PRICING

 Pricing can be defined as the process of

determining an appropriate price for the product,
or it is an act of setting price for the product
 Pricing is the method of determining the value a
producer will get in the exchange of goods and
services.
 Simply, pricing method is used to set the price of
producer’s offerings relevant to both the producer
and the customer.
 PRICING
Pricing is the method of determining the value a producer will get in
the exchange of goods and services. Simply, the pricing method is
used to set the price of the producer’s offerings relevant to both the
producer and the customer
Setting
pricing
policy
 IMPORTANCE OF PRICING
 Price is the only element of
marketing-mix that generates
revenue for the firm;
 Price is the most flexible
element; as it can be adjusted
quickly. Other elements such as,
product, place and promotion
are less flexible to adjust.
 Price is a silent information
provider. It helps the customer
judge product benefits. In fact,
higher prices are taken as an
indicator of higher product
quality; specially when the
product is new and it is difficult
to measure product benefits
objectively.
 PRICING OBJECTIVES
The objective once set gives the path to the
business i.e. in which direction to go. The following
are the pricing objectives that clears the purpose
for which the business exists:
 • The foremost Pricing Objective of any firm is to set
the price that is optimum and help the product or
service to survive in the market. Each firm faces
the danger of getting ruled out from the market
SURVIVING because of the intense competition, a mature
market or change in customer’s tastes and
preferences, etc. Thus, a firm must set the price
covering the fixed and variable cost incurred
without adding any profit margin to it.

• Many firms try to maximize their current profits by

MAXIMUM estimating the Demand and Supply of goods and
services in the market. Pricing is done in line with
AND the product’s demand in the customers and the
substitutes available to fulfill that demand. Higher
CURRENT the demand higher will be the price
charged. Seasonal supply and demand of goods

PROFITS
and services are the best examples that can be
quoted here.
CAPTURING • Many firms charge low prices for their offerings to capture greater
market share. The reason for keeping the price low is to have an

HUGE increased sales resulting from the Economies of Scale. Higher sales
volume lead to lower production cost and increased profits in the long
run. This strategy of keeping the price low is also known as Market
MARKET Penetration Pricing. This pricing method is generally used when
competition is intense and customers are price sensitive. FMCG
SHARE industry is the best example to supplement this.

• Market skimming means charging a high price for the product and

MARKET services offered by the firms which are innovative and uses modern
technology. The prices are comparatively kept high due to the high cost
of production incurred because of modern technology. Mobile phones,
SKIMMING Electronic Gadgets are the best examples of skimming pricing that
are launched at a very high cost and gets cheaper with the span of time

PRODUCT – • Many firms keep the price of their goods and services in accordance
with the Quality Perceived by the customers. Generally, the luxury

QUALITY
goods create their high quality, taste, and status image in the minds of
customers for which they are willing to pay high prices. Luxury cars
such as BMW, Mercedes, Jaguar, etc. create the high quality with
LEADERSHIP high-status image among the customers.
 DETERMINANTS OF PRICING
While pricing a product, the important factors to be

considered are usually the following:

(1) Cost of Production:

The price of the product must be so fixed as to recover
the full cost of production from the price charged;
otherwise all production activities will have to be
stopped, in the long-run.
(2) Profit-Margin Desired:
The price of the product should include a reasonable (or
targeted) margin of profits; to ensure profitable selling
(3) Competitors’ Pricing:
In the present-day competitive marketing world, no
businessman could ignore the pricing policies adopted by
competitors; while doing the pricing his own product. In any
case, the price of the product to be charged by a
manufacturer must not be substantially different from the
prices charged by competitors for similar types of products.
(4) Government’s Policy of Price-Control:
Where, in particular cases, the Government has fixed
maximum retail prices; the pricing policy followed by a
manufacturer must have to be in tune with governmental
regulations, in that regard.
 PRICING METHODS

 The Pricing Methods are the

ways in which the price of goods
and services can be calculated by
considering all the factors such as
the product/service, competition,
target audience, product’s life
cycle, firm’s vision of expansion,
etc. influencing the pricing
strategy as a whole.
 It is the route taken by firm in
fixing the price.
 TYPES

PRICING
METHODS

Cost Competition Demand Market

oriented based based oriented
pricing pricing pricing pricing

Cost plus Mark up target return Value Going rate Perceived Differential
pricing pricing pricing pricing pricing value pricing
Cost In cost-plus pricing method, a fixed percentage, also called mark-
up percentage, of the total cost (as a profit) is added to the total
plus cost to set the price.

pricing
For example, XYZ organization bears the total cost of Rs. 100 per
unit for producing a product. It adds Rs. 50 per unit to the price of
product as’ profit. In such a case, the final price of a product of the
organization would be Rs. 150.

Markup Refers to a pricing method in which the fixed amount or the

percentage of cost of the product is added to product’s price to get
pricing the selling price of the product. Markup pricing is more common in
retailing in which a retailer sells the product to earn profit

For example, if a retailer has taken a product from the wholesaler

for Rs. 100, then he/she might add up a markup of Rs. 20 to gain
profit.

Target
return In this kind of pricing method the firm set the price to yield a
required Rate of Return on Investment (ROI) from the sale of goods
pricing and services.
 Perceived value Value pricing Going rate pricing
• In this pricing • Under this pricing • In this pricing
method, the method companies method, the firms
manufacturer design the low- consider the
decides the price price products and competitor’s price
on the basis of maintain the high- as a base in
customer’s quality offering. determining the
perception of the Here the prices are price of its own
goods and services not kept low, but offerings.
taking into the product is re- Generally, the
consideration all engineered to prices are more or
the elements such reduce the cost of less same as that
as advertising, production and of the competitor
promotional tools, maintain the and the price were
additional benefits, quality gets over among
product quality, the simultaneously. the firms.
channel of
distribution, etc.
that influence the
customer’s
perception.
 DIFFERENTIAL PRICING
 This pricing method is adopted
when different prices has to
be charged from the different
Customer
group of customers. The segment
prices can also vary with

TYPES
respect to time, area, and Time pricing
product form.
 E.g. The best example of
differential pricing is Mineral Area pricing
Water. The price of Mineral
Water varies in hotels, railway
stations, retail stores. Product form
DEMAND BASED PRICING COMPETITION BASED
• Demand-based pricing refers to PRICING
a pricing method in which the • Competition-based pricing refers
price of a product is finalized to a method in which an
according to its demand. If the organization considers the
demand of a product is more, an prices of competitors’ products
organization prefers to set high to set the prices of its own
prices for products to gain profit; products. The organization may
whereas, if the demand of a charge higher, lower, or equal
product is less, the low prices prices as compared to the prices
are charged to attract the of its competitors.
customers.
 PRICING STRATEGIES
 A pricing strategy can be defined as an action, task, or
approach to achieve the pricing objectives of the
organization.
 Good pricing strategy helps you determine the price
point at which you can maximize profits on sales of your
products or services. When setting prices, a business
owner needs to consider a wide range of factors
including production and distribution costs, competitor
offerings, positioning strategies and the business’ target
customer base.
PRICING STRATEGY DEFINITION EXAMPLE

Penetration Pricing Here the organisation sets a A television satellite

low price to increase sales company sets a low price
and market share. Once to get subscribers then
market share has been increases the price as their
captured the firm may then customer base increases.
increase their price.

Skimming Pricing The organization sets an A games console company

initial high price and then reduces the price of their
slowly lowers the price to console over 5 years,
make the product available charging a premium at
to a wider market. The launch and lowest price
objective is to skim profits near the end of its life
of the market layer by cycle.
layer.

Optional pricing The organization sells This strategy is used

optional extras along with commonly within the car
the product to maximize its industry when purchasing a
turnover. car.
PRICING STRATEGY DEFINITION EXAMPLE
Product Line Pricing Pricing different products An example would be a DVD
within the same product range manufacturer offering different
at different price points. DVD recorders with different
features at different prices e.g.
A HD and non HD version..
The greater the features and
the benefit obtained the greater
the consumer will pay. This
form of price discrimination
assists the company in
maximising turnover and
profits.
Bundle Pricing The organization bundles a This strategy is very popular
group of products at a reduced with supermarkets.
price. Common methods are
buy one and get one free
promotions.

Premium Pricing The price is set high to Examples of products and

indicate that the product is services using this strategy
"exclusive" include Harrods, first class
airline services, and Porsche.
PRICING STRATEGY DEFINITION EXAMPLE

Psychological Pricing The seller here will The seller will charge 99p
consider the psychology of instead £1 or $199 instead
price and the positioning of of $200. The reason why
price within the market this methods work, is
place. because buyers will still
say they purchased their
product under £200 pounds
or dollars, even thought it
was a pound or dollar
away.
 Issues of pricing:
1.Pricing Over the Life Cycle of
the Product

Every product has its own

life cycle and its sales and
In the product launch­ing
profitability change over
(introductory) phase, the
time. There are four phases
manager in charge of pricing
of a product’s life cycle:
has to decide whether to
introduction, growth,
adopt a market penetration
maturity and decline. As the
or a price skimming strategy
product passes through each
and, in the growth phase,
of these stages, the
management can probably
strategies and problems of
be more aggressive in
pricing must be varied
pricing to improve profits.
accordingly. As a product
However, as a general rule,
passes through each stage,
the maturity and decline
there is a corresponding
stages are characterised by
change in the applicable
vigorous compe­tition
pricing decisions.
 2. The Erosion of Distinctiveness

The above analysis is based

The second factor is
on the assumption that the
the likely rate of
producer is concerned with
erosion of the
making choice which will
distinctiveness of
yield the highest profits
the pioneer product.
over the fore­seeable life of
This will, in turn, The possible lead time
the product. Finally,
depend upon the enjoyed by the initial
“although a pioneer product
number of competi­ producer may be obtained
will not normally compete
tive products from an anal­ysis of his
very strongly with existing
entering the market strengths and weakness
prod­ucts, some substitution
and the extent to
may occur, and if this substi­
which they can
tution is likely to encompass
reproduce the
the producer’s existing
characteristics of pi­
products, a penetration
oneer products.
price will again be less ap­
propriate.”
 3. The Significance of Cost

The third major

factor is the cost
structure of the
producers. A Figure 19.8,
AC1 shows
reduction in
the unit cost
average cost is
of producing
likely if there is various
learning effect. In quantity of a
general “the greater product
the scale factor and within a
the learn­ing effect, period, say a
the more day.
appropriate will a
penetration policy
be.”
 Post-Skimming Strategies

Another factor
Choice of a If it is felt that the worth consideration
skimming price is ‘top’ of the market is the ex­tent to
not enough. Subse­ has be­come which the product
quent decisions will saturated (i.e., the has gained an
have to be made limited number of image of
about the tim­ing custom­ers who are exclusivity or
and size of future willing to pay a high prestige. A
reductions from the price have had the substantial price
initial price. In some opportunity to buy) reduc­tion may lead
instances, the it becomes to loss of prestige.
producer’s hand appropriate to lower A series of small
may be tied by the the price in order to price reductions
actions of attract new would be more
competitors customers. appropriate.
 Mixed Strategies

Many firms do
adopt a strategy
which falls be­tween An alternative
the two extremes of approach is to use
the skimming and the customer’s
pene­tration prices. estimated savings
This policy is in operating costs
followed by many as a guide to
large companies in price. This is a
case of many new special
products. For characteristic of
example, Du Pont industrial goods
followed a mixed pricing.
strategy for both
nylon and
cellophane.
 Pricing in Maturity

Another deficiency of
It is the stage between the product-life-cycle
the growth period, when concept is that “it
sales increases rapidly implies that a decline
and the period of decline, stage will inevitably
when sales falls sharply. It succeed maturity,
prevents complacency on whereas in some mar­
the part of firms who kets maturity may be
have introduced prolonged for many
successful prod­ucts, years by a series of
alerting them to the need product innovation. In
to have additional other markets, ma­turity
products ready for may be prolonged
launching when sales of because the product
their existing products fulfils a basic need for
begin to fall. which no close
substitute exists
Pricing Products in Decline

Again, it is necessary
to take cost
conditions into
account. If cost
continues to fall with
an expansion of
output due to the
learning effect there
will be a pressure for
price reduction, even
though the mar­ket
elasticity of demand
may now be low.
 Three additional strategies bear
relevance at the decline stage

Withdrawal of
Product Advertisement
Reformulation Price Reduction Support Strategy:
Strategy: Strategy:
Finally, as Livesey has
pointed out, “even if a
First, there is need The second strategy is price reduction fails to
one of reducing price make a significant
to reformulate the
sub­stantially to induce impact on sales,
product drastically a temporary revival of additional profits may
and sell at a much sales The company had still be wrung out of
lower price. This is a goodwill as a reliable declining products if the
family car makers producer is strong- willed
a common practice enough to withdraw
raising its sales.
in the book advertising support, thus
business formally accepting the
status of the product”.
Drug Pricing Policy, 2018
 Introduction:

The Drug Regulatory Authority of Pakistan with the approval of its Policy
Board and the Federal Government is pleased to establish the following
drug pricing mechanism as specified in sub-clause (vii) of clause (c) of
section 7 read with caluse (a) of sub-section (1) of Section 11 of the Drug
Regulatory Authority of Pakistan Act, 2012 (XXI of 2012). The mechanism
is termed as Drug Pricing Policy, 2018.

So as to ensure that these medicines are available at a

reasonable price to the general public.

The origin of this order back to 1970 when for the first
time government placed limits on profitability of
pharmaceutical companies.
Merit & Advantages

 The main positive point that in the history of Pakistan, in 2018,

DRAP introduced drug pricing policy
 318 “scheduled” drugs including cancer and HIV medicines will
come under the preview of the pricing policy.
 Play significant role in making the drug available to public i.e.
the market player of drugs
 Consider the hardship cases with timeline
 The WAP (weighted average price) mechanism to control price
of essential medicines across the board will help in both public
health sectors and industrial growth.
Demerits & Disadvantages
 The new drug pricing would have adversely impact on the
profitability of Pakistani pharmaceutical companies
 Under the current cost-based formula of determining the
price of the drugs, the expenditure on Research and
development was not being considered at all
 Not determined the timeline of finalization of new NCE’s
and new product prices
 It might result that the multinational companies may lose
interest from investing or expanding production capacity in
Pakistan who are the leading supplier of many essential
drugs
 Never address the medical devices and suture prices in the
policy
 OBJECTIVES:

To ensure the
availability, at
any reasonable
price for essential
and life saving
medicines of
good quality.

to encourage
promoting the cost
effective
rationale use production
of the drug . with economic
sizes.
MRPs fixation of new entrants

 MRPs of new entrants of the drugs already available in

the market which have not been fixed so far by the Drug
Pricing Committee of the Authority or Drug Pricing
Committee or Price Advisory Committee or Price
Recommendatory Committee of the Ministry of Health
(defunct) shall be fixed at the time of registration
according to the following parameters.
 If strength of drug(s) in a tablet is equal, same MRP will be
fixed for its all coated and un-coated forms.
 If strength of drug(s) in a capsule as powder or pellets is
equal, same MRP will be fixed for its all hard forms.
 If strength of drug(s) in a liquid oral dosage form is equal,
same MRP will be fixed for its all liquid dosage forms.
 If strength of drug(s) in otic or ophthalmic or nasal dosage
form is equal, same MRP will be fixed for its all liquid
dosage forms.
 If strength of drug(s) in a topical dosage form
(gel/cream/ointment/paste/lotion/liquid) is equal, same
MRP will be fixed for equal pack sizes in grams/milliliters
etc.
 If contents of drug(s) in an injection is equal, same MRP
will be fixed for its vial or ampoule irrespective of its
filling in glass or plastic or Low Density Polyethylene
(LDPE) or any other material upto 20ml pack size.
 If strength of drug(s) in a tablet or capsule in a modified
release form is equal, same MRP will be fixed for its all
modified (sustained/extended/delayed/core-coated
/prolong /slow) release forms.
 (10) If MRP is fixed for base, then same MRP will be
considered for the salt as approved by reference
regulatory authorities as adopted by the Registration
Board.
 Scheduled Formulation

 Schedule formulation shall mean formulation with same

strength and dosage form as in the schedule.
 If Dosage Form & Strength of a scheduled formulation
are changed, it ceases to be a Scheduled Drugs
 Example.
 Amoxicillin Capsules 250mg is covered under schedule
 Amoxicillin Tablet 125mg shall not be called a Scheduled
Drug
 Non - Scheduled Formulation

"Non-Scheduled Formulation" means a

formulation, containing the molecule, the
dosage and strengths of which are not specified
in the First Schedule; (Non- NLEM Drug /
Formulation)

Example: Aceclofenac ,Norfloxocin,

 New Drug / New Formulation

A) NLEM (National List of Essential Medicines)

Formulations with same specified dosage and strength
as combined with another NLEM Formulations with
same specified dosage and strength
Example 1:
Paracetamol 500mg Tablet is Scheduled Formulation
Diclofenac 50mg Tablet is Scheduled Formulation
New Drug = Paracetamol 500mg + Diclofenac 50mg
Tablet is New Drug/Formulation
Cont.……

B) NLEM Formulations with same specified dosage and

strength as combined with another Non - NLEM
Formulations
Example 1:
Paracetamol 500mg Tablet is Scheduled Formulation
Aceclofenac 100mg Tablet is Non - Scheduled Formulation
Paracetamol 500mg + Aceclofenac 100mg Tablet is New
Drug
Cont.…..

 C) NLEM Formulations by changing its strength

 Example 1:
 Paracetamol 500mg Tablet is a Scheduled Drug
 Paracetamol 325mg Tablet is a New Drug
 D) NLEM Formulations by changing its dosage
 Example 1:
 Diclofenac 50mg Tablet is a Scheduled Drug.
 Diclofenac 50mg Ointment is a New Drug.
 What Is PPMA

 Pakistan Pharmaceutical Manufacturers’ Association

came into existence on January 26 1961, and the
Government of Pakistan through the Ministry of
Commerce registered PPMA as the only Representative
body of the Pharmaceutical Industry in the Country.
 The Government issued a Licence to this effect under
Section 26 of the Companies Act, 1913 on July 18, 1961.
The Association was formally incorporated under the
Companies Act, 1913 by the Registrar of Joint Stock
Companies.