This presentation introduces the term pricing and briefly explains different types of pricing techniques

1. PRICING
Presented on 11-10-2017
Presented by:
Deep J. Gurung
Senior Research Fellow
Department of Business Administration
Tezpur University
“Price is the only
revenue
generating
element amongst
the four/seven
Ps.”

2. PRICING: Meaning
 “Pricing is the process of determining price at
which a product is bought or sold.”
 “Pricing is the process of determining what a
company will receive in exchange for its
products.”
 Pricing is a fundamental aspect of financial
modeling and is one of the four/seven Ps of
the marketing mix.

3. Characteristics of Pricing
 All prices must cover costs and profits.
 Review prices frequently to assure that they
reflect the dynamics of cost, market demand,
response to the competition, and profit
objectives.
 Prices must be established to assure sales.

4. Objectives of Pricing
 Maximize Profits and Achieve Return On
Investment (ROI)
 Positioning
 Gain or Maintain Market Share

5. Determinants OF Price
1. Demand :`Law of Demand' states that
"higher the price; lower the demand, and
vice versa, other things remaining the same'‘
2. Competition: Sellers operating under
conditions of pure competition do not have
any control over the prices they receive. A
monopolist, on the other hand, may fix
prices according to his discretion.

6. 3. Cost: Cost data constitute the fundamental
element in the price setting process.
 Cost-plus or Full-cost Pricing: The price is set
to cover costs (materials, labour and overhead)
and a predetermined percentage for profit.
 Marginal Cost Pricing Under marginal cost
pricing, fixed costs are ignored and prices are
determined on the basis of marginal cost.

7. Cost (contd…)
 Pricing for a Rate of Return :
An important problem that a firm might have to
face is one of adjusting the prices to changes in
costs. For this purpose the popular policies that
are often followed are as under:
a. Revise prices to maintain a constant
percentage mark-up over costs.
b. Revise prices to maintain profits as a constant
percentage of total sales
c. Revise prices to maintain a constant return on
invested capital.

8. 4. Government
Legal issues affecting the retail environment can
be broadly divided into two. One that affects the
buying of merchandise and the other that affects
the customer
 Price Discrimination: This means when a
vendor sells the same product to two or more
customers at different prices.

9.  Vertical Price Fixing: It involves agreements
to fix prices between parties at different levels
of the same marketing channel (e.g. retailers
and wholesalers). The agreements are
usually to set prices at the manufacturer's
suggested retail price.
 Horizontal Price Fixing: It involves
agreements between retailers that are in
direct competition with each other to have the
same prices. Horizontal price fixing is always
illegal since it suppresses competition while
often raising the cost to the consumer.

10. 5. Customer
 Difficult Comparison Effect: Customers are
more sensitive to price when it is easy to
compare competing offerings.
 Benefits/price Effect: This defines the
relationship between people's perception of
the benefits they receive from a product and
the price they pay for it.
 Situation Effect: Customers' sensitivity to
price can differ depending on the situation.

11. PRICING STRATEGIES
 Skimming Pricing: It allows the firm to
recover its sunk costs quickly before
competition steps in and lowers the market
price.
a. The inventory turn rate can be very low for
skimmed products.
b. Skimming encourages the entry of
competitors.
c. The firm could gain negative publicity if he
lowers the price too fast and without
significant changes in product profile.

12.  Penetration Pricing : Penetration pricing is
the pricing technique of setting a relatively low
initial entry price, a price that is often lower
than the eventual market price. The
expectation is that the initial low price will
secure market acceptance by breaking down
existing brand loyalties. Penetration pricing is
most commonly associated with the marketing
objective of increasing market snare or sales
volume, rather than short term profit
maximization.

13.  Premium Pricing: In order to “Differentiate”
itself and convey products / services that are
unique or luxurious, this method of pricing is
used. These products cater to classes.
 Captive Pricing: This Pricing model is used
when a product requires repeat purchase for
its accessories on a recurring basis or “After
sales Service” for its maintenance. Here,
primary sale is made at an attractive price and
subsequent sale of accessories is made at a
premium

14.  Psychological Pricing: Psychological pricing
is a method of setting prices intended to have
special appeal to consumers.
1. Prestige Pricing: Prestige pricing uses -
high prices to convey a distinct and
exclusive image for the product.
2. Traditional Pricing: Traditional pricing uses
historical or long-standing prices for a
product to determine the pricing
3. Odd-Even Pricing:This is quite a popular.
Here the prices are set at odd numbers (e.g.
$9.95) to denote a lower price or a "good
deal" or setting prices at even numbers (e.g.,
$ 10.00) to imply higher quality.

15.  Multiple Pricing: This method of pricing
strategy is to increase volume throughput by
giving higher benefit on greater units
purchased. This is also called Ladder Pricing
 Bundle Pricing: It is the practice of offering
two or more different products or services at
one price.
 Product Line Pricing: This method of pricing
is to promote range of products or services to
reflect the benefits of a package price as
against the parts.

16.  Extinction Pricing: Extinction pricing has the
overall objective of eliminating competition, and
involves setting very low prices in the short term in
order to `under-cut' competition, or alternatively
keep away potential new entrants. The extinction
price may, in the short term, be set at a level lower
even than the suppliers own cost of production,
but once competition has been extinguished;
prices are raised to -profitable levels.
 Everyday Low Pricing (EDLP): This method of
pricing strategy is to create strong value image in
customer’s mind and attracting them on a
continuous basis and not merely on promotions.

17.  .
 Geographical Pricing: Based on locations,
price is determined for products services. This
could be duty to distance or accessibility
which may result in cost increase due to:
I. Transportation,
II. Tax Structures,
III. Rarity of the product for the region.

18.  Perceived-value Pricing: A method of pricing
in which the seller attempts to set price at the
level that the intended buyers value the
product. It is also called value-in-use pricing
or value-oriented pricing.
 Optional Product Pricing: This pricing model
is used to sell add ons and increase value per
customer as they start to buy. These optional
increase the overall price of the product or
service for an added feature / benefit.
 Fixed and variable Pricing