Principles of

Marketing

Lecture-27
Summary
of
Lecture-26
Price - Quality
Strategies
 Price
Higher Lower

Higher Premium Good-Value

Good-Value
Strategy Strategy
Quality

Strategy

Overcharging
Overcharging Economy
Economy
Lower Strategy
Strategy Strategy
Strategy
Price-Adjustment
Strategies
 Discount and Allowance
Pricing
 Segmented Pricing
 Psychological Pricing
 Promotional Pricing
 Geographical Pricing
 International Pricing
Today’s Topics
Initiating and Responding
to Price Changes
Competitor
Reactions Initiating
To Price Price Cuts
Changes

Price
Changes
Buyer
Reactions Initiating
to Price Price
Changes Increases
Price Changes
Initiating Price Cuts is Desirable When a
Firm:
–Has excess capacity
–Faces falling market share due to price
competition
–Desires to be a market share leader
Price Increases are Desirable:
–If a firm can increase profit, faces cost
inflation, or faces greater demand than can be
supplied.
Alternatives to Increasing Price
–Reducing product size, using less expensive
materials, unbundling the product.
Buyer reactions to price
changes must be considered.
Competitors are more likely to
react to price changes under
certain conditions.
–Product is uniform
–Buyers are well informed
Responding to price
changes
 Has
Has Competitor
Competitor Cut
Cut No Hold
Hold Current
Current Price;
Price;
Price?
Price? Continue
Continue to
to Monitor
Monitor
Competitor’s
Competitor’s Price.
Price.

Will
WillLower
Lower Price
Price
Negatively
Negatively Affect
Affect Our
Our
No
Market
MarketShare
Share&&Profits?
Profits?
Reduce
Reduce Price
Price
Raise
Raise Perceived
Perceived
No Quality
Quality
Can/
Can/ Should
Should Effective
Effective
Action
Action be
be Taken?
Taken? Improve
Improve Quality
Quality
&
& Increase
Increase Price
Price
Yes
Launch
LaunchLow-Price
Low-Price
“Fighting
“FightingBrand”
Brand”
Respond To Price
Changes Only If…
–Market share / profits
will be negatively
affected if nothing is
changed.
Four strategies
Reduce price
Raise perceived quality
Improve quality and increase price
Launch a low price fighting brand
End of Price part…..
Review 2nd P (Price)
What is Price?
 Price Has Many Names
Rent Tuition  Bribe
 Salary
Fee Fare
 Wage
Rate Toll
 Interest
CommissionPremium 
Tax
Definition
Price
–The amount of money charged for a
product or service, or the sum of
the values that consumers
exchange for the benefits of having
or using the product or service.
 Factors
Affecting Price
Decisions
 Internal
Internal Factors
Factors

Positioning Pricing
Pricing Target
Objectives Market
Decisions
Decisions

External
External Factors
Factors
Internal Factors
Affecting Pricing
Decisions
 Marketing
Objectives

Marketing-Mix
Strategy

Costs

Organizational
Considerations
External factors
affecting Pricing
decisions
 Market and
Demand
Competitors’ Costs,
Prices, and Offers

Other External Factors

Economic Conditions
Reseller Needs
Government Actions
Social Concerns
Price Elasticity of
Demand
How quantity
demanded responds to
price changes
 A. Inelastic Demand -
Demand Hardly Changes With
a Small Change in Price.
Price
P2

P1

Q 2 Q1
Quantity Demanded per Period

B. Elastic Demand -
Demand Changes Greatly With
a Small Change in Price.
Price

P’2

P’1

Q2 Q1
Quantity Demanded per Period
General Pricing
Approaches
Cost-based Pricing

Value-based Pricing

Competition-based Pricing
 Break-even…for
Determining Target
Return Price and Break-
even Volume
 Total revenue
1200
1200 Target profit
Rupees (in thousands)

1000 Total cost

Break-even point
800

600
400
Fixed cost
200

0
10 20 30 40 50
Sales volume in units (thousands)
New Product Pricing
Strategies
• Market Skimming
• Market Penetration
Product Mix Pricing
Strategies
 Product
Product Line
Line Pricing
Pricing

Optional-Product
Optional-Product Pricing
Pricing
Product
Product
Mix
Mix Captive-Product
Captive-Product Pricing
Pricing
Pricing
Pricing
Strategies
Strategies

By-Product
By-Product Pricing
Pricing

Product-Bundle
Product-Bundle Pricing
Pricing
Price - Quality
Strategies
 Price
Higher Lower

Higher Premium Good-Value

Good-Value
Strategy Strategy
Quality

Strategy

Overcharging
Overcharging Economy
Economy
Lower Strategy
Strategy Strategy
Strategy
Price-Adjustment
Strategies
 Discount and Allowance
Pricing
 Segmented Pricing
 Psychological Pricing
 Promotional Pricing
 Geographical Pricing
 International Pricing
Competitor
Reactions Initiating
To Price Price Cuts
Changes

Price
Changes
Buyer
Reactions Initiating
to Price Price
Changes Increases
Responding to price
changes
 Has
Has Competitor
Competitor Cut
Cut No Hold
Hold Current
Current Price;
Price;
Price?
Price? Continue
Continue to
to Monitor
Monitor
Competitor’s
Competitor’s Price.
Price.

Will
WillLower
Lower Price
Price
Negatively
Negatively Affect
Affect Our
Our
No
Market
MarketShare
Share&&Profits?
Profits?
Reduce
Reduce Price
Price
Raise
Raise Perceived
Perceived
No Quality
Quality
Can/
Can/ Should
Should Effective
Effective
Action
Action be
be Taken?
Taken? Improve
Improve Quality
Quality
&
& Increase
Increase Price
Price
Yes
Launch
LaunchLow-Price
Low-Price
“Fighting
“FightingBrand”
Brand”
Enough for
Pricing. . .
Summary
Next….
Principles of
Marketing

Lecture-27