PRICE

A changing pricing
environment
 Get instant price comparisons from
thousands of vendors
 Name the price and have it met
 Get products free
 Monitor customer behavior and tailor offers
to individuals
 Give certain customers access to special
price
 Negotiate prices in online auctions &
exchanges
How companies price

 Consumer Psychology and pricing

 Reference prices
 Price-Quality Inferences
Common Pricing Mistakes
 Determine costs and take traditional industry
margins
 Failure to revise price to capitalize on market
changes
 Setting price independently of the rest of the
marketing mix
 Failure to vary price by product item, market
segment, distribution channels, and purchase
occasion
PRICING POLICY

1) Selecting the pricing objective

2) Determining demand
3) Estimating costs
4) Analyzing competitors costs, prices &
offers
5) Selecting a pricing method
6) Selecting the final price
Price Cues

 “Left to right” pricing ($299 vs. $300)

 Odd number discount perceptions
 Even number value perceptions
 Ending prices with 0 or 5
 “Sale” written next to price
Steps in Setting Price
Select the price objective

Determine demand

Estimate costs

Analyze competitor price mix

Select pricing method

Select final price

PRICING POLICY

1. Selecting the pricing objective

• Survival, Current profit, Market Share,
Product -Quality leadership

Market skimming pricing strategy

Market penetration pricing strategy
PRICING POLICY
1. Determining demand
• Price sensitivity
• Estimating demand curve
• Price elasticity of demand
Figure 14.2 Inelastic
and Elastic Demand
Step 3: Estimating Costs
Types of Costs
Accumulated
Production
Activity-Based
Cost Accounting
Target Costing
Cost Terms and
Production
 Fixed costs
 Variable costs
 Total costs
 Average cost
 Cost at different
levels of
production
Figure 14.4 Cost per Unit as a
Function of Accumulated
Production
Tata motors developed
‘Nano’its small car with a
target price
 PRICING POLICY (cont.)
5. Selecting a pricing method
* Mark up pricing
* Target return pricing
* Perceived value pricing
* Value pricing
* Going rate pricing
* Sealed bid pricing
Cont. …
 PRICING POLICY (cont.)
6. Selecting the final price
* Psychological pricing
* Influence of mktg. Mix elements
* Company pricing policies
* Impact of price on other parties
ADAPTING THE PRICE

 Geographical
 Price discount and allowance
 Promotional
 Discriminatory
 Product mix
Geographical

 Barter
 Compensation
 Buyback
 offset
Price Discount &
Allowance
 Cash discount
 Quantity discount
 Functional discount
 Seasonal discount
 Allowance
Promotional Pricing

 Loss-leader
 Special event
 Cash rebates
 Low-interest financing
 Longer payment terms
 Warranties and service contracts
 Psychological discounting
 DISCRIMINATORY
PRICING
 Customer segment pricing
 Product form pricing
 Image pricing
 Location pricing
 Time pricing
PRODUCT MIX PRICING

– Product line pricing

– Optional feature pricing
– Captive product pricing
– Two part pricing
– By product pricing
– Product bundling pricing
Initiating & responding to
Price changes
 Initiating
 Reaction
 Responding
 INITIATING PRICE
CHANGES
 INTIATING PRICE CUTS
– Common Errors
Low quality

Fragile market share

Shallow pocket

cont…
 INITIATING PRICE
CHANGES

 INITIATING PRICE INCREASES

Ways-
– Delayed quotation pricing
– Escalator clauses
– Unbundling
– Reduction of discounts
REACTIONS TO PRICE
CHANGES

 CUSTOMERS’ REACTIONS

 COMPETITORS’ REACTIONS
Responding To Competitors’ Price
Changes
 Maintain price
 Maintain price & add value
 Reduce price
 Increase price & improve quality
 Launch a low-price fighter line