Course Name: Marketing Management - II

Instructor: Dr. Akanksha Batra

Email: abatra@imt.edu
Pricing in a Digital World
• Buyers can:
• Get instant price comparisons from thousands of vendors
• Check prices at the point of purchase
• Name their price and have it met
• Get products free
• Sharing economy
• Sellers can:
• Monitor customer behavior and tailor offers to individuals
• Give certain customers access to special prices
• Negotiate prices in online auctions and exchanges or even in person

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Setting the Price

Selecting Selecting a Selecting

Determining Estimating Analyzing
the Pricing Pricing the Final
Demand Costs Competitors
Objective Method Price

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Selecting the Pricing Objective
• Survival
• Maximum Current Profit
• Maximum Market Share
• Maximum Market Skimming
• Product-Quality Leadership

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Determining Demand
• Consumers have different price sensitivities
• Consumers are less price sensitive when
• there are few or no substitutes or competitors
• they do not readily notice the higher price
• they are slow to change their buying habits
• they think the higher prices are justified
• price is only a small part of the total cost of obtaining, operating, and
servicing the product over its lifetime

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Determining Demand
• Estimating Demand Curves
• Surveys: Ask how many units consumers would buy at different proposed
prices
• Price experiments: Can vary the prices of different products in a store or of
the same product in similar territories to see how the change affects sales
• Statistical analysis: Analyze past prices, quantities sold, and other factors.
Longitudinal or cross-sectional analysis can be performed

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Determining Demand
• Price elasticity of demand

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Estimating Costs
• Fixed costs (FC)
• Variable costs (VC)
• Total cost (TC) = FC +VC
• Average cost = TC/Quantity

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Estimating Costs
• Accumulated Production
• AC declines as the Company
gains experience

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Estimating Costs
• Target Costing
• Market research establishes a new product’s desired functions and
the price at which it will sell, given its appeal and competitors’ prices.
This price less desired profit margin leaves the target cost the
marketer must achieve

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Analyzing Competitors
• Compare value offered and prices. Value goes up, so does the price
• Can fight value-priced competitors by introducing value-priced
products
• Competitor’s reaction

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Selecting a Pricing Method
Markup pricing
• Example:
• FC = 3,00,000
• VC = 10
• Q = 50,000
• Unit cost = 16 (how?)
• 20% markup on sales
• Price = ?
• Cannot ignore value offered, competitor’s price
• Actual sales might vary
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Selecting a Pricing Method
Target return pricing
• Example:
• Investment = 10,00,000
• Q = 50,000
• Unit cost = 16
• 20% return on investment
• Price = ?
• Actual sales might vary

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Selecting a Pricing Method
• Break-even analysis

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Selecting a Pricing Method
Perceived-Value Pricing
• Calculate the value of every value that is being provided to the
customer
• Problems
• Need to ascertain consumer’s perceived value
• Convincing the consumer

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Selecting a Pricing Method
Value Pricing
• Fairly low-price for a high-quality offering
• Reengineering the company’s operations to become a low-cost
producer without sacrificing quality to attract a large number of
value-conscious customers
• Wins loyal customers

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Selecting a Pricing Method
Everyday low pricing (EDLP)
• Charges a constant low price with little or no price promotion or
special sales
• Consistent
Going-Rate Pricing
• Follow the leader

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Selecting a Pricing Method
Auction-Type Pricing
• English auctions (ascending bids)
• Dutch auctions (descending bids)
• Sealed-bid auctions

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Selecting the Final Price
• Impact of Other Marketing Activities
• Company Pricing Policies
• Gain-and-Risk-Sharing Pricing
• Impact of Price on Other Parties

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Adapting the Price
• Geographical Pricing
Different locations, different prices
• Price Discounts and Allowances
Give discounts for early payment, volume purchases, and off-season
buying

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Adapting the Price
• Promotional Pricing
• Loss-leader pricing
• Special event pricing
• Special customer pricing
• Cash rebates
• Low-interest financing
• Longer payment terms
• Warranties and service contracts
• Psychological discounting

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Adapting the Price
• Differentiated Pricing
• Customer-segment pricing
• Product-form pricing
• Image pricing
• Channel pricing
• Location pricing
• Time pricing

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Price changes
• Initiating Price Cuts
• Excess plant capacity
• Dominate the market through lower costs
• Price cuts may lead to
• Low-quality trap
• Fragile-market-share trap
• Shallow-pockets trap
• Price-war trap

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Price changes
• Initiating Price hikes
• Excess demand
• Inflation
• Anticipation
• Can increase prices by
• Delayed quotation pricing
• Escalator clauses
• Unbundling
• Reduction of discounts

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Price changes
• Anticipating Competitive Responses
• The company will need to research the competitor's current financial
situation, recent sales, customer loyalty, and corporate objectives

• Responding to Competitors’ Price Changes

• Homogenous market on non-homogenous market
• Comparison of value provided
• Why? Temporary or permanent? What if we maintain status quo? Industry
response?

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Consumer Psychology and Pricing
• Reference Prices
• Customers often employ reference prices, comparing an observed price to an
internal reference price they remember or an external frame of reference
such as a posted regular retail price
• When consumers evoke one or more of these frames of reference, their
perceived price can vary from the stated price

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Consumer Psychology and Pricing
• Price-Quality Inferences
• Many consumers use price as an indicator of quality
• Some brands adopt exclusivity and scarcity to signify uniqueness and justify
premium pricing
• Type of products? Customer knowledge?

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Consumer Psychology and Pricing
• Price Endings
• Customers tend to process prices “left to right”
• Price ending with “9”
• Prices that end with 0 and 5 are also popular and are thought to be easier for
consumers to process and retrieve from memory

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