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Models and general approaches to set price of product and service
Models and general approaches to set price of product and service
Models and general approaches to set price of product and service
Models and general approaches to set price of product and service
Models and general approaches to set price of product and service
Models and general approaches to set price of product and service
Models and general approaches to set price of product and service
Models and general approaches to set price of product and service
Models and general approaches to set price of product and service
Models and general approaches to set price of product and service
Models and general approaches to set price of product and service
Models and general approaches to set price of product and service
Models and general approaches to set price of product and service
Models and general approaches to set price of product and service
Models and general approaches to set price of product and service
Models and general approaches to set price of product and service
Models and general approaches to set price of product and service
Models and general approaches to set price of product and service
Models and general approaches to set price of product and service
Models and general approaches to set price of product and service
Models and general approaches to set price of product and service
Models and general approaches to set price of product and service
Models and general approaches to set price of product and service
Models and general approaches to set price of product and service
Models and general approaches to set price of product and service
Models and general approaches to set price of product and service
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Models and general approaches to set price of product and service

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I studied and used all types of pricing strategies. If any one is interesting in these methods, he/she is free to send mail. I ll try to reply.

I studied and used all types of pricing strategies. If any one is interesting in these methods, he/she is free to send mail. I ll try to reply.

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  • 1. Models and General Approaches to set Price of a Product or Service November 22, 2013 Anjali Shitole anjalishitole@yahoo.co.in +917588592042 1
  • 2. What is Price? The amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service. Company’s View Customer’s View • price reflects the revenue generated for each product sold • Benefits by accessing a goods and services • Determine the profit • Willing to pay 2
  • 3. What is Price? Price may be – • • • • • • • • • • Fee Rent Premium Salary Toll Wage Interest Tax Rate Commission … 3
  • 4. Common Mistakes by company while setting a Price Price Cost Profit Case 1: Company decided price based on cost to get maximum profit in result company lose some customers Case 2: Company decided to reduce the price to get quickly sales this resulted fall in the performance standards. 4
  • 5. Factors to be Considered While Setting Price Internal Factors Marketing objectives • Market positioning influences pricing strategy • Other pricing objectives: • • • • Survival Current profit maximization Market share Product quality 5
  • 6. Factors to be Considered While Setting Price Internal Factors Marketing mix strategies • Pricing must be carefully coordinated with the other marketing mix elements • Target costing is often used to support product positioning strategies based on price 6
  • 7. Factors to be Considered While Setting Price Internal Factors Cost • Types of costs: – Variable – Fixed – Total costs • How costs vary at different production levels will influence price setting • Experience (learning) curve affects price 7
  • 8. Factors to be Considered While Setting Price Internal Factors Who Set the Price? • Who sets the price? – Small companies: CEO or top management – Large companies: Divisional or product line managers • Price negotiation is common in industrial settings where pricing departments may be created 8
  • 9. Factors to be Considered While Setting Price External Factors Nature of market and demand • Types of markets – Pure competition – Monopolistic competition – Oligopolistic competition – Pure monopoly • Consumer perceptions of price and value • Price-demand relationship – Demand curve – Price elasticity of demand 9
  • 10. Factors to be Considered While Setting Price External Factors Competitors’ costs, prices, and offers • Consider competitors’ costs, prices, and possible reactions • Pricing strategy influences the nature of competition – Low-price low-margin strategies inhibit competition – High-price high-margin strategies attract competition • Benchmarking costs against the competition is recommended 10
  • 11. Factors to be Considered While Setting Price External Factors Other environmental elements • Economic conditions – Affect production costs – Affect buyer perceptions of price and value • Reseller reactions to prices must be considered • Government may restrict or limit pricing options • Social considerations may be taken into account 11
  • 12. The Product Life Cycle Introduction Growth Maturity Decline Successful goods and services, like people, pass through a series of stages from their initial appearance to death; this progression is known as the product life cycle.  The product life cycle concept is a useful tool in designing a marketing strategy that is flexible enough to match the varying marketplace characteristics at different life cycle stages.  Four Stages of Product life cycleIntroduction, Growth, Maturity and Decline. Introduction  The early stages of the product life cycle - the firm attempts to promote demand for its new market offering.  Neither consumers nor distributors may be aware of the product.  Marketers must use promotional programs to inform the market of the item's availability and explain its features, uses, and benefits.  Expensive and commonly lead to losses in the first stage of the product life cycle.  These expenditures are necessary if the firm is to profit later. 12
  • 13. The Product Life Cycle Introduction Growth Maturity Decline Successful goods and services, like people, pass through a series of stages from their initial appearance to death; this progression is known as the product life cycle.  The product life cycle concept is a useful tool in designing a marketing strategy that is flexible enough to match the varying marketplace characteristics at different life cycle stages.  Four Stages of Product life cycle- Introduction, Growth, Maturity and Decline. Growth  Sales go upwards quickly during the product's growth stage as new customers join the early users who are now repurchasing the item.  Person-to-person referrals and continued advertising by the firm induce others to make trial purchases.  But this encourages competitors to enter the field with similar offerings.  But this encourages competitors to enter the field with similar offerings.  To gain a larger share of a growing market, firms may develop different versions of a product to target specific segments. 13
  • 14. The Product Life Cycle Introduction Growth Maturity Decline Successful goods and services, like people, pass through a series of stages from their initial appearance to death; this progression is known as the product life cycle.  The product life cycle concept is a useful tool in designing a marketing strategy that is flexible enough to match the varying marketplace characteristics at different life cycle stages.  Four Stages of Product life cycleIntroduction, Growth, Maturity and Decline. Maturity  Total industry profits peak in the Maturity stage.  Reach to saturation level - further expansion is difficult.  Competition also intensifies, increasing the availability of the product.  Firms concentrate on capturing competitors' customers, often dropping prices to further their appeal.  Sales volume fades late in the maturity stage, and some of the weaker competitors leave the market.  Firms spend heavily on promoting mature products to protect their market share and to distinguish their products 14 from those of competitors.
  • 15. The Product Life Cycle Introduction Growth Maturity Decline Successful goods and services, like people, pass through a series of stages from their initial appearance to death; this progression is known as the product life cycle.  The product life cycle concept is a useful tool in designing a marketing strategy that is flexible enough to match the varying marketplace characteristics at different life cycle stages.  Four Stages of Product life cycle- Introduction, Growth, Maturity and Decline. Decline  Sales continue to fall in the decline stage of the product life cycle.  Profits also decline and may become losses as further price cutting occurs in the reduced market for the item.  The decline stage is usually caused by a product innovation or a shift in consumer preferences.  The decline stage of an old product can also be the growth stage for a new product. 15
  • 16. Identify the stages in the new-product development process. The new-product development process are • New-product ideas • Screening, • Business analysis • Product development • Test marketing • Commercialization. At each stage, marketers face "go/no go" decisions as to whether to continue to the next stage, modify the new product, or discontinue the development process. 16
  • 17. Pricing Objectives • Profitability Objectives Management knows that, Profit = Revenue – Expences and Total Revenue = Price × Quantity Sold Some firms try to maximize profits by increasing their prices to the point where a disproportionate decrease appears in the number of units sold. Profit maximization is the basis of much of economic theory. 17
  • 18. Pricing Objectives • Volume Objectives Sales maximization - Management sets an acceptable minimum level of profitability and then tries to maximize sales. Sales expansion is viewed as being more important than short-run profits to the firm's long-term competitive position. Market share- the percentage of a market controlled by a certain company, product, or service. One firm may seek to achieve a 25 percent market share in a certain industry. Another may want to maintain or expand its market share for particular products or product lines. Market share objectives have become popular because of its easiness and increased sales may lead to lower production costs and higher profits. 18
  • 19. Pricing Objectives • Other Objectives Objectives not related to profitability or sales volume. Social and ethical considerations, status quo objectives, and image goals which are often used in pricing decisions. The price of some goods and services is based on the intended consumer's ability to pay. 19
  • 20. How prices are set in the marketplace? Price Determination • Usually pricing is regarded as a function of marketing. • The sales and cost data is necessary for good decision making about pricing. • It is essential for managers at all levels to realize the importance of pricing and the contribution that can be made to correct pricing by various areas in the organization. • Price determination can be viewed from two perspectives. • First is Economic Theory. • Second is Cost-based Pricing 20
  • 21. Price Determination Economic Theory • Assumes a profit 120 maximization objective. • Market price will be set as 100 the point at which the 80 amount of a product desired at a given price is 60 40 equal to the amount suppliers will provide at 20 that equilibrium price. 0 • Equilibrium price is determined by the point where the amount demanded and the amount supplied are in equilibrium. (shown in figure) Demand-Supply Curve Demand Curve Supply Curve 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Prices Equilibrium price is Rs 6.5 21
  • 22. Price Determination Cost Based Pricing • Anticipating the amount of a product that will be bought at a certain price is difficult, so businesses tend to adopt cost-based pricing formulas. • Simpler and easier to use • Marketers begin the process of cost-based pricing by totaling all costs associated with offering an item in the market, including production, transportation, distribution, and marketing expenses. • The price becomes by adding an amount to cover profit and expenses not previously considered. • There are actually two calculations for cost-based pricing; markup and profit margin. • Mark-up pricing is based on the cost of the item and Profit margin is based on the sales price. Cont… 22
  • 23. Price Determination Cost Based Pricing Cost Sales price  100%  (mark  up)% (Sale Price - Cost) Profit margin  Sale Price Cont… 23
  • 24. Price Determination Cost Based Pricing Advantages-Disadvantages Discussion • • • Markup pricing is easy to apply, and it is used by many businesses (mostly retailers and wholesalers). . However, it has two major flaws. The first is the difficulty of determining an effective markup percentage. If this percentage is too high, the product may be overpriced for its market; then too few units may be sold to return the total cost of producing and marketing the product. On the other hand, if the markup percentage is too low, the seller is "giving away" profit that it could have earned simply by assigning a higher price. In other words, the markup percentage needs to be set to account for the workings of the market, and that is very difficult to do. The second problem with markup pricing is that it separates pricing from other business functions. The product is priced after production quantities are decided on, after costs are incurred, and almost without regard for the market or the marketing mix. To be most effective, the various business functions should be integrated. Each should have an impact on all marketing decisions. 24
  • 25. Other Methodologies for Pricing • Gabor Granger pricing methodology • Linear pricing models such as Dedicated team, Time and Material (t&M) and Fixed price (FP). • Non-linear pricing models such as hybrid model, Managed services model Outcome based model and Transaction based model. • Continuous Research is ongoing to improve the pricing strategies 25
  • 26. Models and General Approaches to set Price of a Product or Service November 22, 2013 Anjali Shitole anjalishitole@yahoo.co.in +917588592042 26

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