1. AMITY GLOBAL
BUSINESS SCHOOL Bhubaneswar
Pricing Mix
• Price- It is the amount of money charged for a product or service or the
value exchanged for the benefits of the product or service.
“Represents the value of a good or service for both the seller and the buyer”
• Procedure for Price Setting
– Development of pricing Objectives
– Determination of Demand
– Estimation of costs
– Examining Competitor’s Costs, Prices & Offers
– Selection of Pricing strategy & methods
– Final price decision
• Objectives of the Pricing
– Profit maximization
– Profit margin maximization
– Sales Growth
– Market Share
– Survival
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2. AMITY GLOBAL
BUSINESS SCHOOL Bhubaneswar
Factors Affecting Pricing
Decisions
Internal Factors Affect
Pricing Decisions
• Cost. It is the base for the price that can be
charged for products and services. When
setting the prices, a company should cover
both fixed and variable costs.
• Marketing mix strategy. price is important
marketing mix tool that helps to achieve the
marketing objectives. Price decisions
coordination product, placement
and promotion decisions must be coordinated
• marketing objectives of your company like
your target market and positioning strategies
• Product Life Cycle. Different stages of
product life cycle affect the pricing decisions
• Image of the Firm. Another factor affects
the pricing decision is the image and
goodwill of the company.
External Factors Affect
Pricing Decision
• Competition. When setting the product
price, the company must understand the
level of competition in the market.
• Consumers. When fixing the price keep in
mind the consumer purchasing power and
price sensitivity.
• Economic Conditions. The economic
factors include interest rate, inflation and
economic boom and recession.
• Government Controlled Economy is
another factor to be considered.
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Rachita Ota
3. AMITY GLOBAL
BUSINESS SCHOOL Bhubaneswar
342
• Market-controlled price environment
– Characterized by a high level of competition, similar goods and services,
and little control over price by individual companies
• Company-controlled priced environment
– Characterized by moderate competition, well differentiated goods and
services, and strong control over price by individual firms
• Government-controlled price environment
– Characterized by prices set by the government. Examples are public
utilities, buses, taxis, and state universities
• ( Markup is the difference between the cost of a good or service and its selling
price. A markup is added on to the total cost incurred by the producer of a good
or service in order to create a profit)
Rachita Ota
4. AMITY GLOBAL
BUSINESS SCHOOL Bhubaneswar
Price Methods/Strategy
• Cost-based Price Strategy- With a cost-based price strategy, the marketer
sets prices by computing merchandise, service, and overhead costs, and then
adding the desired profit to these figures
• Demand-based Price Strategy- The marketer sets prices after researching
consumer desires and ascertaining the range of prices acceptable to the target
market
– Ecommerce websites like Amazon, Flipkart, etc. use this strategy to remarket their products
to the window shoppers.
• Competition-based Price Strategy (Going-rate Pricing)- The marketer sets
prices in accordance with competitors Prices may be below the market, at the
market, or above the market, depending on customer loyalty, services
provided, image, real or perceived differences between brands or stores, and
the competitive environment
• Product mix pricing:
– Product Line Pricing – Price of whole line is set to establish perceived quality differences
that justify the price differences.
– Captive Pricing - Base product price is lower where Captive Product price is High.
– Optional-feature pricing: Many companies offer optional products, features, and services
with their main product. Mostly seen in Automobile industry.
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5. AMITY GLOBAL
BUSINESS SCHOOL Bhubaneswar
• Two-part Pricing: Service firms engage in two-part pricing, consisting of a fixed
fee plus a variable usage fee. –
– Eg. Hospital have Fix room charge and extra charge for Doctor’s Visit, medicine, Food
etc. •
• By-product Pricing: In certain Production Process by Product is resulted from
production of main product.
– Eg. Molasses By-Product of Sugar so, Price of Molasses is lower than price of Sugar.
• Product-bundling Pricing: Sellers often bundle products and features. Pure
bundling occurs when a firm offers its products only as a bundle.
– Eg. Multiplex provide bundle of Film Ticket + Coke + Popcorn at lower price than price
of each products individually.
– Mcdonald’s happy meal is a perfect example of bundle pricing.
• Premium Pricing - When a company introduces a new product with a competitive
advantage, it uses premium pricing strategy. The higher prices appeal competitors
to launch products into the market, the supply increases and prices fall.
– Eg. Branded unleaded petrol is sold at a higher price than regular unleaded petrol. The consumer
never gets to test if the branded is better, yet he buys the branded offering thinking if it’s expensive, it
must be better. 344
6. AMITY GLOBAL
BUSINESS SCHOOL Bhubaneswar
• Market skimming- This pricing strategy is also known as price creaming. Market
skimming pricing involves charging a high price for new products because the
customer is new and unique so (hopefully) the consumers will be willing to pay higher
prices for them.
Eg. Smartphones (both iPhones and Android) are introduced in the market at a
higher price, but the price is reduced as the time passes.
• Market Penetration- Penetration pricing is used by firms who are trying to establish
themselves in a new market and gain instant market share usually use this strategy. It is
based around the idea that a company will set their prices low to encourage customers
to buy their products instead of higher priced, more established brands.
Eg. - Oneplus launched its flagship product Oneplus 1, which had all the features of an iPhone, at a highly
affordable price of $299. Once the company acquired a good market share, it started launching its products
at a premium. The recent phones from Oneplus are priced in the range of $500-$700.
• Value Pricing- Companies have adopted value pricing in which they win loyal
customers by charging a fairly low price for a high quality offering. It is not simply
setting lower prices it is a matter of reengineering the company’s operations to become
a low cost producer without sacrificing quality.
– Everyday low pricing (EDLP), High-low pricing
– (Wal-Mart, Big Bazaar, Peter England)
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Rachita Ota
7. AMITY GLOBAL
BUSINESS SCHOOL Bhubaneswar
• Psychological pricing - Psychological pricing refers to the psychological pricing
strategies marketers use to make customers buy the products, triggered by
emotions rather than logic. Such strategies come in the form of:
Charm Pricing: This involves reducing the price by a minimal amount (say 1 cent) which makes
the customer perceive the price to be less. For example – the price of a $3 product is set as $2.99
in supermarkets as customers’ brains process $2.99 to be nearer to $2 and not $3.
Prestige Pricing: This involves rounding off and setting a higher price for premium and exclusive
products as rounded figures are easily processed and are preferred in such cases.
BOGOF: Buy one, get one free offers trigger the greed among the customers as they get two
products for the price of one. This strategy is often used to clear up the stock or increase the
volume of sales.
Price Anchoring: Anchor is the first (higher or lower) price communicated to the customer to
make their mind revolve around that price and buy the product the retailer wants. For example –
printing double price label showing a regular price and a sale price, keeping a higher priced and
medium quality product along with a lower priced but good quality product to increase its sale,
etc.
• Freemium is an Internet-based pricing strategy where basic services are
provided free of charge but charges are levied on additional premium
features.
– Eg. Candy Crush Saga is a great example of freemium pricing strategy where the game is
provided for free but a price is levied if you want more lives to play.
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8. AMITY GLOBAL
BUSINESS SCHOOL Bhubaneswar
• Pay What You Want - Pay what you want is a pricing strategy where the
power of deciding the price of a product is given to the buyers, who pay
their desired amounts for a product, which could even be zero.
Unlike how it seems, this pricing strategy often leads to more profits and
increased market share as most of the customers pay amounts which are
more than the cost price of the product.
Eg. Panera Bread Co. restaurant in the St. Louis is a famous example of a business operating
successfully using the pay-what-you-want pricing strategy.
• Predatory pricing, or below the cost pricing, is an aggressive pricing
strategy of setting the prices low to a point where the offering is not even
profitable, just in an attempt to eliminate the competition and get the most
market share.
• Eg. A perfect example of a company adopting a predatory pricing strategy is
Amazon which, in 2013, offered books at a price less than the cost price and even
shipped it for free just to win over the traditional brick-and-mortar competitors.
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13. AMITY GLOBAL
BUSINESS SCHOOL Bhubaneswar
352
Promotional Pricing
• Loss-leader pricing- Supermarkets and department stores often
drop the price on well-known brands to increase additional store
traffic
• Special event pricing- Sellers will establish special prices in
certain seasons to draw in more customers
• Psychological discounting- It involves setting an artificial high
price and then offering the product at a less price. (Big Bazaar)
• Cash Rebates
• Longer Payment terms
• Low-interest financing
• Warranties & service contracts
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15. AMITY GLOBAL
BUSINESS SCHOOL Bhubaneswar
354
Differentiated Pricing
• Price discrimination- It occurs when a company sells a product or
service at different prices
– Customer segment pricing- Different customer groups pay
different prices for the same product or service. (Museums, Parks)
– Product form & Image Pricing- Many retail stores may sell
men’s shirts in many styles, fabrics and levels of quality at different
prices
– Channel Pricing- Coca-Cola, Pepsi, Nescafe etc carries a
different price depending on whether the consumer purchases in a
restaurant or a vending machine
– Location Pricing, Geographic Pricing
– Time Pricing
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