Pricing and Pricing Strategies | UNIT - 6 | M 105 | Rajasthan Technical University

1. PRICING
AND
PRICING STRATEGIES

2. What is ‘Pricing’?
• In simple terms, pricing is the process of setting the price of
a product or service.
• The term ‘pricing’ has been derived from ‘price’
• Price is the amount of money a customer has to pay in order
to acquire a product or service

3. ‘Pricing’ Can be Tricky
• Setting prices for products can be a tough task
• If a company sets prices of its products and services too
high, it will miss out on valuable sales because customers
will switch to competitors products
• If the a company sets the prices of its products and services
too low, it will not be able to earn revenue

4. Objectives of Pricing
• To Earn revenue and make profits
• To Increase / maximize sales
• To Beat the competition
• To Increase market share
• To Achieve price – quality leadership – e.g. Apple, Mercedes Benz

5. Factors impacting Pricing
• Marketing objectives of the company
• Costs of manufacturing
• Demand & nature of Demand
• Competition in the market
• Government Policies

6. Pricing Policy
• Generally, pricing policy refers to how a company sets the
prices of its products and services based on costs, value,
demand, and competition.
• Different companies can have different pricing policies
depending upon various factors listed in the previous slide

7. METHODS OF SETTING PRICE

8. Methods of Setting Price
• The main types of pricing strategies are:
 Cost-Plus Pricing or Markup Pricing
 Value-Based Pricing
 Competition-Based Pricing

9. Cost Plus Pricing
• A cost-plus pricing is also called Mark Up pricing
• It’s also known as markup pricing since businesses who use
this strategy “mark up” their products based on how much
they’d like to profit.
• E.g. The shoes cost $25 to make, and the firm wants to make
a $25 profit on each sale. The company will set the price of
the shoes at $50 [at 100 percent Markup]

10. Value Based Pricing
• A value-based pricing strategy is when companies price their
products or services based on what the customer is willing to
pay
• Value based pricing is customer driven while cost based
pricing is product driven
• E.g. parker pen

11. Competition Based Pricing
• Competition-based pricing is also known as going rate
pricing. It doesn’t take into account the cost of their product
or consumer demand.
• Instead, a competition-based pricing strategy uses the
competitors’ prices as a benchmark.
• E.g. Pepsi and Coke

12. PRICING STRATEGIES

13. Pricing Strategies
• The following types of prominent pricing strategies can be noted:
 Skimming Pricing
 Penetration Pricing
 Dynamic Pricing
 Psychological Pricing
 Freemium Pricing
 Bundle Pricing

14. Skimming Pricing
• Price skimming is a pricing strategy in which a marketer sets
a relatively high initial price for a product or service at first,
then lowers the price over a period of time.
• Over a period of time, the price comes down due to a
number of reasons like development in technology, new
substitutes in the market etc.

15. Penetration Pricing
• Penetration pricing is just opposite to skimming pricing
• In penetration pricing, the companies enter the market with
extremely low price to take the attention of the consumer away
from high priced competitors
• This strategy is suitable only in the short run and is not sustainable
• In the longer run, the prices are gradually increased. The strategy
is based on disruption and temporary loss, hoping to gain a good
market share. E.g. JIO

16. Dynamic Pricing
• Dynamic pricing is also known as surge pricing, demand pricing,
or time-based pricing.
• It’s a flexible pricing strategy where prices fluctuate based on
market and customer demand.
• Hotels, airlines companies, Indian railways in case of selected
trains use dynamic pricing by applying algorithms that consider
competitor pricing, demand, and other factors.

17. Psychological Pricing
• Psychological pricing is what it sounds like — it targets human
psychology to boost sales.
• For example, according to the "9-digit effect", even though a
product that costs Rs. 99 is essentially Rs. 100, customers may see
this as a good deal simply because of the "9" in the price.

18. Freemium Pricing
• A combination of the words “free” and
“premium,” freemium pricing is when companies offer a basic
version of their product hoping that users will eventually pay to
upgrade or access more features
• Freemium is a pricing strategy commonly used by software
companies.
• They choose this strategy because free trials and limited
memberships offer a “peek” into a software’s full functionality

19. Bundle Pricing
• A bundle pricing strategy is when the firm offers (or
"bundle") two or more complementary products or services
together and sell them for a single price.
• The firm may choose to sell bundled
products or services only as part of a bundle, or sell them
as both components of bundles and individual products.

20. THANK YOU