TI has used this aggressive pricing strategy repeatedly to gain market share and drive others out of the industry. and even A may consider leaving. as Figure 14. even at a price of $9. but all costs can be improved on. Management wants to charge a price that will at least cover the total production costs at a given level of production. while a competitor innovates a lower-cost technology.000 units.000 hand calculators is $10 per calculator. the average cost has fallen to $9. TI will pick up the business that would have gone to B (and possibly A). Aggressive pricing might give the product a cheap image. This decline in the average cost with accumulated production experience is called the experience curve or learning curve. Furthermore.

to the activities that use them. the manufacturer needs to use activity-based cost (ABC) accounting instead of standard cost accounting. will negotiate different terms with different retail chains. Step 4: Analyzing Competitors' Costs. If this is not possible. TARGET COSTING Costs change with production scale and experience. and so on. The manufacturer's costs will differ with each chain. A manufacturer. and Offers . office expenses. Even with lower prices. They can also change as a result of a concentrated effort by designers. it may be necessary to stop developing the product because it could not sell for the target price and make the target profit. supplies. for example. rather than in some proportion to direct costs. manufacturing. Each cost element²design. and purchasing agents to reduce them through target costing. One proposed timebased solution calculates the cost of one minute of overhead and then decides how much of this cost each activity uses. One retailer may want daily delivery (to keep inventory lower) while another may accept twice-a-week delivery in order to get a lower price. Market research is used to establish a new product's desired functions and the price at which the product will sell. profits for the brand doubled. and so will its profits. marketers of 9Lives® brand of cat food employed target costing to bring their price down to "four cans for a dollar" via a reshaped package and redesigned manufacturing processes. Deducting the desired profit margin from this price leaves the target cost that must be achieved. The objective is to bring the final cost projections into the target cost range. Companies that fail to measure their costs correctly are not measuring their profit correctly and are likely to misallocate their marketing effort. and different ways to bring down costs must be considered. given its appeal and competitors' prices. engineering. Prices. sales²must be examined. To estimate the real profitability of dealing with different retailers. It allocates indirect costs like clerical costs. The key to effectively employing ABC is to define and judge "activities" properly. engineers.Today's companies try to adapt their offers and terms to different buyers. To hit price and margin targets. ABC accounting tries to identify the real costs associated with serving each customer. Both variable and overhead costs are tagged back to each customer.

Step 5: Selecting a Pricing Method Given the three Cs²the customers' demand schedule. and competitors' prices²the company is now ready to select a price. Target pricing is used by General Motors. each potential customer places different weights on these different elements. the cost function. customer support. This method is also used by public utilities.Within the range of possible prices determined by market demand and company costs. TARGET-RETURN PRICING In target-return pricing. such as advertising and sales force. such as the buyer's image of the product performance. going-rate pricing. Companies select a pricing method that includes one or more of these three considerations. and possible price reactions into account. Lawyers and accountants typically price by adding a standard markup on their time and costs. If the firm's offer contains features not offered by the nearest competitor. But competitors can also change their prices in reaction to the price set by the firm. The firm should first consider the nearest competitor's price. Construction companies submit job bids by estimating the total project cost and adding a standard markup for profit. perceived-value pricing. with the result that some will be price buyers. value pricing. Competitors' prices and the price of substitutes provide an orienting point. which need to make a fair return on investment. They use the other marketing-mix elements. others will be value buyers. The three major considerations in price setting : Costs set a floor to the price. or less than the competitor. Furthermore. the channel deliverables. For price buyers. their worth to the customer should be evaluated and added to the competitor's price. trustworthiness. the firm determines the price that would yield its target rate of return on investment (ROI). They must deliver the value promised by their value proposition. and the customer must perceive this value. Companies need different strategies for these three groups. to communicate and enhance perceived value in buyers' minds. We will examine six price-setting methods: markup pricing. the firm must take competitors' costs. MARKUP PRICING The most elementary pricing method is to add a standard markup to the product's cost. For value buyers. which prices its automobiles to achieve a 15 to 20 percent ROI. and auction-type pricing. Perceived value is made up of several elements. companies must keep innovating . PERCEIVED-VALUE PRICING An increasing number of companies now base their price on the customer's perceived value. Now the firm can decide whether it can charge more. Customers' assessment of unique features establishes the price ceiling. and still others will be loyal buyers. the same. the warranty quality. and softer attributes such as the supplier's reputation. and esteem. prices. If the competitor's offer contains some features not offered by the firm. their worth to the customer should be evaluated and subtracted from the firm's price. companies need to offer stripped-down products and reduced services. target-return pricing.

A retailer who holds to an EDLP pricing policy charges a constant low price with little or no price promotions and special sales." Some retailers have even based their entire marketing strategy around what could be called extreme everyday low pricing. Yet. marketed. which takes place at the retail level. many find that the . These constant prices eliminate week-to-week price uncertainty and can be contrasted to the "high-low" pricing of promotion-oriented competitors. Partly fueled by an economic downturn. For loyal buyers. In recent years. even if the actual averages are the same. once unfashionable "dollar stores" are gaining in popularity: The most important reason retailers adopt EDLP is that constant sales and promotions are costly and have eroded consumer confidence in the credibility of everyday shelf prices. which practically defined the term. In the past. it is a matter of re-engineering the company's operations to become a low-cost producer without sacrificing quality. It redesigned the way it developed. companies must invest in relationship building and customer intimacy." says one Wal-Mart executive. Except for a few sale items every month. and sold products to deliver better value at every point in the supply chain. shallow discounts (highlow). As supermarkets face heightened competition from their counterparts and from alternative channels. priced. In the early 1990s. a brandloyal family had to pay what amounted to a $725 premium for a year's worth of P&G products versus private-label or low-priced brands. Among the best practitioners of value pricing are IKEA and Southwest Airlines. and Folger's coffee to value price them. An important type of value pricing is everyday low pricing (EDLP). Procter & Gamble created quite a stir when it reduced prices on supermarket staples such as Pampers and Luvs diapers. there is no denying that promotions create excitement and draw value and aggressively reaffirming their value. In high-low pricing. and lowering prices significantly to attract a large number of value-conscious customers. Value pricing is not a matter of simply setting lower prices. P&G underwent a major overhaul. the retailer charges higher prices on an everyday basis but then runs frequent promotions in which prices are temporarily lowered below the EDLP level. EDLP is not a guarantee of success. high-low pricing has given way to EDLP at such widely different venues as General Motors' Saturn car dealerships and upscale department stores such as Nordstrom. liquid Tide detergent. and you have to be able to operate with lower ratios of expense than everybody else. To offer value prices. Consumers also have less time and patience for such time-honored traditions as watching for supermarket specials and clipping coupons. For this reason. The two different pricing strategies have been shown to affect consumer price judgments²deep discounts (EDLP) can lead to lower perceived prices by consumers over time than frequent. but the king of EDLP is surely Wal-Mart. several companies have adopted value pricing: They win loyal customers by charging a fairly low price for a high-quality offering. "You have to be willing to make a commitment to it. Wal-Mart promises everyday low prices on major brands. distributed. manufactured. VALUE PRICING In recent years. "It's not a short-term strategy.

5 million pounds in part via an auction where 25 airlines bid for its international freight business. firms feel that the going price is a good solution because it is thought to reflect the industry's collective wisdom. In the first kind. and used equipment and vehicles.key to drawing shoppers is using a combination of high-low and everyday low pricing strategies. FreeMarkets. began auctioning the best seats to concerts in late 2003 through its Web site. save approximately 2. On sites such as Yahoo! and eBay. especially with the growth of the Internet. English auctions are being used today for selling antiques. Going-rate pricing is quite popular. the seller puts up an item and bidders raise the offer price until the top price is reached. or one buyer and many sellers. the firm bases its price largely on competitors' prices." changing their prices when the market leader's prices change rather than when their own demand or costs change. Companies need to be aware of the three major types of auctions and their separate pricing procedures. Some firms may charge a slight premium or slight discount. Thus minor gasoline retailers usually charge a few cents less per gallon than the major oil companies. without letting the difference increase or decrease. but they preserve the amount of difference. In the other. Ticketmaster Corp. Would-be suppliers can submit only one bid and cannot know the other . the United Kingdom's public mail service company. The firm might charge the same. cattle. or fertilizer.000 electronic marketplaces selling everything from pigs to used vehicles to cargo to chemicals. One seller and many buyers. AUCTION-TYPE PRICING Auction-type pricing is growing more popular. English auctions (ascending bids). In oligopolistic industries that sell a commodity such as steel. Dutch auctions (descending bids). the buyer announces something that he wants to buy and then potential sellers compete to get the sale by offering the lowest price. real estate. GOING-RATE PRICING In going-rate pricing. There are over 2. or less than major competitor(s). After seeing ticket brokers and scalpers reap millions by charging what the market would bear. more. an auctioneer announces a high price for a product and then slowly decreases the price until a bidder accepts the price. One major purpose of auctions is to dispose of excess inventories or used goods. paper. Where costs are difficult to measure or competitive response is uncertain. Sealed-bid auctions. The smaller firms "follow the leader. with increased advertising and promotions. One seller and many helped Royal Mail Group pic. firms normally charge the same price. Each seller sees what the last bid is and decides whether to go lower.

and relative advertising for 227 consumer businesses. Consumers apparently were willing to pay higher prices for known products than for unknown products. These findings suggest that price is not as important as quality and other benefits in the market offering. Yet the firm that wants to keep production going would prefer the second contract to the first. The net effect of these two pulls can be described in terms of the bid's expected profit. gain-and-risk-sharing pricing. Step 6: Selecting the Final Price Pricing methods narrow the range from which the company must select its final price. companies are not averse to establishing pricing penalties under certain circumstances. At the same time. brands with low quality and low advertising charged the lowest prices. government often uses this method to procure supplies.000 profit with a 0. including the impact of other marketing activities. Car . In a classic study. Conversely. A supplier will not bid below its cost but cannot bid too high for fear of losing the job. company pricing policies.10 probability and a $125 profit with a 0.80 probability. The positive relationship between high prices and high advertising held most strongly in the later stages of the product life cycle for market leaders. on-time delivery (58 percent). The seller who bids only occasionally or who needs a particular contract badly will not find it advantageous to use expected profit.S. The U. This criterion does not distinguish between a $1. relative quality. Only 19 percent cared about price. the company must consider additional factors. One study asked consumers to rate the importance of price and other attributes in using online retailing. Using expected profit for setting price makes sense for the seller that makes many bids. Farris and Reibstein examined the relationships among relative price. Brands with high relative quality and high relative advertising obtained the highest prices. and the impact of price on other parties. Airlines charge $150 to those who change their reservations on discount tickets.bids. Banks charge fees for too many withdrawals in a month or for early withdrawal of a certificate of deposit. and found the following: Brands with average relative quality but high relative advertising budgets were able to charge premium prices. far more cared about customer support (65 percent). and product shipping and handling (49 percent) COMPANY PRICING POLICIES The price must be consistent with company pricing policies. In selecting that price. IMPACT OF OTHER MARKETING ACTIVITIES The final price must take into account the brand's quality and advertising relative to the competition.

By charging its long-distance customers a new 99-cent monthly "regulatory assessment fee. Credit card late payments²up by 11 percent in 2003²exceed $10 billion in total. costing consumers billions of dollars. companies are trying to figure out how to increase revenue without really raising prices. small additional charges can add up to a substantial source of revenue. Given that list prices stay fixed. Retailers Target and Best Buy charge a 15 percent "restocking fee" for returning electronic products. service termination. the solution has been through the addition of fees for what had once been free features. Many companies set up a pricing department to develop policies and establish or approve decisions. directory assistance. they must be used judiciously so as not to unnecessarily alienate customers. The aim is to ensure that salespeople quote prices that are reasonable to customers and profitable to the company. GAIN-AND-RISK-SHARING PRICING Buyers may resist accepting a seller's proposal because of a high perceived level of risk. The telecommunications industry in general has been aggressive at adding fees for setup. Fees for consumers who pay bills online. Consider the following. or use automated teller machines bring banks an estimated $30 billion annually. Dell Computer has developed innovative pricing techniques. The seller has the option of offering to absorb part or all of the risk if it does not deliver the full promised value. change-of-service. Although these policies are often justifiable. The numbers can be staggering.rental companies charge $50 to $100 penalties for no-shows for specialty vehicles. They also make it harder for consumers to compare . bounce checks. Although some consumers abhor "nickeland-dime" pricing strategies. regulatory assessment. they may result in inflation being understated . STEALTH PRICE INCREASES With consumers stubbornly resisting higher prices. This explosion of fees has a number of implications. and cable hookup and equipment." AT&T could bring in as much as $475 million. number portability. Increasingly.

As a result of discounts. volume purchases. and differentiated pricing. service contracts. Breaking out charges and fees according to the services involved is seen as a way to keep the basic costs low. a company rarely realizes the same profit from each unit of a product that it sells. the downward price pressure is taking a big toll on suppliers such as Vlasic. they may not choose to bring the product to market. but rather a pricing structure that reflects variations in geographical demand and costs. and off-season buying. they don't always get a sympathetic ear from state and local governments who have been guilty of their own array of fees. Companies justify the extra fees as the only fair and viable way to cover expenses without losing customers. Price Discounts and Allowances Most companies will adjust their list price and give discounts and allowances for early payment. . Many argue that it makes sense to charge a premium for added services that cost more to provide. delivery frequency. Companies must do this carefully or find that their profits are much less than planned. purchase timing. allowances. Will the sales force be willing to sell at that price? How will competitors react? Will suppliers raise their prices when they see the company's price? Will the government intervene and prevent this price from being charged? While Wal-Mart's relentless drive to squeeze out costs and lower prices has benefited consumers. price discounts and allowances. and penalties to raise necessary revenue. Barter) In geographical pricing the company decides how to price its products to different customers in different locations and countries. rather than charge all customers the same amount regardless of whether or not they use the extra service. Ultimately. promotional pricing.competitive offerings. and other factors. How will distributors and dealers feel about it? If they do not make enough profit. IMPACT OF PRICE ON OTHER PARTIES Management must also consider the reactions of other parties to the contemplated price. Some airlines now charge passengers $50 for paper tickets and $25 for every bag over 50 pounds. fines. Geographical Pricing (Cash. guarantees. and promotional support. Companies also use fees as a means to weed out unprofitable customers or change their behavior. market-segment requirements. ADAPTING THE PRICE Companies usually do not set a single price. order levels. Countertrade. Here we will examine several price-adaptation strategies: geographical pricing. the viability of extra fees will be decided in the marketplace and by the willingness of consumers to vote with their wallets and pay the fees or vote with their feet and move on. Although various citizen groups have been formed to pressure companies to roll back some of these fees.

Manufacturers should stop to consider the implications of supplying products at a discount t retailers because they may end up losing long-run profits in an effort to meet short-run volume goals. Cash rebates. Consumers often worry less about the cost (i. Sellers. Rebates can help clear inventories without cutting the stated list price.Discount pricing has become the modus operandi of a surprising number of companies offering both products and services. Because the store brand is priced lower. however. Instead of cutting its price. Longer payment terms. Salespeople. Some companies in an overcapacity situation are tempted to give discounts or even begin to supply a retailer with a store brand version of their product at a deep discount. Sellers will establish special prices in certain seasons to draw in more customers. This pays if the revenue on the additional sales compensates for the lower margins on the loss-leader items. Some product categories tend to self-destruct by always being on sale. the company can offer customers low-interest financing. Low-interest financing. it may start making inroads on the manufacturer's brand. Manufacturers of loss-leader brands typically object because this practice can dilute the brand image and bring complaints from retailers who charge the list price. the market just sits back and waits for a deal. The discounts undermine the value perceptions of the offerings." and discounting becomes the norm. But word can get around fast that the company's list price is "soft. When automakers get rebate-happy.e. Every August. Supermarkets and department stores often drop the price on wellknown brands to stimulate additional store traffic. Companies can promote sales by adding a free or lowcost warranty or service contract. especially mortgage banks and auto companies. .. Promotional Pricing Companies can use several pricing techniques to stimulate early purchase: Loss-leader pricing. but these laws have been revoked. there are back-to-school sales. it achieved positive results. Manufacturers have tried to restrain intermediaries from loss-leader pricing through lobbying for retailprice-maintenance laws. the interest rate) of a loan and more about whether they can afford the monthly payment. stretch loans over longer periods and thus lower the monthly payments. are quick to give discounts in order to close a sale. Auto companies and other consumer-goods companies offer cash rebates to encourage purchase of the manufacturers' products within a specified time period. in particular. Warranties and service contracts. Automakers have even announced no-interest financing to attract customers. Special-event pricing. When Ford was able to buck that trend.

Evian prices a 48-ounce bottle of its mineral water at $2. A men's white button-down shirt may cost as little as $18.50 or as much as $48. Price discrimination occurs when a company sells a product or service at two or more prices that do not reflect a proportional difference in costs.04 an ounce in another. In third-degree price discrimination. a fast-food restaurant. A perfume manufacturer can put the perfume in one bottle." Illegitimate discount tactics are fought by the Federal Trade Commission and Better Business Bureaus. If they work. as in the following cases: Customer-segment pricing.00. products. Different customer groups are charged different prices for the same product or service. This strategy involves setting an artificially high price and then offering the product at substantial savings. now $299.7 ounces in a moisturizer spray for $6. In second-degree price discrimination. such as building up product quality and service or strengthening product image through advertising. "Was $359. locations. museums often charge a lower admission fee to students and senior citizens. It can put the same perfume in another bottle with a different name and image and price it at $30 an ounce. Discounts from normal prices are a legitimate form of promotional pricing. Evian manages to charge $3. the seller charges less to buyers who buy a larger volume. give it a name and image. and so on. and price it at $10 an ounce. Some companies price the same product at two different levels based on image differences. Promotional-pricing strategies are often a zero-sum game. Channel pricing. Product-form pricing. Different versions of the product are priced differently but not proportionately to their respective costs. It takes the same water and packages 1. and levels of quality. In first-degree price discrimination. For example. Image pricing. for example. Differentiated Pricing Companies often adjust their basic price to accommodate differences in customers. If they do not work.00. or a vending machine. Through product-form pricing. Lands' End creates men's shirts in many different styles. . they waste money that could have been put into other marketing tools. The same product is priced differently at different locations even though the cost of offering at each location is the same.00. Coca-Cola carries a different price depending on whether it is purchased in a fine restaurant. the seller charges a separate price to each customer depending on the intensity of his or her demand. competitors copy them and they lose their effectiveness. Location pricing.00 an ounce in one form and about $.Psychological discounting. A theater varies its seat prices according to audience preferences for different locations. weights. the seller charges different amounts to different classes of buyers.

the market must be segmentable and the segments must show different intensities of demand. Take Continental Airlines: It launches 2. The phenomenon of offering different pricing schedules to different consumers and dynamically adjusting prices is exploding. military. Initiating and Responding to Price Changes . Third. Consumers who live in a more free-spending zip code may see only the higher prices. price discrimination is legal if the seller can prove that its costs are different when selling different volumes or different qualities of the same product to different retailers. Most consumers are probably not even aware of the degree to which they are the targets of discriminatory pricing. members in the lower-price segment must not be able to resell the product to the higher-price segment. Fifth. and the lowest rates on unsold inventory just before it expires.000 prices a day! It's a system designed to punish procrastinators by charging them the highest possible prices. the cost of segmenting and policing the market must not exceed the extra revenue derived from price discrimination. Restaurants charge less to "early bird" customers. For price discrimination to work. catalog retailers like Victoria's Secret routinely send out catalogs that sell identical goods except at different prices. airlines collectively change 75. Prices are varied by season. the season. The airline and hospitality industries use yield management systems and yield pricing. Continental starts booking flights 330 days in advance. or status (youth. by which they offer discounted but limited early purchases. Customers so disliked the idea that Coke abandoned it. and lowering the price on cold days. At any given moment the market has more than 7 million prices. higher-priced late purchases.000 flights a day and each flight has between 10 and 20 prices. the practice must not breed customer resentment and ill will. and so on. competitors must not be able to undersell the firm in the higher-price segment. or hour. Even if legal. senior citizen).Time pricing. That's why on a flight from New York City to Miami you might have paid S200 and be sitting across from someone who has paid $1. Hotels charge less on weekends. Some forms of price discrimination (in which sellers offer different price terms to different people within the same trade group) are illegal. the time of day (morning or night coach).290. and every flying day is different from every other flying day. First. certain conditions must exist. the day of the week (workday or weekend). Second. Fourth. Predatory pricing²selling below cost with the intention of destroying competition²is unlawful. the person's company. depending on the seating class. past business. Office product superstore Staples also sends out office supply catalogs with different prices. the particular form of price discrimination must not be illegal . However. Public utilities vary energy rates to commercial users by time of day and weekend versus weekday. Airlines charge different fares to passengers on the same flight. some differentiated pricing may meet with a hostile reaction. Coca-Cola considered raising its vending machine soda prices on hot days using wireless technology. And in a system that tracks the difference in prices and the price of competitors' offerings. For instance. Sixth. day.

leaving a profit of $30. or 3 percent on sales. Escalator clauses are found in contracts for major industrial projects. product improvement. A low price buys market share but not market loyalty. a 1 percent price increase will increase profits by 33 percent if sales volume is unaffected. Either the company starts with lower costs than its competitors or it initiates price cuts in the hope of gaining market share and lower costs. in a practice called anticipatory pricing. It may resort to aggressive pricing. or other measures. An escalator clause bases price increases on some specified price index. Shallow-pockets trap. INITIATING PRICE CUTS Several circumstances might lead a firm to cut prices. The same customers will shift to any lower-priced firm that comes along. such as industrial construction and heavy equipment. This pricing is prevalent in industries with long production lead times. A price-cutting strategy involves possible traps: Low-quality trap. This situation is illustrated in Table 14. The higher-priced competitors may cut their prices and may have longer staying power because of deeper cash reserves. Escalator clauses. The company maintains its price but removes or prices separately one or . Consumers will assume that the quality is low. By raising its price by 10 cents (1 percent price increase). if the company's profit margin is 3 percent of sales. The assumption is that a company charged S10 and sold 100 units and had costs of $970. it boosted its profits by 33 percent. Initiating Price Increases : A successful price increase can raise profits considerably. One is excess plant capacity: The firm needs additional business and cannot generate it through increased sales effort. Companies sometimes initiate price cuts in a drive to dominate the market through lower costs. the company may trigger a price war.5. assuming the same sales volume. like aircraft construction and bridge building. The price can be increased in the following ways. Companies often raise their prices by more than the cost increase. or both. Another factor leading to price increases is over demand. in anticipation of further inflation or government price controls. The company requires the customer to pay today's price and all or part of any inflation increase that takes place before delivery. When a company cannot supply all of its customers. it can raise its prices. Unbundling. but in initiating a price cut. ration supplies to customers.Companies often face situations where they may need to cut or raise prices. A major circumstance provoking price increases is cost inflation. Rising costs unmatched by productivity gains squeeze profit margins and lead companies to regular rounds of price increases. For example. Delayed quotation pricing: The company does not set a final price until the product is finished or delivered. Each has a different impact on buyers. Fragile-market-share trap.

In passing price increases on to customers. The product is assumed to have more quality. A company needs to decide whether to raise its price sharply on a one-time basis or to raise it by small amounts several times. MARKETING STRATEGIES TO AVOID RAISING PRICES Given strong consumer resistance to price hikes.) Substituting less expensive materials or ingredients. The expenditure is small compared to the total cost of the end product.) Reducing or removing product features. Car companies sometimes add antilock brakes and passenger-side airbags as supplementary extras to their vehicles. Buyers cannot easily compare the quality of substitutes. The company instructs its sales force not to offer its normal cash and quantity discounts. Buyers cannot store the product. Reduction of discounts. Shrinking the amount of product instead of raising the price. Companies also need to think of who will bear the brunt of increased prices.more elements that were part of the former offer. Here are a few popular ones. Part of the cost is borne by another party. The product is used in conjunction with assets previously bought. such as free delivery or installation. (Sears engineered down a number of its . Generally. consumers prefer small price increases on a regular basis to sudden. Philip Morris's leading cigarette brand. sharp increases. (Hershey Foods maintained its candy bar price but trimmed its size. A vivid illustration of such reactions was the experience of Marlboro. the company must avoid looking like a price gouger. Factors Leading to Less Price Sensitivity: The product is more distinctive. Buyers are less aware of substitutes. Nestle maintained its size but raised the price. (Many candy bar companies substituted synthetic chocolate for real chocolate to fight price increases in cocoa. The expenditure is a smaller part of the buyer's total income. or exclusiveness. and they can turn against companies they perceive as price gougers. prestige. marketers go to great lengths to find alternative approaches that will allow them to avoid increasing prices when they otherwise would have done so. Customer memories are long.

may carry some positive meanings to customers: The item is "hot" and represents an unusually good value. The problem is complicated because the competitor can put . which would normally deter sales. Using less expensive packaging material or larger package sizes. Sharp price increases need to be explained in understandable terms.appliances so they could be priced competitively with those sold in discount stores. suppliers. CUSTOMER REACTIONS Customers often question the motivation behind price changes. A price increase. How can a firm anticipate a competitor's reactions? One way is to assume that the competitor reacts in a set way to price changes. the product is homogeneous. and curtailing production of low-margin products are some examples.) Several techniques help consumers avoid sticker shock and a hostile reaction when prices rise: One is that a sense of fairness must surround any price increase. (Jewel food stores introduced 170 generic items selling at 10 percent to 30 percent less than national brands. customer loyalty. REACTIONS TO PRICE CHANGES Any price change can provoke a response from customers. The other is to assume that the competitor treats each price change as a fresh challenge and reacts according to self-interest at the time. Reducing the number of sizes and models offered. recent sales. Now the company will need to research the competitor's current financial situation. such as installation or free delivery. 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. If it has a profit-maximization objective. Competitor reactions can be a special problem when they have a strong value proposition. and corporate objectives. COMPETITOR REACTIONS Competitors are most likely to react when the number of firms are few. distributors. Making low-visibility price moves first is also a good technique: Eliminating discounts. and buyers are highly informed. and customers must be given advance notice so they can do forward buying or shop around. If the competitor has a market share objective. it may react by increasing the advertising budget or improving product quality. "Marketing Memo: Marketing Strategies to Avoid Raising Prices" describes other means by which companies can respond to higher costs or over demand without raising prices. Creating new economy brands. competitors. and even government. increasing minimum order sizes. the firm is in financial trouble. and contracts or bids for long-term projects should contain escalator clauses based on such factors as increases in recognized national price indexes. the quality has been reduced.) Removing or reducing product services. the price will come down even further. it is likely to match the price change.

Maintain price and add value. believing that It would lose too much profit if it reduced its price. and AMD attacks Intel. Then the leader will have to roll back the increase. or that the company wants the whole industry to reduce prices to stimulate total demand. Schick attacks Gillette. Brand leaders also face lower-priced private-store brands. or to lead an industry-wide price change? Does the competitor plan to make the price change temporary or permanent? What will happen to the company's market share and profits if it does not respond? Are other companies going to respond? What are the competitors' and other firms' responses likely to be to each possible reaction? Market leaders frequently face aggressive price-cutting by smaller firms trying to build market share. a firm has more latitude. Reduce price. However. services. . and finds that regaining its market position is more difficult than expected. Using price. lowers price to regain share. If the competitor raises its price in a homogeneous product market. The firm may find it cheaper to maintain price and spend money to improve perceived quality than to cut price and operate at a lower margin. The brand leader can respond in several ways: Maintain price. In nonhomogeneous product markets. it will have to meet the price reduction. other firms might not match it unless the increase will benefit the industry as a whole. It needs to consider the following issues: Why did the competitor change the price? To steal the market. If it cannot find any. that the company is doing poorly and trying to boost its sales. and the leader loses more share than expected. to meet changing cost conditions. It might do so becauseIts costs fall with volume. the argument against price maintenance is that the attacker gets more confident. and communications. 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 leader's sales force gets demoralized. The leader panics. It would not lose much market share. The leader might drop its price to match the competitor's price. Fuji attacks Kodak. and It could regain market share when necessary. the firm should search for ways to enhance its augmented product. The leader might maintain its price and profit margin. to utilize excess capacity.different interpretations on a price cut: that the company is trying to steal the market. The leader could improve its product.

each of which is related to basic economic principles of changes in supply and demand: 1. When these four sectors concurrently want to purchase more output than the economy can produce. 2. increases because demand for it is high. usually occurs in an expanding economy. So if the cost of one item. and It would be hard to rebuild market share once it is lost. this is not considered inflation. Inflation occurs when most prices are rising by some degree across the whole economy. they compete to purchase limited amounts of goods and services. 4. categorized by the four sections of the macroeconomy: households. . Increase in the aggregate demand for goods and services. governments and foreign buyers. Demand pull and Cost pull Inflation Demand-Pull Inflation Demand-pull inflation occurs when there is an increase in aggregate demand. also referred to as too much money chasing too few goods .It would lose market share because the market is price sensitive. It might add lower-priced items to the line or create a separate. Increase in the money supply. Buyers in essence bid prices up . This excessive demand. businesses. Inflation Factors of Inflation Inflation is defined as the rate (%) at which the general price level of goods and services is rising. Increase price and improve quality. This is caused by four possible factors. Decrease in the aggregate supply of goods and services. Decrease in the demand for money. causing purchasing power to fall. 3. reflecting consumer choices or preferences and changing costs. say a particular model car. Individual prices rise and fall all the time in a market economy. The leader might raise its price and introduce new brands to bracket the attacking brand. Launch a low-price fighter line. causing inflation. This action will cut profits in the short run. This is different from a rise and fall in the price of a particular good or service. again. lower-priced brand.

we have cost-push inflation. People will spend less money on discretionary items which will hit he FMCG industry. land or entrepreneurship) when companies are already running at full production capacity. This year the food inflation is very high around 12%. but the growth rate has dipped to single digit since the last year. capital. With higher production costs and productivity maximized. laundry. This sector is facing the damage both from demand and cost side. both of which have increased sharply from the last year . The industry depends largely on metal and oil prices. and toilet soaps. High input costs . They say the fate of HUL is dependent on the monsoons. companies cannot maintain profit margins by producing the same amounts of goods and services. soaps. biscuits. shampoos. Inflation and FMCG Industry The last few years were a golden period for the FMCG industry. The economy was growing at a faster rate. The operating margins which are typically about 20 percent in the last few years have seen a drop to almost 16 percent. the input cost has gone up and the demand has fallen because of soaring fuel prices. imput prices were low. Cost-push inflation basically means that prices have been pushed up by increases in costs of any of the four factors of production (labor. As a result. A good monsoon will not give any inflation worries and also increases the consumption power creating demand for hair oil. With crude touching 140$/barrel mark inflation tossed above 12% and daunted the growth rates of the industry. causing a rise in the general price level (inflation). the increased costs are passed on to consumers. High food inflation has an adverse affect on the FMCG industry. When there is a decrease in the aggregate supply of goods and services stemming from an increase in the cost of production. The big reason behind cooling of sales is the Cost-Push Inflation of more than 12%. and inflation was low.Cost-Pull Inflation Aggregate supply is the total volume of goods and services produced by an economy at a given price level. INFLATION IN DIFFERENT INDUSTRIES Inflation and Automobile Industry The automobile industry achieved 15-18 per cent of growth during the last five years. and the raw material cost has increased upto 15 to 20 percent compared to last year.

The heavy rains in Kerala might have caused the cost of Copra to increase and it doesn¶t seem to be temporal. and the menthol used by Emami has gone up by 20 percent. This leads to some basic changes in the consumption patterns of greater consumption of personal care and above basic food requirements. The wheat used in ITC¶s biscuits is up 10-15 percent thi year.Shampoos showed a growth of 8. The packaging cost which is very important in the FMCG sector has shot up by around 10 percent this year. The government schemes which have been launched over the past few years had helped in increasing the disposable income. The cost of milk powder and sugar has gone up by 35 percent and 19 percent YOY and Nestle India is really struggling on its margins.High input costs are another worry for existing woes. . Toothpaste has a rural penetration of 40 percent as against 72 percent in the Urban areas. The underpenetrated categories such as toothpaste can be taken advantage of by companies like Colgate and HUL. Inflation is taking a toll on sales of mobile phones.5 percent.9 percent (Jan to May¶10) compared with an urban volume growth of 2. maintaining the margins this year is a tough task. 40. the Copra used by Marico cost 10 percent more. in turn the purchasing power of rural India. It is estimated that the big daddy Hindustan Unilever (HUL) gets almost 50 percent of their revenue from rural India . Schemes such as Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) which aim to put around Rs. Inflation in Electronics Industry The buzz around cell phones has suddenly gone missing. leaves a large population with higher disposable incomes. Not only have the launch of new products been postponed. Colgate started an initiative to educate people about the advantages of toothpaste and influence conversions from toothpowder and others. So. and this has sent both manufacturers and retailers into a tizzy.000 crores in the hands of the rural poor. Some of the FMCG players say that they will not increase the price of Low Unit Packs (LUPs) but may increase the prices of higher priced stock-keeping units (SKUs). They are expected to stay that way caused by the strong crude prices at $80 per barrel. The Urban Markets are saturated with more and more competitors and less margins for the companies. For example. Rural Market is the way Urban Markets are showing lower growth as compared to the rural hinterland. and Dabur gets almost 55 percent. The volume growth in such categories will be fast. the coconut and palm kernel oil used by Godrej Consumer has risen by 15-20 percent. retailers are not even in the mood to stock new products. and Marico gets 25 percent of their revenue from rural India. Retailers say that the demand for cell phones has dropped dramatically in the past one month.

the rise in prices of other products has negatively affected this category. as the current market scenario may actually lead to these models coming to India at lower price points due to a drop in the purchasing power of consumers. "We have a growth of about 15 per cent each month and it is down to 3 per cent for March. a majority of handset makers say that the rising inflation fears have so far failed to dent their product pricing for the India market. it is actually good news for users who are waiting for an iPhone or a Nokia Tube. On the other hand.000. According to a pan-India distributor for mobile phones. Says Motorola India marketing head Lloyd Mathias. the low-end cell phones are not affected as badly as their high-end counterparts because people who have to buy a new cell phone are lowering their budget and going for basic models. handset makers are saying that they are yet to see any drastic impact. . "However. Future Group CEO Kishore Biyani said. Many retailers have cut down on stocking high-end cell phones. But I think this is more due to the share market than anything else. especially cell phones. industry experts feel that inflation may actually lead to new models to come in at a lower price point." That perhaps explains why mobile companies have hit the panic button. the total sale of both high-end and low-end phones have been affected." says The MobileStore CEO and director Rajiv Agrawal. For handset makers.Retailers point out that though a substantial part of the total consumer spending consists of electronic products. "We see demand surging for the mid-tier models priced Rs 7. "The cell phone segment has seen a dip in demand. some of them desist from attributing the plummeting sales to inflation. the dip is around 20-25 per cent." said a senior executive with a mobile company. Meanwhile.000-10. According to our estimate. they feel that there could be tightening of purses from the middle income group if prices in the country continue to rise. However." While in the short-term.

3. Ban on Commodities Export Recently another major step taken by the government was ban commodities export so as to keep their prices down. Monetary Policy Today the primary tool for controlling inflation is monetary policy. and within a targeted low inflation range. These financial institutions offered loans at less interest rates so that customers do not shy away.MARKETING STRATEGY DURING INFLATION :Automobile Industry :The government and the industry have followed different policies to combat inflation. The customers of India are very much price sensitive any increase in the fuel prices directly or indirectly hit their pockets and the auto industry is very much . The auto sector of India saw good growth rates because of good credit facilities available at optimum interest rates but as the interest rate shot up there is decline in the demand. somewhere from about 2% to 6% per annum. Alternative Fuel Cars The auto industry recently came out with cars that can run on alternative fuels like CNG and LPG because of the rising fuel prices. High interest rates and slow growth of the money supply are the traditional ways through which central banks fight or prevent inflation. though they have different approaches. Industry Specific Policy was to support their own financial institutions and increase in the cash discounts to attract customers. Effect: The interest rates on auto loans increased to 15-16% from 12-13% and banks are hesitating to give the loans because of fear of delinquency and customers also avoided to take loan at increased interest rate.keeping this in eye the industry deferred their contracts and hedged the commodities so as to keep their cost low. 1. Most central banks are tasked with keeping inflation at a low level. For instance. Some of these policies have adversely affected the Industry where some have benefited the industry. Steel which is a major raw material used by the auto sector have gone up significantly . This is done by taking forward and future contracts on that commodity index. 2. normally to a target rate around 2% to 3% per annum. some follow a symmetrical inflation target while others only control inflation when it rises above a target. whether express or implied.

The industry came out with the alternative fuels because they are cheap and gives better mileage than the traditional fuels (petrol and diesel) so that running cost for price sensitive customers can be reduced.dependent on fuel prices. 5. 4. Better Technology Auto manufacturers are today using the improved engines in the car to increase the efficiency and make them more economical. New improved engines are providing better mileage and good driving experience. 6. Skoda who were primarily in operating in the luxurious segment also launched cars for economic segment also. players like General Motors. Deferred Expansion Plans As the cost of capital has gone up the industry has deferred it s plan for expansion in capacities for the time when it will come down. 7. Increased Exports . They are looking toward improving the efficiency of their installed capacities by more standardization of work. The market has seen the increased demands for small cars as they are more fuel efficient and requires less initial cost. More Variants Every big player of the industry came out with more number of variants to attract customers by providing base models at low prices.

10. Increase in Marketing The companies like Maruti and Hyundai are coming out with new models and are hoping that sales will pick up in the coming festive months. . Increase in Prices Although when demand is decreasing no player would like to increase the prices but due to sharp increase in input prices they are forced to pass it on to customers. Reducing Wage Bill It is not an easy step to reduce the wage bill but if inflationary pressure continues the companies have to resort to reducing wage bill by laying off the employees and decreasing the salaries. 8. They are focusing on better marketing to increase the sales despite of current inflationary pressure.As the demand is going down the players have decided to export the cars and sell less domestically. 9. Auto manufacturers have increased prices on some models. Currently many companies have decided to delay their recruitment plans to control their wage bill. Maruti Suzuki coming with A-star has decided to export the significant part of production to other countries so that they can increase their margins.

FMCG Indutries :1. Some companies have been able to maintain the prices. . They used to sell more of traditional packs of 200 gm. Parle Agro has not changed the price of Frooti in spite of upward pressure on prices. Even regional players like Royal Girnar and Soceity Tea have increased prices of their brands to compete with national players c) Britannia: Hiked the price of its popular brand Britannia NutriChoice Digestive from Rs 14 to 15. a) HUL: Hiked the price of its detergent bar Surf Excel (120 g) earlier known as Rin Supreme from Rs 13 to 15. They have also increased some of their toilet soap brands b) Tea Companies: Tata Tea and Duncans Tea have also hiked prices for select brands in their stables. It may be easy to increase the prices of premium products but in case of popular products. c) Gujarat Cooperative Milk Marketing Federation: Amul introduced 25 gm packs of butter few months back. with the 500 gm packs selling the most. They have reintroduced Pril liquid for Rs 50 (425 gm bottle). In the recent scenario. Same has happened to their milk powder. Increase in price: Due to increase in raw material prices. As an outcome. b) Procter & Gamble: P&G has reduced the pack size of its flagship detergent brand Tide from 1 kilo to 850 gm while maintaining the price point at Rs 62. down from Rs 55 (500 gm). A family of four requires only 400-425 gm of washing powder in a month. They have also also reduced the size of its 500 gm to 480 gm at the same price. We withdrew the 500 gm packs as they were making consumers spend more and consume more . a) Henkel: Introduced a new 400 gm pack of Henko washing powder at Rs 40 and withdrawn the 500 gm pack that used to sell for Rs 46. which is now registering higher sales than the traditional 100 gm and 500 gm packs. With that companies are sharpening their focus on the existing smaller packs and increase their availability. They recently brought out its popular Fa deodorant in 75 ml and Margo soap in 40 grams. companies are registering faster offtake in the mid-sized packs. 500 gm and 1 kg. many companies were forced to increase their prices and pass on the cost to the consumers. Introduction of lower SKUs: To prevent down trading. the companies have introduced packs with lower SKUs so that per unit purchase does not pinch the consumer s wallet. As quoted by Henkel. the preferred choice is between reducing grammage and maintaining the same price points or introducing another price point to suit consumer pockets. 2. 25 gm and 50 gm packs are selling in higher numbers.

a) Companies are busy in strengthening their distribution and logistics. c) Some companies have cut down their spends on advertisement 4) Mergers and Acquisitions: The turmoil in global markets seems to have a favorable impact on Indian FMCG majors acquisition. PepsiCo is aligning its beverages and snacks businesses under a common leadership. by bringing in more efficiency and innovation in the supply chain.3. agriculture and production. many companies are exploring ways to cut down cost. More Variants Every big player of the industry came out with more number of variants to attract customers by providing base models at low prices Better Technology Mobile manufacturers are today using the improved technology in mobiles to increase the efficiency and make them more economical. chairman & managing director.up :. Corperate Tie. This will help them to minimize the price hike. CavinKare Pvt Ltd said that the global melt down will have a favorable impact for Indian companies acquisition plans. it s an opportunity for them to acquire companies as they get good value for money. According to him. This will help them to maximize synergies of the two businesses across key functions such as procurement. The current financial crisis may offer more opportunities because of better valuation. Electronics Industry :Cost Cutting Strategies: While companies resorted to price hike.They start differentiating the market to get more corporate clients. there are others who are cautious to invest in M&A. Companies are closely monitoring their stock levels and loading patterns b) Soap companies have shifted to cheaper options of raw materials to source their products at a competitive price. many companies are exploring ways to cut down cost. which will lead to production efficiencies. 5) Restructuring to leverage synergies: With the power of one strategy. CK Ranganathan. While many big FMCG companies find this situation an ideal opportunity to go for acquisitions. . Cost Cutting Strategies: While companies resorted to price hike.

DATA COLLECTION Primary Data: Gathered information by asking different groups of people about their views on Inflation and the marketing & pricing strategy of different industries during rise in the prices. The sources from which secondary data was collected are : 1.To attrach more customer they start giving the special discount schemes. Newspapers and Magazines 3. Secondary Data: Secondary data is one which already exists and is collected from the published sources. Marketing Strategy Books . Internet 2.Special Schemes :.

and (4) discriminatory pricing. or economic recession. order levels. Strategy often depends on whether a firm is producing homogeneous or nonhomogeneous products. purchase timing. It selects a pricing method. .CONCLUSION : 1. a desire to dominate the market through lower costs. price remains a critical element of the marketing mix. but rather a pricing structure that reflects variations in geographical demand and costs. (3) promotional pricing. Companies must anticipate competitor price changes and prepare contingent response. declining market share. 3. In setting pricing policy. raise the perceived quality of their product. and offers. It selects the final price. Several price-adaptation strategies are available: (1) geographical pricing. 4. and for differentiated marketing offers. Companies must carefully manage customer perceptions in raising prices. A price increase might be brought about by cost inflation or overdemand. A price decrease might be brought about by excess plant capacity. 5. increase price and improve quality. and other factors. Despite the increased role of nonprice factors in modern marketing. It estimates the demand curve. It estimates how its costs vary at different levels of output. or launch a low-priced fighter line. 2. Market leaders attacked by lower-priced competitors can choose to maintain price. firms often face situations in which they need to change prices. It examines competitors' costs. A number of responses are possible in terms of maintaining or changing price or quality. market-segment requirements. the probable quantities it will sell at each possible price. reduce price. It selects its pricing objective. the others produce costs. at different levels of accumulated production experience. Companies do not usually set a single price. (2) price discounts and allowances. After developing pricing strategies. a company follows a six-step procedure. 6. prices. Price is the only element that produces revenue. The firm facing a competitor's price change must try to understand the competitor's intent and the likely duration of the change. www.Refrences Marketing Management by kotler &Keller Marketing Management Planning Implimentation and control www.

Master your semester with Scribd & The New York Times

Special offer for students: Only $4.99/month.

Master your semester with Scribd & The New York Times

Cancel anytime.