IISWBM

PGDSCLM Paper 201

Module I – Marketing in SC&LM

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 Pricing Strategy of the Seller

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 ❑ Economics of Cost, Revenue and Profit Maximisation aspects

❑ Business / Environment aspects

▪ External factors – Consumer demand, Competitive pricing,
Overall market and Economic trends
▪ Internal factors – Revenue goals, Marketing Objectives, Target
Audience, Brand Positioning, Product Attributes

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Cost – Total, Average, Marginal

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Output Total Cost Average Cost Marginal Cost
0 12 0 0
1 18 18 6

2 22 11 4
3 27 9 5
4 36 9 9
6 47 7.8 11

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Revenue – Total, Average, Marginal

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Profit Maximisation: MR, MC Approach

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Monopolistic Markets

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Equilibrium Point

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In Imperfect Competition

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 Understanding Seller’s Pricing Strategy
Understanding a Seller’s Pricing Strategy assists in developing an
effective buying process
Various factors –
❑ Price elasticity of demand
❑ Activity-based costing – activities are identified and cost is
assigned to each activity to all products and services

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 Sellers Pricing Strategy

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 Pricing Strategies

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 Pricing Strategies (contd.)
1. Rule-of-thumb (myopic) pricing
❑ Leader - Follower concept: allowing competitors to set the price
❑ Traditional formula: direct material and labour cost +20%

2. Buy-in (foot-in-the-door) pricing

❑ To recover variable costs and perhaps some fixed costs. This
strategy is to beat competition, in depressed and sluggish
market

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 Pricing Variables – External
❑ Seller’s market characteristics –
1. Perfect competition
2. Monopolistic competition
3. Oligopoly
4. Monopoly

❑ Seller’s market behavioural –

1. Competitive loyalty (long term relationship)
2. Market newness (uniqueness or new innovative USP)
3. Market segmentation (segregating markets into clusters)
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 Pricing Variables – External (contd.)
❑ Nature of Product -
1. Product Lifecycle
2. Technological innovation
3. Scarcity of the product

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 Buyer’s Control Variables

❑ Competition
❑ Consumers – price sensitivity of the buyer than purchasing
power
❑ Government control
❑ Economic conditions
❑ Channel intermediaries

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 Pricing Variables – Internal

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 Pricing Variables – Internal
The overall objective of the company, for example:

i. Profit generation
ii. Increasing market share
iii. Increase/ decrease of customer’s volume
iv. Maintaining a stable price
v. Company’s brand image

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 Challenges for the Buyer
Proper understanding of a Seller’s pricing strategy assists a Buyer
in obtaining a fair and reasonable price

Buyers may place themselves in the “Seller’s Shoes” and attempt

to evaluate relative significance of both external and internal
variables

What pricing approach is most likely to fulfil the objectives and

means of the Seller, given the economic structure and the extent
of competition found in its industry
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