Using price as a tactical weapon

Cont…
• Price is used very largely as a tactical weapon, a
role to which, because of its flexibility, it is well
suited. There are several ways in which this
tactical role can be performed, including:
• ➡ Varying prices to reflect geographic
differences
• ➡ Offering discounts for early payment, off-
season buying, and to encourage high volume
purchases
 Cont…
• ➡ Trade-in allowances to boost sales when the economy
generally is sluggish
• ➡ Discriminatory pricing in order to capitalize upon the
ability or willingness of particular market segments to pay a
higher price
• ➡ Optional feature pricing, which allows the price of the
basic product such as a car to be kept low, but for
substantial profits then to be made by adding accessories
such as a sunroof
• ➡ hitting at competitors who appear particularly
vulnerable.
 Cont…
• Perhaps the most obvious and most important
tactical role that can be played by price stems from
the periodic need or opportunity to raise or lower
prices in order to gain or retain a competitive
advantage. Price cutting, for example, can be used to
put pressure on competitors and reverse a falling
market share. Equally, it can be used to solve the
problem of short-term excess capacity. Raising prices
can often be a means of overcoming the problems of
excess demand and generating an increase in profits.
 Cont…
• Faced with a price change that is initiated by a
competitor, the strategist has a number of
choices:
• ➡ Follow by increasing prices by the same
amount
• ➡ Keep prices the same in the hope that those
who have previously bought from the competitor
will be encouraged to shift supplier
• ➡ Cut prices to increase the price differential.
 Pricings methods /strategies

• There are different kind of pricing method that mostly used by all
organization these are:-
• Three general pricing strategies: customer value-based pricing,
cost based pricing, and competition-based pricing.
• New product pricing strategies : marketing penetration and
skimming pricing
• Product mix strategies: product line pricing, optional & captive
product pricing, by product pricing and product bundling pricing.
• Price adjustment strategies: Discount and allowance pricing,
Psychological pricing, Geographical pricing, Promotional pricing
and Dynamic pricing.
 
 Major pricing strategies

• Customer value-based pricing uses buyers’ perceptions of

value, not the seller’s cost, as the key to pricing. Value-based
pricing means that the marketer cannot design a product and
marketing program and then set the price. Price is considered
along with all other marketing mix variables before the
marketing program is set . Steps followed are:-
• Assess customer needs and value perceptions
• Set target price to match customer perceived value
• Determine costs that can be incurred
• Design product to deliver desired value at target price
 
 Cont…
• Cost-based pricing: Setting prices based on
the costs for producing, distributing, and
selling the product plus a fair rate of return for
effort and risk. Steps followed are:-
• Design good product
• Determine product costs
• Set price based on cost
• Convince buyers of product’s value
 Cont…
• Competition-based pricing: - involves setting
prices based on competitors’ strategies, costs,
prices, and market offerings. Consumers will
base their judgments of a product’s value on
the prices that competitors charge for similar
products.
 New – Product Pricing Strategies

• Pricing strategies usually change as the product passes

through its life cycle. Companies can choose between two
strategies:
• 1) Market-Skimming Pricing: Setting a high price for a new
product to skim maximum revenues layer by layer from
the segments willing to pay higher price; the company
makes fewer but more profitable sales. But it makes sense
only if: the product’s quality supports its high price, the
costs of producing a smaller volume is not so high that
they cancel the advantage of charging more and
competitors should not be able to enter the market easily.
 Cont…
• 2) Market-Penetration Pricing: Setting a low price
for a new product in order to attract a large number
of buyers and market share. So the companies set a
low initial price to penetrate the market. However
this strategy works only if: the market is highly price
sensitive so that lower prices produce market
growth, production and distribution costs decrease
as the sales increase, low price helps to keep out
the competition. Dell entered the market using
penetration pricing.
 Product Mix Pricing Strategies

• When the product is a part of product-mix, there are five kinds of

strategies involved:
• Product Line pricing in product line pricing, management must decide
on the price steps to set between various products in a line. This
should take into account the differences in products features,
customer evaluations, competitor’s prices etc.
• Optional-Product Pricing The pricing of optional or accessory products
along with the main product. For example, a car buyer may choose to
order a CD changer as an optional product.
• Captive-Product Pricing: Setting a price for products which must be
used along with the main product. For example, HP makes printers
and cartridges. It makes very low margins on its printer (the main
product) but very high margins on cartridges.
 Cont…
• By-Product Pricing: Setting a price for the by-products. Like in
processing meats, petroleum products, chemicals etc. Using
by-product pricing, the manufacturer will find a market for
the by-products and should accept any price that covers more
than the cost of storing and delivering them. For example, at
Alba, water is obtained as a by-product while manufacturing
aluminum. This water can now be sold to the market.
• Product Bundle Pricing: Combining several products and
offering the bundle at a reduced price. For example, fast food
restaurants bundle a burger, French fires and soft drink at a
combo
 Price adjustment strategies

• Companies usually adjust their basic prices to account for various customer
differences and changing situation, ways of adjustments are:-
• Discount and allowance pricing: - Reducing prices to reward customer
responses such as paying early or promoting the product
• Segmented pricing: Adjusting prices to allow for differences in customers,
products, or locations Psychological pricing: - Adjusting prices for
psychological effect
• Promotional pricing: - Temporarily reducing prices to increase short-run sales
• Geographical pricing: - Adjusting prices to account for the geographic
location of customer’s
• Dynamic pricing:- Adjusting prices continually to meet the characteristics and
needs of individual customers and situations
• International pricing:- Adjusting prices for international markets