Marketing Management
Pricing Strategy
LOGO
Minal Agarwal R. No. 3 Aditya Desai R. No 18 Shaun Fernandes R. No. 23 Nidhi Gopalani R. No. 27 Prem Joshi R. No. 29 Dharmesh Kharwar R. No. 35 Veenit Kunder R. No. 38 Vidhi Mehta R. No. 44 JBIMS MMM-I
Contents
Introduction
Steps in Pricing Selecting pricing objective Determining Demand Estimating Costs Analyzing competitors costs, prices and offers Selecting a pricing method Selecting the final price
Adapting the price Inititating and responding to price changes
Introduction
Pricing Strategy
Price
It is the monetary value of a product
Pricing
A strategically correct value attached to a product/service corresponding to what it delivers
Price Quality Segments
PRICE
PRODUCT QUALITY
Price Quality Segments
High
1. Premium Strategy
Medium
2. High Value Strategy 5. Medium Value Strategy 8. False economy Strategy
Low
3. Super Value Strategy 6. Good Value Strategy
High
Medium
4. Overcharging Strategy
Low
7. Rip off Strategy
9. Economy Strategy
Price Quality Segments
PRICE
PRODUCT QUALITY
Price Quality Segments
High
1. Premium Strategy
Medium
2. High Value Strategy 5. Medium Value Strategy 8. False economy Strategy
Low
3. Super Value Strategy 6. Good Value Strategy
High
Medium
4. Overcharging Strategy
Low
7. Rip off Strategy
9. Economy Strategy
Price Quality Segments
PRICE
PRODUCT QUALITY
Price Quality Segments
High
1. Premium Strategy
Medium
2. High Value Strategy 5. Medium Value Strategy 8. False economy Strategy
Low
3. Super Value Strategy 6. Good Value Strategy
High
Medium
4. Overcharging Strategy
Low
7. Rip off Strategy
9. Economy Strategy
Price Quality Segments
PRICE
PRODUCT QUALITY
Price Quality Segments
High
1. Premium Strategy
Medium
2. High Value Strategy 5. Medium Value Strategy 8. False economy Strategy
Low
3. Super Value Strategy 6. Good Value Strategy
High
Medium
4. Overcharging Strategy
Low
7. Rip off Strategy
9. Economy Strategy
Price Quality Segments
High Missed Opportunity
PRICE PAID
Medium
Price = Value
Low Low Medium
Unharvested Value High
VALUE RECIVED
Step 1
Pricing Objectives
Pricing Objectives
Profit Maximization Market Share Maximization Maximize Quantity Quality Leadership Partial Cost Recovery Survival Status Quo
Selecting Pricing Objectives
Step 2
Determining Demand
Price elasticity of demand
Inelastic Demanded
Elastic Demanded
Price in Rs.
Price in Rs.
10 5
10 5
95 100
50
100
Quantity Demanded
Quantity Demanded
Step 3
Estimating Cost
Estimating Cost
Types of Costs
Fixed Variable Total
Average
Company Logo
Cost Per Unit at Different Levels of Production
Accumulated Production
Experience curve (Learning curve)
Target Costing
Starts with The Right selling price Reversal of the usual process Selling price desired profit = Target Cost Evaluation of all costs
Profit achieved through cost cutting
Step 4
Analyzing Competitors Costs, Prices, and Offers
Analyzing Competitors Costs, Prices, and Offers Identify price of nearest competitors Compare the features and prices of competitors Make decision to charge more, same or less than competitors Monitor competitors reactions
Step 5
Selecting a Pricing Method
Selecting a Pricing Method
Markup Pricing
Target-Return Pricing
Perceived-Value Pricing
Value Pricing
Pricing methods
Going Rate Pricing
Sealed-Bid Pricing
Markup Pricing
Elementary method - add standard markup to product cost
Most popular pricing method e.g. Resellers / Retailers
Target Return Pricing
Determine the price that would yield its target rate of Return on Investment (ROI)
Break-even Volume e.g. MHADA
Target-Return Pricing
Break-even volume = fixed cost / (price variable cost)
Break-Even Chart for Determining Target-Return Price and Break-Even Volume
Perceived-Value Pricing
Buyers perception of value not sellers cost
Use of Marketing Elements Advtg & Sales
e.g. Luxury Brands
Value Pricing
Low price for a high-quality offering Everyday low pricing (EDLP) High-low pricing e.g. Supermarkets
Going Rate Pricing
Based on Competitors Pricing Follow the Leader e.g. Bottled water, Soft Drink, Toothpaste etc.
Sealed Bid Pricing
Pricing based on expectations how competitors will price rather than on costs or demand
e.g. Bids for Government Project
Step 6
Selecting the Final Price
Selecting the Final Price
PSYCHOLOGICAL PRICING
IMPACT OF PRICE ON OTHER PARTIES
E Selecting the Final Price C
GAIN & RISK SHARING PRICING
COMPANY PRICING POLICY
INFLUENCE OF OTHER MARKETING MIX ELEMENTS
Adapting the Price
Geographical Pricing
Offset Offset
Buyback arrangement
Compensation Deal Barter Counter-trade
Price Discounts and Allowances
1. 2. 4. 3.
5.
Cash Discount Quantity Discount
Allowance Seasonal Discount
Functional Discount
Promotional Pricing
Loss-leader pricing Special-event pricing Cash rebates Low-interest financing Longer payment terms Warranties and service contracts Psychological discounting
Promotional Pricing
Discriminatory Pricing
First-degree price discrimination
Second-degree price discrimination
Third-degree price discrimination As in the following cases:
Customersegment pricing
Time pricing
Productform pricing
Image pricing
Channel pricing
Location pricing
Discriminatory Pricing (continued)
For price discrimination to work, certain conditions must exist: Segmentable & different intensities of demand No resell of product Competitors - not undersell firm Cost of segmenting and policing Not breed customer resentment Not be illegal
Product-mix Pricing
(six situations involving product-mix pricing)
Product-Line Pricing Optional-Feature Pricing
Captive-Product Pricing
Main product + Optional products, Features, Services
Product + Ancillary / Captive, products
Product-mix Pricing (continued)
Two-Part Pricing By-Product Pricing
Fixed fee + Variable usage fee
Product-Bundling Pricing
Pure bundling & Mixed bundling
Initiating and Responding to Price Changes
Initiating Price Cuts
A B C
Excess plant capacity Declining market share Aggressive Pricing
Economic recession
D E
Drive to dominate the market through lower costs
Circumstances leading to Price cuts
Initiating Price Cuts
Traps due to price cutting
1 Low quality trap: Consumers will assume quality is low 2 Fragile- marketshare trap: Initial gains to market share but no loyalty
3 Shallow-pockets trap: Higher priced competitors cut price and stay longer
Initiating Price Increases
Delayed Quotation Pricing
Cost inflation & Anticipatory Pricing
A Over-demand
Escalator Clauses
Reduction of Discounts
Unbundling
Initiating Price Changes
Possible responses to higher costs or overhead without raising prices include: Shrinking the amount of product instead of raising the price Substituting less expensive materials or ingredients Reducing or removing product features Removing or reducing product services, such as installation or free delivery Using less expensive packaging material or larger package sizes Reducing the number of sizes and models offered
Creating new economy brands
Reactions to price changes
Customers Reactions
Competitors Reactions
Responding to competitors price changes
If competitors lower price for homogenous products
If it doesnt work or if it is not likely to work, then meet the price cut head-on
Try augmenting the product
Responding to Competitors Price Changes If competitors raise price
In a Homogeneous Market, follow if whole market is likely to follow
In a non-Homogeneous Market
Evaluate
Why a change?
Is change temporary / Permanent ?
Effect on Mkt Share / Profit
Response(s) from competitors
When a Market Leader is Being Attacked on Price
Manage Price
Launch a low-price fighter line
E
Options Available
Maintain price and add value
Increase price & improve quality
Reduce Price
Price-Reaction Program for meeting a competitors price cut
LOGO
Ref. Marketing by Kotler
