Pricing strategies by AFee

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Pricing strategies by AFee

  1. 1. PRICING STRATRGIES by Sarfaraz Ahmed Mohtesham AITM , BHATKAL copyright © 2013 FAA EDUCATION. All rights reserved.
  2. 2. PRICING Price is the sum value of all the values that consumers exchange for the benefits or having or using the product or service Different forms - Goods bought, hire charges, tuition fees Dynamic Pricing - Varying prices Flexibility copyright © 2013 FAA EDUCATION. All rights reserved.
  3. 3. OBJECTIVE OF PRICING Profit Survival Market Share Cash Flow Status Quo Product Quality Communicating Image Short term/Long term copyright © 2013 FAA EDUCATION. All rights reserved.
  4. 4. li bi tion s ita iza oal of xim n G Pr it-Ma etur of t R Pr rge Ta Meet Business Objectives ty Sa V le o s l M Ma um ar ke xim e t S iz ha ati r e on Pricing Objectives Other Pricing Objectives  Status Quo  Image  Social & Ethical Considerations copyright © 2013 FAA EDUCATION. All rights reserved.
  5. 5. FACTORS INFLUENCING PRICING The Customer's Demand Schedule The Cost Function and Competitors Prices copyright © 2013 FAA EDUCATION. All rights reserved.
  6. 6. Factors in Setting Price copyright © 2013 FAA EDUCATION. All rights reserved.
  7. 7. Pricing Strategies You don ’t sell through price. You sell the price. copyright © 2013 FAA EDUCATION. All rights reserved.
  8. 8. Different Pricing Strategies which we will cover through this PRESENTATION Price Skimming ii. Penetration Pricing iii. Loss Leader Pricing iv. Peak Load Pricing i. copyright © 2013 FAA EDUCATION. All rights reserved.
  9. 9. Price Skimming  Price Skimming is charging a high initial price  Price Skimming : – Appropriate for distinctly new products – Provides the firm with opportunity to profitably reach market segments not sensitive to high initial price – Enables marketer to capture early profits – Enables innovator to recover high R&D costs more quickly copyright © 2013 FAA EDUCATION. All rights reserved.
  10. 10. Price Skimming Strategy : As the product goes through its product life cycle, the strategy is to lower the price in line with production and demand capacity copyright © 2013 FAA EDUCATION. All rights reserved.
  11. 11. Price skimming is a pricing strategy which companies adopt when they launch a new product, in this strategy while launching a product company sets high price for a product initially and then reduce the price as time passes by so as to recover cost of a product quickly. Example An example of price skimming would be mobiles which are have some added features are sold at higher prices and then prices began to decline as time passes by, another example of price skimming would be 3D televisions which are right now being sold. Given below are some of the advantages and disadvantages of price skimming – copyright © 2013 FAA EDUCATION. All rights reserved.
  12. 12. Price Skimming Advantages     Plasma Screens: Currently at high prices but for how long? High price, Low volumes Skim the profit from the market Suitable for products that have short life cycles or which will face competition at some point in the future (e.g. after a patent runs out) Examples include: Playstation, jewellery, digital technology, new DVDs, etc. copyright © 2013 FAA EDUCATION. All rights reserved.
  13. 13. Disadvantages of Price Skimming •Competition. There will be a continual stream of competitors challenging the seller's extreme price point with lower-priced offerings. •Sales volume. A company that uses price skimming is limiting its sales, which means that it cannot lower costs by building sales volume. * Cost inefficiency. The very high profit margins engendered by this strategy may cause a company to avoid making the cost cuts required to keep it competitive when it eventually lowers its prices. copyright © 2013 FAA EDUCATION. All rights reserved.
  14. 14. What is Price Penetration? Penetration pricing is the pricing technique of setting a relatively low initial entry price, often lower than the eventual market price, to attract new customers. The strategy works on the expectation that customers will switch to the new brand because of the lower price. Penetration pricing is most commonly associated with a marketing objective of increasing market share or sales volume, rather than to make profit in the short term. copyright © 2013 FAA EDUCATION. All rights reserved.
  15. 15. Penetration Pricing Penetration Pricing is charging a very low initial price. Penetration Pricing is appropriate when there is: › › › High price elasticity of demand Strong threat of imminent competition Opportunity for substantial production cost reduction as volume expands copyright © 2013 FAA EDUCATION. All rights reserved.
  16. 16. The advantages of penetration pricing to the firm are: * It can create goodwill among the early adopters segment. This can create more trade through word of mouth. * It creates cost control and cost reduction pressures from the start, leading to greater efficiency. * It discourages the entry of competitors. Low prices act as a barrier to entry copyright © 2013 FAA EDUCATION. All rights reserved.
  17. 17. The main disadvantage with penetration pricing is that it establishes long term price expectations for the product, and image preconceptions for the brand and company. This makes it difficult to eventually raise prices. Some commentators claim that penetration pricing attracts only the switchers (bargain hunters), and that they will switch away as soon as the price rises. There is much controversy over whether it is better to raise prices gradually over a period of years copyright © 2013 FAA EDUCATION. All rights reserved.
  18. 18. copyright © 2013 FAA EDUCATION. All rights reserved.
  19. 19. Price Strategies for New Products Penetration Pricing PRIC E Low price  establish product in the market PRICE PRIC E Skimming Pricing High price/Prestige pricing  appeal to early adopters; recover high R&D costs Skimming  Penetration Lower price over time  Move inventory, stimulate D, extend product life copyright © 2013 FAA EDUCATION. All rights reserved.
  20. 20. Loss Leader Pricing     Goods/services deliberately sold below cost to encourage sales elsewhere Typical in supermarkets, e.g. at Christmas, selling bottles of gin at £3 in the hope that people will be attracted to the store and buy other things Purchases of other items more than covers ‘loss’ on item sold e.g. ‘Free’ mobile phone when taking on contract package copyright © 2013 FAA EDUCATION. All rights reserved.
  21. 21. The loss leader is a tried-and-true pricing strategy that can be a great way to grow any business. Using it you can get old customers back, bring new ones in the door, and increase sales. Other than getting a sale, the loss leader strategy can also be also used for: * * * * Getting rid of unwanted merchandise Attracting new customers Building your brand Build repeat customers copyright © 2013 FAA EDUCATION. All rights reserved.
  22. 22. PEAK LOAD PRICING When demand is not evenly distributed, a firm needs to have facilities to accommodate periods of high demand. Even with large facilities, the firm may experience times when the demand is greater than can be handled. Then the firm may experience costly computer system crashes. During off-peak times (periods of lower demand), there is excess capacity. The firm charges less at off-peak times. Example: More phone calls are made during business hours than in the evenings and on weekends. So the phone companies charge more during business hours copyright © 2013 FAA EDUCATION. All rights reserved.
  23. 23. Real World Examples of Peak Load Pricing: Gas prices in the 1970's and Utility companies are good examples of peak load pricing. When a good or service is limited in availability, peak load pricing can effectively reduce consumer consumption because consumers are swayed by the high prices. On the other hand, when prices are lower, consumers are more likely to purchase more. Another example would be tourist pricing. In a tourist town, one might see prices of many goods rise during tourist season. copyright © 2013 FAA EDUCATION. All rights reserved.
  24. 24. Q ? ueries copyright © 2013 FAA EDUCATION. All rights reserved.
  25. 25. copyright © 2013 FAA EDUCATION. All rights reserved.

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