Pricing
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  • 1. PRICINGUnderstanding and capturing customer value
  • 2. Chapter Questions• How do consumers process and evaluateprices?• How should a company set prices initially forproducts or services?• How should a company adapt prices to meetvarying circumstances and opportunities?• When should a company initiate a pricechange?• How should a company respond to acompetitor‟s price challenge?
  • 3. WHAT IS A PRICE?• In the narrowest sense, price is the amount of moneycharged for a product or service.• More broadly, price is the sum of all the values thatcustomers give up in order to gain the benefits of havingor using a product or service.• Price is the only element in the marketing mix thatproduces revenue.• Price is one of the most flexible marketing mix elements.• Pricing Rests on Value; Capturing Value is ItsPurpose
  • 4. FACTORS TO CONSIDER WHENSETTING PRICES• Customer Perceptions of Value the customer will decidewhether a product‟s price is right.• Value-based pricing uses buyers‟ perceptions of value,not the seller‟s cost, as the key to pricing.• Price is considered along with the other marketing mixvariables before the marketing program is set.• Cost-based pricing is product driven.• “Good value” is not the same as “low price.”
  • 5. Changed pricing environment• pricing strategies are changing due to the change intechnology and trend in market• differentiated products also changed the mindset of theconsumers now a days• Internet revolution and its impact over the fixed pricingdecisions – thousands of vendors offering prices to one product one platform to compare the price of a product from various sellers Free products- McDonalds, Mad Over Donuts are few examplesoffered free breakfast ranges and donuts
  • 6. Two types of value-based pricing are good-value pricing and value-added pricing.1. Good-Value Pricing:- Good-value pricing is offeringjust the right combination of quality and good service ata fair price.• Everyday low pricing (EDLP)- EDLP involves charging aconstant, everyday low price with few or no temporaryprice discounts.• High-low pricing- involves charging higher prices on aneveryday basis but running frequent promotions to lowerprices temporarily on selected items.
  • 7. • Value-Added Pricing- Value-added pricing is the strategyof attaching value-added features and services todifferentiate their offers and thus support higher prices.
  • 8. Types of Costs• Fixed costs (also known as overhead) are costs that donot vary with production or sales level.• Variable costs vary directly with the level of production.They are called variable because their total varies with thenumber of units produced.• Total costs are the sum of the fixed and variable costs forany given level of production.
  • 9. Common Pricing Mistakes• Determine costs and take traditional industrymargins• Failure to revise price to capitalize on marketchanges• Setting price independently of the rest of themarketing mix• Failure to vary price by product item, marketsegment, distribution channels, and purchaseoccasion
  • 10. Copyright © 2009 Dorling Kindersley (India) Pvt. Ltd. 14-10When to Use Price Cues• Customers purchaseitem infrequently• Customers are new• Product designs varyover time• Prices varyseasonally• Quality or sizes varyacross stores
  • 11. Steps in Setting PriceSelect the price objectiveDetermine demandEstimate costsAnalyze competitor price mixSelect pricing methodSelect final price
  • 12. Copyright © 2009 Dorling Kindersley (India) Pvt. Ltd. 14-12Step 1: Selecting the Pricing Objective• Survival• Maximum currentprofit• Maximum marketshare• Maximum marketskimming• Product-qualityleadership
  • 13. Step 3: Estimating CostsTypes of CostsTarget CostingAccumulatedProductionActivity-BasedCost Accounting
  • 14. Tata motors developed „Nano‟its small carwith a target price
  • 15. Price-Adaptation StrategiesGeographical PricingDiscounts/AllowancesDifferentiated PricingPromotional Pricing
  • 16. Price-Adaptation StrategiesCountertrade• Barter• Compensation deal• Buyback arrangement• OffsetDiscounts/ Allowances• Cash discount• Quantity discount• Functional discount• Seasonal discount• Allowance
  • 17. Copyright © 2009 Dorling Kindersley (India) Pvt. Ltd. 14-17Promotional Pricing Tactics• Loss-leader pricing• Special-event pricing• Cash rebates• Low-interest financing• Longer payment terms• Warranties and servicecontracts• Psychologicaldiscounting
  • 18. Special festivalpricing byCoca-Cola on theoccasion ofRamzan inPakistan.
  • 19. Copyright © 2009 Dorling Kindersley (India) Pvt. Ltd. 14-19Differentiated Pricing• Customer-segmentpricing• Product-form pricing• Image pricing• Channel pricing• Location pricing• Time pricing• Yield pricing
  • 20. Pricing for rural markets• A large proportion have a low and seasonal income• Several approaches adopted by retailers andcompanies to address this• Rural retailers often extend credit• Retailers also “break the bulk” and sell in loose form,in small quantities• Companies use a similar strategy by introducing “low-unit packing” or LUP• Companies also develop low-priced products with atarget price for rural markets• Companies might offer refill packs or recyclable andreusable packs
  • 21. Increasing PricesDelayed quotation pricingEscalator clausesUnbundlingReduction of discounts