Principles of Marketing

Presented to Mr. Gauhar Pirzada

By Group # 1
Name Roll no.

Iqra Nawaz 20

Sania Nouman 29

Zubair Habib 08

Asif Ali 11
 Topics to be discussed

Chapter # 10 Chapter # 11

Understanding and Capturing Customer Pricing Strategies – Additional Considerations

Value

 Pricing Strategies  New Product Pricing Strategies

 Cost as a function of Production  Product Mix Pricing Strategies

 Internal and External Considerations  Price Adjustment Strategies

Affecting Price Decisions

 Analyzing the Price – Demand Relationship

 What Is Price ?

 Price is the amount of money charged for a product or a service.

 More broadly, it is the sum of all the values that a customer give up
to gain the benefits of goods and services. Price is the only element
in marketing mix that produces Revenue.

What is Price ?
 Factors To Consider For Setting Prices

Customer Value-Based Pricing

Value-based pricing uses the buyers’ perceptions of value, not the sellers cost, as
the key to pricing. Price is considered before the marketing program is set.
 Value-based pricing is customer driven

 Good Value Pricing

 Value Added Pricing

Customer Based Value Pricing

 Good Value Pricing
Is the first customer value-based pricing strategy. It refers to offering the right
combination of quality and good service at a fair price – fair in terms of the relation
between price and delivered customer value.

E.g.

 McDonalds

 J.

Good Value Pricing

 Value Added Pricing
Value-added pricing attaches value-added features and services to
differentiate offers, support higher prices, and build pricing power.

Orient AC with Wi-Fi

Mobilink

Value Added Pricing

 Cost Based Pricing
Cost-based pricing involves setting prices based on the costs for producing,
distributing, and selling the product plus a fair rate of return for its effort and
risk.
 Fixed Costs are the costs that do not vary with production or sales level
Rent
Executive salaries
 Variable Costs are the costs that vary with the level of production
 Packaging
 Raw materials
 Total Costs are the sum of the fixed and variable costs for any given level
of production

Cost Based Pricing

 Cost as a function of Production
 Cost Plus Pricing
Cost-plus pricing is a pricing strategy in which the selling price is
determined by adding a specific amount markup to a product's unit cost.

Cost as a function of Production

 Break Even Pricing
Break even pricing is the practice of setting a price point at which a business will
earn zero profits on a sale. The intention is to use low prices as a tool to gain
market share and drive competitors from the marketplace.

Cost as a function of Production

Internal and External Considerations Affecting Price Decisions
Target Costing

Target costing is an approach to determine a product’s life-cycle cost which

should be sufficient to develop specified functionality and quality, while ensuring
its desired profit. It involves setting a target cost by subtracting a desired profit
margin from a competitive market price.

Target Costing
 Analyzing the Price – Demand Relationship
Price elasticity of demand illustrates the response of demand to a change in price
 Inelastic demand
occurs when demand hardly changes when there is a small change in
price
 Elastic demand
occurs when demand changes greatly for a small change in price

Price elasticity of demand

 New Product Pricing Strategies

Market – Skimming Pricing

 New products set high initial prices to skim revenues layer by layer
from the market is called Market Skimming
E.g.
Perfume
Market – Penetration Pricing
 Setting a low price for a new product in order to attract a large
number of buyers and a large market share
E.g.
Selitex Online

New Product Pricing Strategies

 Product Mix Pricing Strategies

Product Line Pricing

 Setting the price steps between various products in a product line based
on cost differences between the products, customer evaluations of
different features, and competitors’ prices.
E.g.
Service Shoe
Optional – Product Pricing
 The pricing of optional or accessory products along with a main
products.
E.g.
Mobile Phones

Product Mix Pricing Strategies

By – Product Pricing
 Setting a price for by-products to help offset the costs of disposing of them
and help make the main product’s price more competitive.
E.g.
Molasses is byproduct of refining sugar
Feathers are byproduct of poultry process
Captive – Product Pricing
 Setting a price for products that must be used along with a main product.
E.g.
Gillette Razor & blades
Product Bundle Pricing
 Combining several products and offering the bundle at a reduced price.
E.g.
Cable TV Channels Plan
McDonald’s value Meals

Product Mix Pricing Strategies

 Price Adjustment Strategies
Companies must adjust their basic prices to account for differences in customers and situations.

Price Adjustment Strategies

Discount
 A straight reduction in price on purchases during a stated period of time of
larger quantities.
E.g.
Specific Product Discount
Specific Category Discount
Bulk Discount
Allowance
 Promotional money paid by manufacturers to retailers in return for an
agreement to feature the manufacturer’s products in some way.
E.g.
In-store displays
Psychological Pricing
 Pricing that considers the psychology of prices and not simply the economics;
the price is used to say something about the product.

Reference Prices
 Prices that buyers carry in their minds and refer to when they look at a given
product.

Promotional Pricing
 Temporarily pricing products below the list price, and sometimes even below
cost, to increase short-run sales.

Price Adjustment Strategies

Segmented Pricing
 Selling a product or service at two or more prices, where the difference in
price is not based on differences in costs.

Geographical Pricing
 Setting prices for customers located in different parts of the country or world.

Price Adjustment Strategies

Dynamic Pricing
 Adjusting prices continually to meet the characteristics and
needs of individual customers and situations.
THANK YOU