Pricing Decisions & Strategies


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Pricing Decisions & Strategies

  1. 1. <ul><li>Pricing Decisions & Strategies </li></ul>
  2. 2. <ul><li>Marketing Mix : 4 P’s </li></ul><ul><li>Product </li></ul><ul><li>PRICE </li></ul><ul><li>Place </li></ul><ul><li>Promotion </li></ul><ul><li>Pricing is a very important strategic issue, as it is directly related to product positioning. </li></ul><ul><li>Pricing affects other marketing mix elements such as product features, Channel decisions and promotion. </li></ul>
  3. 3. Steps to Price a Product (Not always same) <ul><li>Develop Marketing Strategy </li></ul><ul><li>Market Analysis, Segmentation, Targeting and Positioning </li></ul><ul><li>Marketing Mix Decision </li></ul><ul><li>Define the Product, Distribution and Promotional strategies </li></ul><ul><li>Manage Demand curve </li></ul><ul><li>Demand Price relation </li></ul>
  4. 4. <ul><li>Cost </li></ul><ul><li>All fixed and variable cost is calculated </li></ul><ul><li>Environmental Factors </li></ul><ul><li>PEST </li></ul><ul><li>Set Pricing Objective </li></ul><ul><li>Profit maximization, Revenue maximization, Price stabilization </li></ul><ul><li>Determination of Price </li></ul><ul><li>Use one or combination of the above factors and make a pricing structure, give discounts etc. </li></ul>
  5. 5. Pricing Objectives <ul><li>Current Profit Maximization </li></ul><ul><li>This stresses on Current profits, taking into account revenue and costs </li></ul><ul><li>Current Revenue Maximization </li></ul><ul><li>Stresses on increasing the Current revenue, and not profits. The motive is to maximize market share and gain profits in long term. </li></ul>
  6. 6. <ul><li>Maximize Quantity </li></ul><ul><li>This stresses to maximize the number units sold to decrease long-term costs as the experience curve predicts </li></ul><ul><li>Maximize Profit Margin </li></ul><ul><li>Stresses to increase the profit margin per unit, as, number of unit being sold may be low. </li></ul><ul><li>Quality Leadership </li></ul><ul><li>Use price to signal high quality, to position the product as quality leaders. </li></ul>
  7. 7. <ul><li>Partial Cost Recovery </li></ul><ul><li>Organization which has other revenue sources may seek partial cost recovery. </li></ul><ul><li>Survival </li></ul><ul><li>Incase of market decline or overcapacity, the emphasis may be on to the survival in the market only and to cover the costs. </li></ul><ul><li>Status Quo </li></ul><ul><li>Price Stabilization to avoid price wars and maintain stable level of profits </li></ul>
  8. 8. Skim Pricing <ul><li>Skimming is the strategy used to pursue the objective of Profit Margin Maximization. </li></ul>
  9. 9. Skimming is most Appropriate .. <ul><li>Demand is expected to be relatively inelastic, ie. The customers targeted are not highly price sensitive </li></ul><ul><li>Large cost savings are not expected at high volumes or it is difficult to predict the cost savings that can be achieved at high volumes </li></ul><ul><li>The company does not have the resources to finance the last capital expenditure for high volume production with initial low profit margins. </li></ul>
  10. 10. Penetration Pricing, most appropriate … <ul><li>Objective is to maximize the quantity by lowering the prices. </li></ul><ul><li>Demand highly elastic, ie. Customers are price sensitive, the demand increases as the price decreases. </li></ul><ul><li>Economies of scale </li></ul><ul><li>The product should be of mass appeal. </li></ul><ul><li>Major threat by competition. </li></ul>
  11. 11. Pricing Methods <ul><li>Cost Plus Pricing </li></ul><ul><li>Set the price at the production cost adding a certain profit margin. </li></ul><ul><li>Target Return Pricing </li></ul><ul><li>Set the price to achieve a target return on investment. </li></ul><ul><li>Value Based Pricing </li></ul><ul><li>Base the price on the effective value to the customers which is relative to the alternative product. </li></ul><ul><li>Psychological Pricing </li></ul><ul><li>Base the price on psychological factors of the consumer. </li></ul>
  12. 12. Price Discounts <ul><li>Quantity Discounts </li></ul><ul><li>Offer to customers who purchase is large quantities. </li></ul><ul><li>Cumulative Quantity Discount </li></ul><ul><li>A discount that increase as the cumulative quantity increases. </li></ul><ul><li>Seasonal Discount </li></ul><ul><li>Based on the time when the purchase is made. </li></ul>
  13. 13. <ul><li>Cash Discount </li></ul><ul><li>Extended to customer who pay there bill before a specified date. </li></ul><ul><li>Trade Discount </li></ul><ul><li>A functional discount offered to channel members for performing there roles. </li></ul><ul><li>Promotional Discount </li></ul><ul><li>A short term discounted price, offered to stimulate sales. </li></ul>
  14. 14. <ul><li>Thank You </li></ul>