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Marketing Management

Pricing
Strategy

LOGO Minal Agarwal R. No. 3


Aditya Desai – R. No 18
Shaun Fernandes R. No. 23
Nidhi Gopalani R. No. 27
Prem Joshi R. No. 29
Dharmesh Kharwar R. No. 35
Veenit Kunder R. No. 38
Vidhi Mehta R. No. 44

JBIMS MMM-I
Contents

Introduction

Steps in Pricing
Selecting pricing objective
Determining Demand
Estimating Costs
Analyzing competitors costs, prices and offers
Selecting a pricing method
Selecting the final price

Adapting the price

Inititating and responding to price changes


Introduction

Pricing
Strategy

Price Pricing
A
It is the strategically
monetary correct value
value of a attached to a
product product/servic
e
correspondin
g to what it
delivers
Price Quality Segments

PRICE

Price Quality High Medium Low


Segments
PRODUCT QUALITY

High 1. Premium 2. High 3. Super


Strategy Value Value
Strategy Strategy

Medium 4. 5. Medium 6. Good


Overcharging Value Value
Strategy Strategy Strategy

Low 7. Rip off 8. False 9. Economy


Strategy economy Strategy
Strategy
Price Quality Segments

PRICE

Price Quality High Medium Low


Segments
PRODUCT QUALITY

High 1. Premium 2. High 3. Super


Strategy Value Value
Strategy Strategy

Medium 4. 5. Medium 6. Good


Overcharging Value Value
Strategy Strategy Strategy

Low 7. Rip off 8. False 9. Economy


Strategy economy Strategy
Strategy
Price Quality Segments

PRICE

Price Quality High Medium Low


Segments
PRODUCT QUALITY

High 1. Premium 2. High 3. Super


Strategy Value Value
Strategy Strategy

Medium 4. 5. Medium 6. Good


Overcharging Value Value
Strategy Strategy Strategy

Low 7. Rip off 8. False 9. Economy


Strategy economy Strategy
Strategy
Price Quality Segments

PRICE

Price Quality High Medium Low


Segments
PRODUCT QUALITY

High 1. Premium 2. High 3. Super


Strategy Value Value
Strategy Strategy

Medium 4. 5. Medium 6. Good


Overcharging Value Value
Strategy Strategy Strategy

Low 7. Rip off 8. False 9. Economy


Strategy economy Strategy
Strategy
Price Quality Segments

High Missed Opportunity


PRICE PAID

Medium Price = Value

Low Unharvested Value

Low Medium High

VALUE RECIVED
Step 1

Pricing Objectives
Pricing Objectives

Profit Maximization

Market Share Maximization

Maximize Quantity
Selecting
Quality Leadership Pricing
Objectives
Partial Cost Recovery

Survival

Status Quo
Step 2

Determining Demand
Price elasticity of demand

Inelastic Demanded Elastic Demanded

Price in Rs.
Price in Rs.

10 10

5 5

95 100 50 100

Quantity Demanded Quantity Demanded


Step 3

Estimating Cost
Estimating Cost

Types of Costs

Fixed Average

Variabl Total
e

Company Logo
Cost Per Unit at Different Levels of
Production
Accumulated Production

Experience curve (Learning curve)


Target Costing

 Starts with ‘The Right’ selling price

 Reversal of the usual process

 Selling price – desired profit = Target Cost

 Evaluation of all costs

 Profit achieved through cost cutting


Step 4

Analyzing
Competitors’ Costs,
Prices, and Offers
Analyzing Competitors’ Costs, Prices, and Offers

 Identify price of nearest competitors

 Compare the features and prices of competitors

 Make decision to charge more, same or less


than competitors

 Monitor competitors’ reactions


Step 5

Selecting a Pricing
Method
Selecting a Pricing Method

Markup Pricing

Target-Return Pricing
Pricing
Perceived-Value Pricing method
s
Value Pricing

Going Rate Pricing

Sealed-Bid Pricing
Markup Pricing

Elementary method - add standard


markup to product cost

Most popular pricing


method
e.g. Resellers / Retailers
Target Return Pricing

Determine the price that would


yield its target rate of Return on
Investment (ROI)
Break-even Volume

e.g. MHADA
Target-Return Pricing

Break-even volume = fixed cost / (price –


variable cost)

Break-Even Chart for Determining Target-


Return Price and Break-Even Volume
Perceived-Value Pricing

Buyers perception of value – not


seller’s cost
Use of Marketing Elements – Advtg
& Sales
e.g. Luxury Brands
Value Pricing

Low price for a high-quality


offering
Everyday low pricing
(EDLP)
High-low pricing

e.g. Supermarkets
Going Rate Pricing

Based on Competitor’s
Pricing
Follow the Leader
e.g. Bottled water, Soft Drink,
Toothpaste etc.
Sealed Bid Pricing

Pricing based on expectations how


competitor’s will price rather than
on costs or demand
e.g. Bids for
Government Project
Step 6

Selecting the Final


Price
Selecting the Final Price

PSYCHOLOGICAL
PRICING

IMPACT OF PRICE
ON OTHER
E B GAIN & RISK
PARTIES Selecting SHARING
the Final PRICING
Price

INFLUENCE OF
COMPANY
D C OTHER MARKETING
PRICING POLICY MIX ELEMENTS
Adapting the Price
Geographical Pricing

Counter-trade

Barter Geographi
cal
Compensation Pricing
Deal
Buyback arrangement

Offset
Geographical Pricing

Offset
Offset

Buyback arrangement

Compensation Deal

Barter

Counter-trade
Price Discounts and
Allowances

1. 5.

2. 4.

Cash Allowance
3.
Discount
Quantity Seasonal
Discount Discount

Functio
nal
Discoun
Promotional Pricing

Loss-leader pricing

Special-event pricing

Cash
rebates Promotion
Low-interest financing al Pricing
Longer payment terms

Warranties and service


contracts
Psychological discounting
Discriminatory
Pricing

irst-degree price discrimination


Second-degree price discriminatio
Third-degree price discrimination
As in the following cases:

Customer-
segment Time
pricing pricing

Product-
form pricing Location
Image Channel pricing
pricing pricing
Discriminatory Pricing
(continued…)
F

Segmentable &
different intensities of
demand
No resell of product

Competitors - not undersell firm

Cost of segmenting and


policing

Not breed customer resentment

Not be illegal
Product-mix Pricing
(six situations involving product-mix
pricing)

Product-Line
Pricing Captive-
Product
Optional-Feature Pricing
Pricing
Product +
Ancillary /
Main product + Captive,
Optional products
products,
Features,
Services
Product-mix Pricing
(continued…)

Two-Part
Pricing Product-
Bundling Pricing
By-Product
Pricing
Fixed fee +
Variable
usage fee Pure
bundling &
Mixed
bundling
Initiating and
Responding to Price
Changes
Initiating Price Cuts

A
Excess plant capacity

B
Declining market share

C
Aggressive Pricing

Economic recession D

Drive to dominate the market through E


lower costs

Circumstances leading to Price cuts


Initiating Price Cuts

Traps due to price cutting


1 2 3
Fragile- Shallow-
Low quality
market-share pockets trap:
trap:
trap: Initial Higher priced
Consumers will
gains to competitors
assume quality
market share cut price and
is low
but no loyalty stay longer
Initiating Price Increases

Delayed Quotation Pricing

Cost inflation & A C Escalator


Anticipatory Clauses
Pricing
Over-
demand

Reduction of E D Unbundling
Discounts
Initiating Price Changes

Possible responses to higher costs or overhead without


raising prices include:
 Shrinking the amount of product instead of raising the price
 Substituting less expensive materials or ingredients
 Reducing or removing product features
 Removing or reducing product services, such as installation or free
delivery
 Using less expensive packaging material or larger package sizes
 Reducing the number of sizes and models offered
 Creating new economy brands
Reactions to price changes


Customer
s’
Reactions Competito
r’s
Reactions
Responding to competitors’ price
changes

If competitors lower price for


homogenous products

If it
doesn’t
Try
work or if
augmentin
it is not
g the
likely to
product
work, then
meet the
price cut
head-on
Responding to Competitors’ Price
Changes

If competitors raise price


In a Homogeneous
Market, follow if In a non-Homogeneous Market
whole market is
likely to follow
Evaluate

Is
Why a change Effect Response(s
temporar on Mkt ) from
change?
y/ Share / competitor
Permanen Profit s
t ?
When a Market Leader is Being Attacked on
Price

Manage
Price
A

Launch a
low-price
E B Maintain
price and
fighter Options add value
line
Available

Increase
price &
D C Reduce Price
improve
quality
Price-Reaction Program for meeting a
competitor’s price cut
LOGO

Ref. Marketing by Kotler