Price – 4Ps

• Narrow Sense: Price is the amount of money charged for a product or

service

• Broad Sense: Sum of all the values customers give up to gain the
benefits of having/using a product or service.
• Price is the only element that produces revenue.
• Is the most flexible of all the marketing elements.
• Pricing decisions are often the most difficult.
• Pricing creates and captures customer value.
Pricing Objectives
• Long Run Profits
• Short Run Profits
• Increase Sales Volume
• Company Growth
• Match Competitors Price
• Create Interest & Excitement about the Product
• Discourage Competitors From cutting Price
• Social, Ethical & Ideological Objectives
• Discourage New Entrants
• Survival
Major Pricing Strategies
• The price the company charges will fall somewhere between one that
is too low to produce a profit and one that is too high to produce any
demand.
• The company must consider several external and internal factors,
including competitors’ strategies and prices, the overall marketing
strategy and mix, and the nature of the market and demand.
• Customer – Reference prices, Price–quality inference, Pricing cues
• Company – Survival, maximum current profit, maximum market
share, quality leadership
• Competitor pricing
• Demand – high vs. low, price elasticity of demand
• Nature of market – perfect competition, oligopoly, etc.
• Other factors – inflation, depression, govt. rules and policy
Value Based Pricing : adding more features and services to make the offer
more valuable and attractive to the customer and then charging higher.

• Good Value Pricing: Right combination of quality and service at a fair

price
• Offering less but at very low prices
• No frill services
• Combo pricing - more for same prices
• Every Day Low Pricing (EDLP) - same for less prices
• Cost Based Pricing : Price is set after accounting for all costs relating
to production, distribution, etc.
• Fixed cost
• Variable cost
• Contribution
• Profit
• Learning or Experience curve
Costs per unit at different levels of
production
Cost plus pricing or Mark-up pricing
Break-Even Analysis/Pricing
 Target profit/return pricing
• Target profit/return pricing =

• Let’s say HappySocks investors have stated that they want a target return of 10%
on their $1 million investment. If it costs Happy Socks $2 to manufacture each
sock, and they hope to sell 50,000 within their timeframe, that means that the
price should be high enough to ensure that they make 10% of 1 million by the
end of the time frame which is 100,000.

• If they find they’re not able to sell all 50,000 units, then Happy Socks can increase
their prices to account for the new targets they need to hit.
Competition based pricing

• Involves setting prices based on competitors’ strategies, costs, prices, and market
offerings.

In assessing competitors’ pricing strategies, the company should ask several

questions:
• How does the company’s market offering compare with competitors’ offerings in
terms of customer value?
• Next, how strong are current competitors and what are their current pricing
strategies?
• What principle should guide decisions about what price to charge relative to
those of competitors?
Golden Rule

• No matter what price you charge – high, low or in-between

make sure that you give customers superior value for that
price.
Other Internal and External Considerations
Affecting Price Decisions
• Internal factors affecting pricing include the company’s overall
marketing strategy, objectives, and marketing mix, as well as other
organizational considerations.
• External factors include the nature of the market and demand and
other environmental factors.
Overall Marketing Strategy, Objectives, and Mix

• Price is only one element of the company’s broader marketing

strategy. So, before setting price, the company must decide on its
overall marketing strategy for the product or service.
• It comes from offering the combination of products, prices, and store
operations that produces the greatest customer value—what
customers get for the prices they pay.
• Pricing strategy is largely determined by decisions on market
positioning.
Overall Marketing Strategy, Objectives, and
Mix
Pricing may play an important role in helping to accomplish company objectives at
many levels.
• A firm can set prices so as to attract new customers or profitably retain existing
ones.
• It can set prices to prevent competition from entering the market or set prices at
competitors’ levels to stabilize the market.
• It can price to keep the loyalty and support of resellers or avoid government
intervention.
• Prices can be reduced temporarily to create excitement for a brand. Or one
product may be priced to help the sales of other products from the company.
Overall Marketing Strategy, Objectives, and
Mix
• Price decisions must be coordinated with product design, distribution, and
promotion decisions to form a consistent and effective integrated marketing mix
program.
• Companies often position their products on price and then tailor other marketing
mix decisions to the prices they want to charge.
• Price is the crucial product-positioning factor that defines the product’s market,
competition and design - target costing
• Target Costing – pricing that starts with an ideal selling price based on customer-
value considerations, then target costs that will ensure that the price is met.
Pricing in Different Types of Markets

• Pure competition: market consists of many buyers and sellers trading in a

uniform commodity, such as wheat, copper, or financial securities. No
single buyer or seller has much effect on the going market price.
• Monopolistic competition: market consists of many buyers and sellers who
trade over a range of prices rather than a single market price. A range of
prices are possible because sellers can differentiate their offers to buyers.
• Oligopoly: each seller is alert and responsive to competitors’ pricing
strategies and marketing moves
• Monopoly: market is dominated by one seller – govt., private regulated,
private unregulated
Price Elasticity of Demand
• If demand hardly changes with a small change in price, we say the
demand is inelastic. If demand changes greatly, we say the demand is
elastic.
• The price elasticity of demand is given by the following formula:
Nature of Demand
Economic Condition

• Economic factors such as a boom or recession, inflation, and interest

rates affect pricing decisions because they affect consumer spending,
consumer perceptions of the product’s price and value, and the
company’s costs of producing and selling a product.

• Obvious Response - cut prices and offer discounts (undesirable long-term

consequences)
• Shift their marketing focus to more affordable items in their product mixes
• Others- hold prices and redefine the value propositions.
External factors

• Resellers
• Government
• Social concerns