pricing strategy


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  • Ask students what will be the price of this pendant if it is available at Archies Janpath Nakshatra Swarovski
  • Maximum market share is market skimming
  • Estimate demand curve by surveys, price experiments, statistical analysis
  • Average cost = total cost / production
  • pricing strategy

    1. 1. Developing PricingStrategies and Programs Vineeta ahuja
    2. 2. Contents• Understanding pricing• Consumer psychology and pricing• How companies price• Adapting the price• Responding to price changes
    3. 3. What is a price?• It quantifies value and determines profit• It expresses the value of the exchange relationship• It is the determining factor in a marketing exchange• ‘Price’ can also be a fee, rent, fare, commission, etc
    4. 4. Price: the determining factor Price Product Supplier Customer Promotion & Place
    5. 5. Price: flexibility• Changes in price are more readily implemented than the other 3P’s• Product - major re-investment• Place - find and convince new distributors• Promotion - long time scales/involves outside agencies
    6. 6. Consumer Psychology and Pricing Reference Prices Price-quality inferences Price cues
    7. 7. Possible Consumer Reference Prices• “Fair price” • Lower-bound price• Last price paid • Competitor prices• Upper-bound price • Expected future price • Usual discounted price
    8. 8. The price…
    9. 9. Price Cues• “Left to right” pricing (Rs 299 vs. Rs 300)• Odd number discount perceptions• Even number value perceptions• Ending prices with 0 or 5• “Sale” written next to price
    10. 10. Steps in Setting PriceSelect the price objective Determine demand Estimate costs Analyze competitor price mix Select pricing method Select final price
    11. 11. Step 1: Selecting the Pricing Objective • Survival • Maximum current profit • Maximum market share • Maximum market skimming - Nokia • Product-quality leadership - Bugatti
    12. 12. Step 2: Determining DemandPrice Sensitivity EstimatingDemand Curves
    13. 13. Inelasticand Elastic Demand
    14. 14. Factors Leading to Less Price Sensitivity• The product is more distinctive• Buyers are less aware of substitutes• Buyers cannot easily compare the quality of substitutes• The expenditure is a smaller part of buyer’s total income• The expenditure is small compared to the total cost of the end product• Part of the cost is paid by another party• The product is used with previously purchased assets• The product is assumed to have high quality and prestige• Buyers cannot store the product
    15. 15. Step 3: Estimating Costs Types of Costs Accumulated Production Activity-Based Cost Accounting Target Costing
    16. 16. Cost Terms and Production• Fixed costs / overheads• Variable costs• Total costs• Average cost (total cost/production)• Cost at different levels of production• ABC
    17. 17. Cost per Unit as a Function of Accumulated Production
    18. 18. Selecting a Pricing Method• Markup pricing – Unit cost= variable cost + fixed cost/unit sales – Markup price = unit cost/(1-desired return on sales)• Target-return pricing = unit cost + (desired return x invested capital)/unit sales• Perceived-value pricing• Value pricing – EDLP, high-low pricing• Going-rate pricing• Auction-type pricing
    19. 19. Break-Even ChartBreak-even volume = fixed cost / (price – variable cost)
    20. 20. Auction-Type Pricing English auctions Dutch auctions Sealed-bid auctions
    21. 21. Step 6: Selecting the Final Price• Impact of other marketing activities• Company pricing policies• Gain-and-risk sharing pricing• Impact of price on other parties
    22. 22. Price-Adaptation Strategies Geographical Pricing Discounts/Allowances Promotional Pricing Differentiated Pricing
    23. 23. Price-Adaptation StrategiesGeographical Discounts/ AllowancesCountertrade • Cash discount• Barter • Quantity discount• Compensation deal • Functional discount –• Buyback arrangement trade channel• Offset members • Seasonal discount - hotels • Allowance -return on old items
    24. 24. Promotional Pricing Tactics • Loss-leader pricing • Special-event pricing • Cash rebates • Low-interest financing • Longer payment terms • Warranties and service contracts • Psychological discounting
    25. 25. Differentiated Pricing • Customer-segment pricing - museums • Product-form pricing • Image pricing • Channel pricing – vending machines • Location pricing - theatre • Time pricing- early bird • Yield pricing
    26. 26. Increasing Prices Delayed quotation pricing Escalator clauses Unbundling Reduction of discounts
    27. 27. Brand Leader Responses to Competitive Price Cuts• Maintain price• Maintain price and add value• Reduce price• Increase price and improve quality• Launch a low-price fighter line