Pricing

Presented By:
Jatin Vaid
Price
 The amount of money charged for a product
or service, or the sum of the values that
customers exchange for the benefits of
having or using the product or service
 Only “P” to produce revenue
 Easy to adjust
 Communicates Co.’s value proposition
 Major determinant of buyer’s choice, sales &
profitability.
Customer’s Psychology and
Pricing
 Customers actively process price
information
 Interpret prices viz.:
i. Knowledge from prior purchase xp
ii. Formal communication (advertising, sales
calls, brochures)
iii. Informal communications (Friends,
colleagues)
• Lower and upper price thresholds.
i) Reference Prices
 Comparing an observed price to an interval
reference price, customers remember.

i. Situate products among expensive

competitors to signify, they belong to the
same class
ii. Classify apparels by prices
ii) Price – Quality Inference
 Consumers use price as an indicator of
quality.
 Effective with ego – sensitive customers. E.g.
expensive perfumes or cars.
 “Exclusivity” and “Scarcity” used as means to
signify uniqueness and justify premium
pricing. E.g., Special edition watches, pens,
cars, jewellery.
Price Cues
 Consumer’s perception of pricing is affected
by alternative pricing strategies, viz.,
i. Prices ending in odd nos. E.g. 2999 for
3000. prices processed from left to right.
ii. Prices ending with 0 or 5. Easier to process.
iii. Sale signs. (Not to be over used) E.g.
Koutons, Cantabil.
Setting the Price
I. Select the pricing objective
II. Determining the demand
III. Estimating the costs
IV. Analyzing competitor’s cost and price
V. Selecting a pricing method
VI. Selecting the final price.
STEP I. Select Pricing
Objective
 Survival – Covers some FC & VC; short run
 Maximizing current profits – Max ROI; long run perf
may be sacrificed; good est of Dd’
 Maximizing market share (Penetration) – Higher
sales vol; low unit cost; high profits
 Maximize market skimming – High initial price for a
new tech; communicates a superior product
 Product quality leadership – Affordable luxuries;
Enjoy premium pricing with a loyal customer base.
STEP II. Determining Demand
 Demand curve captures the relation between
price of a product and its quantity demanded.
 Determining price sensitivities
 Estimating demand curves – surveys, price
experiments, statistical analysis.
 Price Elasticity of Demand. – Higher
elasticity: greater volume growth in price
reductions
STEP III. Estimating Costs
 Types of costs and cost levels – FC, VC, AC,
MC
 Experience Curves – Decline in AC with AP
 Target costing – To reduce costs by a
concentrated efforts by organization. E.g.
Tata Nano.
STEP IV: Analyzing competitor’s
costs, prices and offers
 Consider competitor’s cost, price and offers.
 Possible price reactions
 Decide to charge more, same or less
 Analyze competitor’s overall pricing strategy
STEP V. : Selecting a Pricing
Method
 To set a price, there are 3 considerations,
Floor Price, Competitor Price and Ceiling
i. Mark – up Pricing
ii. Target – Return Pricing
iii. Perceived value pricing
iv. Value pricing
STEP VI: Selecting the final
price
 In selecting the final price, the Co. needs to
consider various factors like:
i. Impact of other marketing activities
( advertising, quality, etc.)
ii. Consistent with Co. pricing policies
iii. Impact on other parties ( Dealers, retailers,
stockholders and other interest groups)
Pricing Strategies
1. New Product Pricing Strategies:
i) Market Skimming Pricing
ii) Market Penetration Pricing

2. Price Adaptation Strategies:

i) Geographical Pricing
ii) Price discounts and Allowances
iii) Promotional Pricing
iv) Differentiated Pricing
1.1 Market Skimming
Strategies
 Setting a high price for a new product to skim
maximum revenues layer by layer from the
segments willing to pay the higher price.
 Product’s quality and image must support its
high price.
 Should not be able to attract competitors.
 E.g. Sony for HDTV in Japanese markets for
$43,000. In 2001, the set sells for $500.
1.2 Market Penetration
Strategy
 Setting a low price for a new product in order
to attract a large number of buyers and a
large market share.
 High sales volumes result in falling costs
 Market must be highly price sensitive
 Economies of scale
 Low price must help keep the competition out
 E.g. Dell selling high quality PC through
lower costs direct channels.
2.1 Geographical Pricing
 Different prices for customers in different
locations
 Higher prices for distant customers to cover
high costs or lower prices to win additional
business
 E.g. Automobile octroi rates.
2.2 Price Discounts and
Allowances.
 Co. adjust their list price and give discounts
on: Early payments; volume purchases; off
season purchases
 Co. also gains – longer contracts; electronic
orders; cost saving
2.3: Promotional Pricing
 Co. use various pricing techniques to stimulate
early purchases:
1. Loss-Leader Pricing: Super Markets drop the
prices of well known brands; volume sales to
compensate for margins
2. Special Event Pricing: Back to school sales
3. Cash rebates: Encourage purchase within a
specific period
4. Low interest financing
5. Warranties and service contracts
2.4: Differentiated Pricing
 Selling a product or service at two or more prices,
where difference in prices is not based on
difference in costs.
1. Customer Segment – Different CM pay different
price for same product. E.g. museum tickets
2. Product Form: Different versions, priced differently
3. Location Pricing – different prices for different
locations, though the cost is same. E.g. Theatre
seats, university seats
4. Time Pricing – Prices vary by season, month, day,
hour. E.g. Movie tickets, Resorts, Airline services.
Thank You!!