Pricing Considerations

and Approaches

Dr. Devkant Kala

University of Petroleum & Energy Studies
Dehradun

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Major Influences on Pricing Decisions

Customers influence prices through

their effect on demand.

Competitors influence prices through

their actions.

Costs influence prices because they

affect supply.

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 Price: Definition

▪ The amount of money needed to have the ownership of

the product or service.

▪ The sum of the values that consumers exchange for

the benefits of having or using the product or service.

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 Price: Definition
A seller usually is pricing a combination of:

▪ The specific good or service that is the main object of the

transaction;

▪ Several supplementary services such as warranty; and

▪ In a real sense, the need/want satisfying benefits the product

provides.
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 Price Has Many Names

• Rent • Tuition • Salary

• Fee • Fare • Wage
• Rate • Toll • Interest
• Commission • Premium • Tax

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 Price: Relevance

• Price and the Marketing Mix:

▪ Only element to produce revenues.
▪ Most flexible element.
▪ Can be changed quickly.

• Common Pricing Mistakes

▪ Reducing prices too quickly to get sales.
▪ Pricing based on costs, not customer value.
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 Factors to Consider When Setting Price

Internal Factors • Market Positioning

influences pricing strategy
• Marketing objectives
• Marketing mix • Other pricing objectives:
strategies ▪ Survival
• Costs ▪ Profit maximization
• Organizational ▪ Market share leadership
considerations ▪ Product quality leadership

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 Factors to Consider When Setting Price

Internal Factors
• Pricing must be carefully
coordinated with the other
• Marketing objectives marketing mix elements.
• Marketing mix
strategies • Nature of Product.
• Costs
• Organizational • Intensity of Distribution &
considerations Promotion.

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 Factors to Consider When Setting Price

Internal Factors • Types of costs:

▪ Variable
• Marketing objectives ▪ Fixed
• Marketing mix ▪ Total costs
strategies
• Costs
• Costs at different production
• Organizational
levels will influence price
considerations
setting.
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 Factors to Consider When Setting Price

Internal Factors • Who sets the price?

▪ Small companies: CEO or top
• Marketing management
objectives ▪ Large companies: Divisional or
• Marketing mix product line managers
strategies
• Price negotiation is common in
• Costs industrial settings where
• Organizational pricing departments may be
considerations created.
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 Factors to Consider When Setting Price

• Types of markets
External Factors
▪ Perfect competition
• Nature of market ▪ Monopolistic competition
and demand ▪ Oligopoly
• Competitors’ costs, ▪ Monopoly
prices, and offers • Consumer perceptions of
• Other environmental price and value.
elements • Price-demand relationship
▪ Demand curve
▪ Price elasticity of demand
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 Factors to Consider When Setting Price

• Consider competitors’ costs, prices,

External Factors and possible reactions
• Pricing strategy influences the
• Nature of market
nature of competition
and demand
▪ Low-price low-margin strategies inhibit
• Competitors’ costs, competition
prices, and offers ▪ High-price high-margin strategies
attract competition
• Other environmental
elements • Benchmarking costs against the
competition is recommended

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 Factors to Consider When Setting Price

External Factors • Economic conditions

prevalent in the country.
• Nature of market
and demand • Government may restrict
• Competitors’ costs, or limit pricing options.
prices, and offers
• Other environmental • Social considerations may
elements be considered.

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 Pricing Methods

Cost-based Competitor-based Consumer-based

Pricing Pricing Pricing

Cost Plus Pricing Going Rate Pricing Perceived Value Pricing

Break Even Pricing Price above Competitor Perceived Value

Pricing
Marginal Cost Pricing Price below Competitor

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 New-Product Pricing Strategies

Market Skimming Pricing

A strategy with high initial prices to “skim” revenue layers from the
market.

Market Penetration Pricing

A low initial price in order to penetrate the market quickly and

deeply to attract a large number of buyers quickly to gain market
share.
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 Product Mix Pricing Strategies

• Product Line pricing

• Optional Product pricing

• Two-Part Pricing

• Product bundle pricing

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 Segmentation Pricing Strategies

• Customer segment pricing

• Product form Pricing

• Location Pricing

• Time Pricing

• Channel Pricing

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 Promotional Pricing Strategies

• Loss leaders pricing

• Special event pricing

• Cash rebates

• Discounts (Cash or Quantity)

• Low-interest financing

• Longer warranties / Free maintenance

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 Psychological Pricing

• Psychological pricing occurs when sellers consider the

psychology of prices and not simply the economics.

• Reference prices are prices that buyers carry in their minds

and refer to when looking at a given product
• Noting current prices

• Remembering past prices

• Assessing the buying situations

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 Dynamic Pricing

Dynamic pricing is when prices are adjusted continually

to meet the characteristics and needs of the individual
customer and situations.

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 Response to Price Change

• Reduce price to match competition.

• Maintain price but raise the perceived value through

communications.

• Improve quality and increase price.

• Launch a lower-price “fighting brand”.

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Thank You.

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