UNIT 3 PRICE MIX

Komal Suryavanshi
 TOPICS TO BE COVERED

• Customer perception of value.

• Company and product cost.
• Internal and external considerations affecting price
decision.
• Pricing strategies – skimming, penetration, line pricing,
optional-product pricing, bundle pricing.
Title: Revving Up Success: An Automotive Odyssey - Pricing Strategies of Tata Motors in India
Introduction: Tata Motors, one of India's largest automobile manufacturers, has navigated through various
pricing strategies in a dynamic and competitive automotive market. This is the story of how Tata Motors
crafted its pricing strategy over the years in the Indian automobile sector.

Chapter 1: The Early Ambitions (1950s - 1980s) Tata Motors started its journey with the production of
commercial vehicles. In the early years, their pricing strategy was influenced by a relatively small market.
Tata vehicles were known for affordability, targeting commercial and utility purposes. The strategy was to
offer reliable vehicles at competitive prices, catering primarily to the needs of businesses and public
transport.

Chapter 2: The Indica Revolution (1990s - 2000s) The turning point came in the late 1990s with the
launch of Tata Indica, India's first indigenously designed passenger car. Tata Motors adopted a disruptive
pricing strategy, positioning the Indica as an affordable family car. This strategic pricing helped Tata Motors
gain a significant share in the passenger car market, especially among budget-conscious consumers.

Chapter 3: The Nano Experiment (2008) In 2008, Tata Motors introduced the Nano, famously marketed
as the "world's cheapest car." With a highly aggressive pricing strategy, the Nano aimed to make car
ownership accessible to the masses. However, despite initial enthusiasm, the Nano faced challenges related
to safety concerns and perceptions, leading to a reevaluation of the pricing strategy.
Chapter 4: Moving Upmarket (2010s - Present) Learning from the Nano experience, Tata Motors shifted
its focus to the premium and mid-segment markets. They introduced models like the Tata Tiago, Tata Tigor,
and Tata Harrier, which were positioned as feature-rich and competitively priced alternatives to established
players. This shift towards offering more value for money helped Tata Motors gain traction in a new
demographic.

Chapter 5: Electric Dreams (2020s) As environmental concerns and government regulations regarding
emissions grew, Tata Motors ventured into electric vehicles (EVs). Their pricing strategy for EVs focused on
competitive pricing to encourage electric mobility adoption. Models like the Tata Nexon EV became popular
due to their affordability in comparison to international EV brands.

Chapter 6: The Future Roadmap Tata Motors' pricing strategy continues to evolve. They aim to maintain a
competitive edge by focusing on quality, innovation, and pricing that appeals to a wide range of consumers.
As they embrace electric and connected mobility, Tata Motors is poised to shape the pricing landscape of the
Indian automobile sector.

Conclusion: Tata Motors' pricing journey in the Indian automobile sector reflects its adaptability and
strategic thinking. From affordability in the early years to disruptive pricing with the Indica and learning
experiences with the Nano, Tata Motors has continuously evolved its pricing strategy. As they venture into
premium segments and embrace electric mobility, Tata Motors demonstrates their commitment to meeting
the diverse needs and preferences of Indian consumers while remaining competitive in the ever-changing
automotive market.
 WHAT IS A PRICE?

• The amount of money charged for a product or service, or

the sum of values that customers exchange for the
benefits of having or using the product or service is Price
• Cost is a fact and Price is a policy
• Price is revenue generating element of marketing mix,
other elements are cost
• Pricing is also the most flexible element of marketing mix
 FACTORS CONSIDERED WHEN
SETTING PRICE

Setting the right price is one of the marketer’s most difficult tasks. A host of factors come into play. But finding and
implementing the right pricing strategy is critical to success
 FACTORS CONSIDERED WHEN SETTING
PRICE

• Customer’s perception of product’s value sets the ceiling price. If the customers
perceive that the price is greater then the product’s value, they will not buy the
product.

• Product costs set the floor for prices. If the company prices the product below its
costs, company profits will suffer.

• In setting its price between these two extremes, the company must consider a
number of other internal and external factors including its overall marketing strategy
and mix, the nature of the market and demand, and competitors’ strategies and
prices
1. CUSTOMER’S PERCEPTION OF
VALUE
 1. CUSTOMER’S PERCEPTION OF
VALUE

1. Value-Based Pricing uses buyer’s perception of value, not the seller’s cost, as the key to
pricing.
2. Cost – Based Pricing is product driven
 Customer’s
perception of
value

Value-Based Cost-Based
Pricing Pricing

Good-Value Value-Added Variable

Fixed Cost
Pricing Pricing Cost

Everyday
High Low
Low Pricing
Pricing
(EDLP)
 VALUE-BASED PRICING

• It means that the marketer cannot design a product and marketing

program and then set the price.
• Price is considered along with the other marketing variables before the
marketing program is set
• The company first assesses customer needs and value perceptions. It then sets its
target price based on the customer perceptions of value
• Targeted value and price then drive decisions about what costs can be incurred and
resulting product design
• So, pricing begins with analysing consumer needs and value perceptions, price is
set to match consumers’ perceived value
• Example- Some car buyers consider the luxurious Bentley Continental GT
automobile a real value, even at an eye-popping price of $175,000.
 VALUE-BASED PRICING

• Value-Based Pricing Types - Good-value Pricing and Value- Added

Pricing
• Good-Value Pricing- Offering the right combination of quality and good service to
fair price
• Existing Brands are being redesigned to offer more quality for a given price or the
same quality for less price
• Example of Good-value pricing- MacDonald offers “value menus”; Armani
offering less-expensive, more-casual Armani Exchange fashion line, TATA Motors
had launched TATA NANO under price – Rs. 1,00,000
• Every-Day Low pricing (EDLP) involves charging a constant, everyday low price
with few or no temporary price discounts. Example- Wal-Mart, D-Mart
• High-low pricing involves charging higher prices on an everyday basis but running
 VALUE-BASED PRICING

• Value-Added Pricing –
• Attaching value-added features and
services to differentiate a company’s
offers and charging

• Challenge for the company in such situations

is to build the company’s pricing power- its
power to escape price competition and to
justify higher prices and margin.
 COST-BASED PRICING

• Setting the prices based on the costs for producing, distributing and
selling the product plus a fair rate of return for effort and risk
• Company’s cost is an important element of pricing strategy
• Example- Indigo Airlines, Dell, etc work to become “low-cost
producers” in their industries
• Companies with lower costs can set lower prices that result in smaller
margins but greater sales and profits.
 2 COMPANY AND PRODUCT COSTS

• Cost-Based pricing-
• Fixed Costs/Overhead Costs- Costs that do • Total Cost- Sum of Fixed cost and Variable
not vary with production or sales level. costs for any given level of production.
• Example – Company must pay each month’s
bills for -rent, heat, interest, and executive The company must watch its cost carefully. If it
salaries whatever the company’s output is. costs the company more than competitors to
produce and sell its product, the company will
need to charge a higher price or make less
• Variable costs- Cost vary directly with the profit. Putting it at a competitive disadvantage
level of production
• Example- The PC produced by HP may vary in
cost price with the change in price for
computer chips, wires, plastic, packaging and
other inputs.
BREAK-EVEN ANALYSIS AND TARGET
PROFIT PRICING
 OTHER INTERNAL AND EXTERNAL CONSIDERATIONS
AFFECTING PRICE DECISIONS

Factors affecting Internal Factors Company’s Management

price decisions
Marketing Mix Strategy

Different Characteristics

Costs

External Factors Demand in the Market

Competitors
Company’s Suppliers
The Economy of the Country
Customers
Local Government
 INTERNAL FACTORS

Company’s Management-
Different Characteristics-
When it comes to setting the price of the product, then it Characteristics of the product are the key to the price decision
involves two parties; the marketing team and production staff. However, of the company because different characteristics of the product
the marketing team comprises of company’s management, top in terms of shape, color, size, packaging, etc. attract the
executives, and marketing staff. They consider how the product would attention of the customers. Customers are willing to pay more if
play out in the market. One the other hand, the production team they like and value the characteristics of the product. It could be
considers the production costs and product strategies. Usually, the final a new style, feature, or anything out of the ordinary.
price considers both the views of the product and marketing teams.
Costs-
The cost of the product is the most important factor among all
Marketing Mix Strategy- because it provides the basis to set the price. Of course, the
management has to consider the product’s demand and the
The marketing mix includes product, price, promotion, and
prices of the competitors as well. Finally, the management also
place. Price is often seen as the most influential factor within this mix
considers the customers’ ability to pay the price, because it
because even a slight price change can impact product promotion and
would be useless to avoid customers in the price decision.
distribution. Some companies lower prices to attract price-sensitive
consumers, while others raise prices. However, the success of these price
strategies hinges on their alignment with the company's overall
marketing objectives. When raising prices, companies should consider
adding more features and launching a new marketing campaign.
 EXTERNAL FACTORS

• Demand in the Market-

• The demand for the company’s product in the market also plays a huge role because it tells us about the competitors, size of the market,
and customers’ preferences and their ability to pay the price.
• Sometimes, a company charges different prices to customers in different markets. The purpose is to check the results that how the
market is behaving at different pricing strategies. If the demand for the company’s certain product is higher, then the price would be
higher. If the demand is lower, then the company would lower its prices than competitors to compete in the market.
• Competitors-
• Market competition is a very significant factor and it affects the price strategy. A firm may set high or low prices depending upon the
competitor’s prices and product quality. If the company’s products are better than competitors, then the price would be higher.
Otherwise, the business would set lower prices.

• Company’s Supplier’s-
• Suppliers provide the raw material to the company from which the business manufactures the final product. If the suppliers raise the
prices, then the company has no choice but to increase the prices and pass it on to the customers.
• If a company is making more profit on a certain product. When the suppliers see it, they would raise the prices of the raw material
because they want to have a portion of the profit as well. However, it also depends on the abundance and scarcity of the product’s
raw material.
 EXTERNAL FACTORS

• Customers-
• We have been talking about the customers’ ability to pay. It’s very important to consider the nature and behavior
of the target market. Some customers are price conscious and the others are quality conscious. Therefore, you should
know the nature of your target market.
• Local Government-
• Sometimes the government controls the prices of certain products by introducing some laws. The purpose is to
control inflation so that the prices shouldn’t go higher at a certain point. Therefore, the company has to consider the local
laws of the government as well.
• The Economy of the country-
• If the economy of the country is prosperous where people are employed and earning high salaries, then raising
prices wouldn’t be a problem. In such an environment, customers are willing to pay more. However, when the
economy of a country is in a recession, where people have limited sources of income. Businesses and companies
have to set low prices to meet the customers’ ability to pay.
TITAN- CASE STUDY
 NEW PRODUCT PRICING STRATEGIES
Market Skimming Pricing-
• Price skimming is a product pricing strategy by which a
firm charges the highest initial price that customers will pay
and then lowers it over time.
• As the demand of the first customers is satisfied and
competition enters the market, the firm lowers the price to
attract another, more price-sensitive segment of the
population.
• This approach contrasts with the penetration pricing model,
which focuses on releasing a lower-priced product to grab
as much market share as possible.
• Electronic products – take the Apple iPhone, for example –
often utilize a price skimming strategy during the initial
launch period. Then, after competitors launch rival
products, i.e., the Samsung Galaxy, the price of the product
drops so that the product retains a competitive advantage.
Market Penetration Pricing-
• Penetration pricing is a strategy used by businesses to attract
customers to a new product or service by offering a lower
price initially.
• The lower price helps a new product or service penetrate the
market and attract customers away from competitors.
• Elastic goods are the best types of goods for penetration
pricing as small changes in price often lead to large changes in
demand.
• Penetration pricing comes with the risk that new customers
may choose the brand initially, but once prices increase,
switch to a competitor.
• Companies often entice customers with unprofitable strategies
(i.e. offering a new cell phone) in exchange for a long-term
agreement (i.e. a multi-year service plan).
• Penetration pricing examples include an online news website
offering one month free for a subscription-based service or a
bank offering a free checking account for six months.
 PRODUCT MIX PRICING STRATEGIES

• Product Line Pricing

• Optional-Product Pricing
• Captive Product Pricing
• By-Product Pricing
• Product Bundle Pricing
• Product Line Pricing
Product line pricing is used when the prices within
the product line is kept variant so that the customer
purchases one or the other product within the
product line. If Philips has a line of Mixer grinders,
then it will have one in the lower range, one in the
medium range and one in the higher range, so that
it can satisfy each type of customer.
• Optional-Product Pricing
Organisation charges extra for an added feature that it
provides and the prices are kept on the basis of the
feature which is being provided. Hotels and resorts
will charge more for Scenery facing views. Similarly
in core products, products like the Hyundai I20 come
in 3 variants – Asta, Magna and Sportz, each of them
cheaper then the previous one based on the features
they provide (Asta being the costliest). As the features
increase, so thus the pricing.
• Captive Product Pricing
• Captive product pricing is a pricing strategy used by
companies to sell a primary product at a lower price and a
complementary or related product at a higher price. The
idea behind this strategy is to attract customers to the
primary product (often called the "captive" or "core"
product) by offering it at a competitive or even below-
market price, while making up for the lower margins on the
core product by charging more for the complementary
product (sometimes called the "captive" or "accessory"
product). This can be an effective way to increase overall
revenue and profitability.
• It is a smart manoeuvre by the likes of Hewlett Packard and
Gillette which are dominating their respective markets.
These companies have introduced the main product at very
low cost (Printers and Razors) and they are selling the
supporting products or the ancillary products at a good
margin. Printers do not work without cartridge refill and
Razors do not work without blades. So if the margin is high
for Cartridge and Blades, these brands can well afford to
give the main products at cost price also. However, a
minimum margin is kept for the base product and higher
margin is kept for ancillary product. It is an interesting form
of Product mix pricing.
• By-Product Pricing
By product pricing can simple be explained with
the example of Crude oil. Companies like British
Petroleum and Shell deal in a lot of Crude Oil and
these companies also provide the finished goods
like oil and petrol. So the pricing of the raw
material as well as its by product is kept different.
Generally, it is kept on the basis of cost of
production of the by product. A similar pricing is
observed in coconut oil production where the
remaining coconut is rich in fibre and can be used
as fertiliser. Sugarcane is used to make Sugar but
after making sugar, the cane is sold off to building
material manufacturers and sold off as Wood
material.
• Product Bundle Pricing
• Product bundle pricing is a strategy in which
multiple products or services are offered together
as a package at a discounted price compared to
purchasing each item individually.
• This strategy is used to incentivize customers to
buy more and can create a sense of value for the
customer.
• Common bundle pricing examples are cable TV
and mobile plans and fast food restaurant value
meal combos.
 REFERENCE

• “Principles of Marketing” - By Philip Kotler, Gary

Armstrong, Prafull Y. Agnihotri, Ehsan ul Haque