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Pricing policies

Pricing is not that easy!!!

1 of 18
Pricing policies
CONTENTS
Price
Pricing Objective
Pricing Decision
Factors Affecting Pricing
 Decisions
Determining Demand
Methods Of Pricing
Pricing Strategies
Price
Price is the sum of all the values
 that consumers exchange for the
 benefits of having or using the
 product or service.
“Rent, tuition, fees, fares, tools,
 rates, premiums, honoraria, bribes,
 dues, bids, assessments, retainers,
 salaries, wages, commissions,
 taxes…”
Why is it dangerous?
PRICING OBJECTIVES
~PROFIT OBJECTIVE
     PROFIT MAXIMIZATION
     TARGET RETURN
~SALES OBJECTIVE
     GROWTH IN SALES
     GROWTH IN MKT SHARE
     SURVIVAL-MINIMUM SALES
~COMPETITION OBJECTIVE
    TO MEET OR PREVENT COMPETITION
    TO DESTROY COMPETITION
~DEVELOPMENT OBJECTIVE
  -EXPANDING EXISTING MARKETS (NON-
  USERS TO USERS)
  -PRODUCT DEVELOPMENT
SELECTING THE PRICE
    OBJECTIVE
Survival
Maximum Current Profit
Maximum Current Revenue
Maximum Sales Growth
Maximum Market Skimming
Product-Quality Leadership
Internal Factors Affecting
     Pricing Decisions:
   Marketing Objectives
                            Survival
             Low Prices to Cover Variable Costs and
             Some Fixed Costs to Stay in Business.

               Current Profit Maximization
              Choose the Price that Produces the
Marketing       Maximum Current Profit, Etc.

Objectives       Market Share Leadership
               Low as Possible Prices to Become
                  the Market Share Leader.

                Product Quality Leadership
                  High Prices to Cover Higher
                Performance Quality and R & D.

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Pricing policies

  • 2. CONTENTS Price Pricing Objective Pricing Decision Factors Affecting Pricing Decisions Determining Demand Methods Of Pricing Pricing Strategies
  • 3. Price Price is the sum of all the values that consumers exchange for the benefits of having or using the product or service. “Rent, tuition, fees, fares, tools, rates, premiums, honoraria, bribes, dues, bids, assessments, retainers, salaries, wages, commissions, taxes…” Why is it dangerous?
  • 4. PRICING OBJECTIVES ~PROFIT OBJECTIVE PROFIT MAXIMIZATION TARGET RETURN ~SALES OBJECTIVE GROWTH IN SALES GROWTH IN MKT SHARE SURVIVAL-MINIMUM SALES ~COMPETITION OBJECTIVE TO MEET OR PREVENT COMPETITION TO DESTROY COMPETITION ~DEVELOPMENT OBJECTIVE -EXPANDING EXISTING MARKETS (NON- USERS TO USERS) -PRODUCT DEVELOPMENT
  • 5. SELECTING THE PRICE OBJECTIVE Survival Maximum Current Profit Maximum Current Revenue Maximum Sales Growth Maximum Market Skimming Product-Quality Leadership
  • 6. Internal Factors Affecting Pricing Decisions: Marketing Objectives Survival Low Prices to Cover Variable Costs and Some Fixed Costs to Stay in Business. Current Profit Maximization Choose the Price that Produces the Marketing Maximum Current Profit, Etc. Objectives Market Share Leadership Low as Possible Prices to Become the Market Share Leader. Product Quality Leadership High Prices to Cover Higher Performance Quality and R & D.
  • 7. Types of Cost Factors that Affect Pricing Decisions Fixed Costs Variable Costs (Overhead) Costs that don’t Costs that do vary vary with sales or directly with sales or production levels. production levels. Executive Salaries, Rent Commissions, Raw materials Total Costs Sum of the Fixed and Variable Costs for a Given Level of Production
  • 8. DETERMINING DEMAND 1. Unique value effect. Buyers are less price-sensitive when the product is more unique. 2. Substitute awareness effect. Buyers are less price-sensitive when they are less aware of substitutes. 3. Difficult comparison effect. Buyers are less price-sensitive when they cannot easily compare the quality of substitutes.
  • 9. 6. Shared cost effect. Buyers are less price-sensitive when part of the cost is borne by another party. 7. Sunk investment effect. Buyers are less price-sensitive when the product is used in conjunction with assets previously bought. 8. Price-quality effect. Buyers are less price-sensitive when the product is assumed to have more
  • 10. METHODS OF PRICING Cost Plus Pricing: This method is prevalent in urban markets, but it suits the rural market more, because a company has to incur the cost of the product, distribution expenses, and also add a small profit margin. Value Pricing: It means assigning a low price tag for a product and providing the benefits of low-cost mass production to the
  • 11. Cost-Based Pricing Certainty About Costs Simplest Pricing Ethical Method Factors Pricing is Situational Simplified Cost-Plus Pricing Unexpected is an Approach That Adds a Price Competition Standard Markup to the Cost of the Attitudes Ignores Current Is Minimized Demand & Product of Competition Others Much Fairer to Buyers & Sellers
  • 12. 1)Variable cost pricing:  Marginal or incremental cost of producing goods charged  Sell products abroad at lower net prices than the domestic market  Used when a Co. has high fixed cost and unused production 2) Full cost Pricing:  Total fixed cost + variable cost  High variable cost relative to fixed cost  Price= Total cost +profit
  • 13. Competition-Based Pricing Setting Prices Going-Rate Company Sets Prices Based on What Competitors Are Charging. ? Sealed-Bid Company Sets Prices Based on ? What They Think Competitors Will Charge.
  • 14. Pricing Strategies Companies face many problems in setting their prices.  Standard pricing methods such as uniform pricing, standard markup of costs everywhere, or charging what the market will bear ignores cost differentials and local market conditions. 11/3/2012 International MKTG 14 Pricing Strategy
  • 15. Pricing Strategies Premium pricing  Uses a high price, but gives a good product/service exchange e.g. Honda, The Ritz Hotel Penetration pricing  offers low price to gain market share - then increases price  e.g. Vodafone- to attract new corporate clients Economy pricing  placed at ‘no frills’, low price  e.g. Soups, spaghetti, Perk - ‘economy’ brands
  • 16.  Price skimming  where prices are high - usually during introduction  e.g new albums or films on release  ultimately prices will reduce to the ‘parity’  Psychological pricing  to get a customer to respond on an emotional, rather than rational basis  .e.g 99p not £1.01 ‘price point perspective  Product line pricing  rationale of a product range  Detergents  Pricing variations  ‘off-peak’ pricing, early booking discounts, etc  e.g Maruti offers a ‘cash back’ incentive for Wagon R
  • 17.  Optional product-pricing  e.g. optional extras - BMW famously under- equipped  Captive product pricing  products that complement others  e.g Gillette razors (low price) and blades (high price)  Product-bundle pricing  sellers combine several products at the same price  e.g software, books, CDs.  Promotional pricing  e.g. toothpaste, soups, etc