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pricing strategy
- 1. Developing Pricing Strategies and Programs Vineeta ahuja
- 2. Contents • Understanding pricing • Consumer psychology and pricing • How companies price • Adapting the price • Responding to price changes
- 3. What is a price? • It quantifies value and determines profit • It expresses the value of the exchange relationship • It is the determining factor in a marketing exchange • ‘Price’ can also be a fee, rent, fare, commission, etc
- 4. Price: the determining factor Price Product Supplier Customer Promotion & Place
- 5. Price: flexibility • Changes in price are more readily implemented than the other 3P’s • Product - major re-investment • Place - find and convince new distributors • Promotion - long time scales/involves outside agencies
- 6. Consumer Psychology and Pricing Reference Prices Price-quality inferences Price cues
- 7. Possible Consumer Reference Prices • “Fair price” • Lower-bound price • Last price paid • Competitor prices • Upper-bound price • Expected future price • Usual discounted price
- 8. The price…
- 9. Price Cues • “Left to right” pricing (Rs 299 vs. Rs 300) • Odd number discount perceptions • Even number value perceptions • Ending prices with 0 or 5 • “Sale” written next to price
- 10. Steps in Setting Price Select the price objective Determine demand Estimate costs Analyze competitor price mix Select pricing method Select final price
- 11. Step 1: Selecting the Pricing Objective • Survival • Maximum current profit • Maximum market share • Maximum market skimming - Nokia • Product-quality leadership - Bugatti
- 12. Step 2: Determining Demand Price Sensitivity Estimating Demand Curves
- 14. Factors Leading to Less Price Sensitivity • The product is more distinctive • Buyers are less aware of substitutes • Buyers cannot easily compare the quality of substitutes • The expenditure is a smaller part of buyer’s total income • The expenditure is small compared to the total cost of the end product • Part of the cost is paid by another party • The product is used with previously purchased assets • The product is assumed to have high quality and prestige • Buyers cannot store the product
- 15. Step 3: Estimating Costs Types of Costs Accumulated Production Activity-Based Cost Accounting Target Costing
- 16. Cost Terms and Production • Fixed costs / overheads • Variable costs • Total costs • Average cost (total cost/production) • Cost at different levels of production • ABC
- 17. Cost per Unit as a Function of Accumulated Production
- 18. Selecting a Pricing Method • Markup pricing – Unit cost= variable cost + fixed cost/unit sales – Markup price = unit cost/(1-desired return on sales) • Target-return pricing = unit cost + (desired return x invested capital)/unit sales • Perceived-value pricing • Value pricing – EDLP, high-low pricing • Going-rate pricing • Auction-type pricing
- 19. Break-Even Chart Break-even volume = fixed cost / (price – variable cost)
- 20. Auction-Type Pricing English auctions Dutch auctions Sealed-bid auctions
- 21. Step 6: Selecting the Final Price • Impact of other marketing activities • Company pricing policies • Gain-and-risk sharing pricing • Impact of price on other parties
- 22. Price-Adaptation Strategies Geographical Pricing Discounts/Allowances Promotional Pricing Differentiated Pricing
- 23. Price-Adaptation Strategies Geographical Discounts/ Allowances Countertrade • Cash discount • Barter • Quantity discount • Compensation deal • Functional discount – • Buyback arrangement trade channel • Offset members • Seasonal discount - hotels • Allowance -return on old items
- 24. Promotional Pricing Tactics • Loss-leader pricing • Special-event pricing • Cash rebates • Low-interest financing • Longer payment terms • Warranties and service contracts • Psychological discounting
- 25. Differentiated Pricing • Customer-segment pricing - museums • Product-form pricing • Image pricing • Channel pricing – vending machines • Location pricing - theatre • Time pricing- early bird • Yield pricing
- 26. Increasing Prices Delayed quotation pricing Escalator clauses Unbundling Reduction of discounts
- 27. Brand Leader Responses to Competitive Price Cuts • Maintain price • Maintain price and add value • Reduce price • Increase price and improve quality • Launch a low-price fighter line
Editor's Notes
- Ask students what will be the price of this pendant if it is available at Archies Janpath Nakshatra Swarovski
- Maximum market share is market skimming
- Estimate demand curve by surveys, price experiments, statistical analysis
- Average cost = total cost / production