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PRICING
What is Pricing?


Is the process of determining what a company
   will receive in exchange for its products.
Two Views
Buyers’ View – For those making a purchase,
  such as final customers, price refers to what
  must be given up to obtain benefits.

Sellers’ View - To sellers in a transaction, price
  reflects the revenue generated for each
  product sold and, thus, is an important factor
  in determining profit.
Common Questions
Are they getting their money’s worth?

Can they afford that certain product?

Can I have a discount?

Why is it so expensive?
What a Price should do!
• Achieve the financial goals of the company.
  (e.g., profitability)

• Fit the realities of the marketplace. (Will
  customers buy at that price?)

• Support a product's market positioning.
Factors that affects Pricing

        Cost             Customer            Competition     Other Factors


•Supplier's prices   •Growth in            •perfect        •Role of Middle
                     customer's income     competition     Man
•Price inflation
                     •Perception about     •Imperfect
•Exchange rate       future prices         Competition
movements
                     •Quality perception
• Quality

                     • Demand
Pricing Strategies
Penetration pricing

• Here the organization sets a low price to
  increase sales and market share. Once market
  share has been captured the firm may well
  then increase their price.
Pricing Strategies
Skimming pricing

• The organization sets an initial high price and
  then slowly lowers the price to make the
  product available to a wider market. The
  objective is to skim profits of the market layer
  by layer.
Pricing Strategies
Competition pricing

• Setting a price in comparison with
  competitors. Really a firm has three options
  and these are to price lower, price the same
  or price higher.
Pricing Strategies
Product Line Pricing

• Pricing different products within the same
  product range at different price points.
Pricing Strategies
Bundle Pricing

• The organization bundles a group of products
  at a reduced price.
Pricing Strategies
Psychological pricing

• The seller here will consider the psychology of
  price and the positioning of price within the
  market place.
Pricing Strategies
Premium pricing

• The price set is high to        reflect the
  exclusiveness of the product.
Pricing Strategies
Optional pricing

• The organization sells optional extras along
  with the product to maximize its turnover
Basic Guidelines
• Your price must be enough higher than costs
  to cover reasonable variations in sales
  volume.

• You have to make a living.

• Your price should almost never be lower than
  your costs or higher than what most
  consumers consider "fair"
Price Discounts
Quantity discount - offered to customers who
 purchase in large quantities.

Cumulative quantity discount - a discount that
  increases as the cumulative quantity
  increases.
Price Discounts
Seasonal discount - based on the time that the
  purchase is made and designed to reduce
  seasonal variation in sales.

Cash discount - extended to customers who pay
  their bill before a specified date.
Price Discounts
Trade discount - a functional discount offered to
  channel members for performing their roles.

Promotional discount - a short-term discounted
  price offered to stimulate sales.
ACTIVITY


The PRICE is right
Pricing

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Pricing

  • 2. What is Pricing? Is the process of determining what a company will receive in exchange for its products.
  • 3. Two Views Buyers’ View – For those making a purchase, such as final customers, price refers to what must be given up to obtain benefits. Sellers’ View - To sellers in a transaction, price reflects the revenue generated for each product sold and, thus, is an important factor in determining profit.
  • 4. Common Questions Are they getting their money’s worth? Can they afford that certain product? Can I have a discount? Why is it so expensive?
  • 5.
  • 6. What a Price should do! • Achieve the financial goals of the company. (e.g., profitability) • Fit the realities of the marketplace. (Will customers buy at that price?) • Support a product's market positioning.
  • 7. Factors that affects Pricing Cost Customer Competition Other Factors •Supplier's prices •Growth in •perfect •Role of Middle customer's income competition Man •Price inflation •Perception about •Imperfect •Exchange rate future prices Competition movements •Quality perception • Quality • Demand
  • 8. Pricing Strategies Penetration pricing • Here the organization sets a low price to increase sales and market share. Once market share has been captured the firm may well then increase their price.
  • 9. Pricing Strategies Skimming pricing • The organization sets an initial high price and then slowly lowers the price to make the product available to a wider market. The objective is to skim profits of the market layer by layer.
  • 10. Pricing Strategies Competition pricing • Setting a price in comparison with competitors. Really a firm has three options and these are to price lower, price the same or price higher.
  • 11. Pricing Strategies Product Line Pricing • Pricing different products within the same product range at different price points.
  • 12. Pricing Strategies Bundle Pricing • The organization bundles a group of products at a reduced price.
  • 13. Pricing Strategies Psychological pricing • The seller here will consider the psychology of price and the positioning of price within the market place.
  • 14. Pricing Strategies Premium pricing • The price set is high to reflect the exclusiveness of the product.
  • 15. Pricing Strategies Optional pricing • The organization sells optional extras along with the product to maximize its turnover
  • 16. Basic Guidelines • Your price must be enough higher than costs to cover reasonable variations in sales volume. • You have to make a living. • Your price should almost never be lower than your costs or higher than what most consumers consider "fair"
  • 17. Price Discounts Quantity discount - offered to customers who purchase in large quantities. Cumulative quantity discount - a discount that increases as the cumulative quantity increases.
  • 18. Price Discounts Seasonal discount - based on the time that the purchase is made and designed to reduce seasonal variation in sales. Cash discount - extended to customers who pay their bill before a specified date.
  • 19. Price Discounts Trade discount - a functional discount offered to channel members for performing their roles. Promotional discount - a short-term discounted price offered to stimulate sales.

Editor's Notes

  1. describes markets such that no participants are large enough to have the market power to set the price of a homogeneous product.
  2. If your sales forecast is inaccurate, how far off can you be and still be profitable? Ideally, you want to be able to be off by a factor of two or more (your sales are half of your forecast) and still be profitable.Have you figured salary for yourself in your costs? If not, your profit has to be enough for you to live on and still have money to reinvest in the company.  This may seem obvious, but many entrepreneurs seem to miss this simple concept, either by miscalculating costs or by inadequate market research to determine fair pricing. Simply put, if people won't readily pay enough more than your cost to make you a fair profit, you need to reconsider your business model entirely. How can you cut your costs substantially? Or change your product positioning to justify higher pricing?
  3. Cumulative discounts may be offered to resellers who purchase large quantities over time but who do not wish to place large individual orders.
  4. For example, the travel industry offers much lower off-season rates. Such discounts do not have to be based on time of the year; they also can be based on day of the week or time of the day, such as pricing offered by long distance and wireless service providers.