Pricing Strategies

1. Pricing Strategies and
Programs

2. Learning Objectives
 How should a company set prices initially for
products or services?
 How should a company adapt prices to meet
varying circumstances and opportunities?

3. Synonyms for Price
 Rent
 Tuition
 Fee
 Fare
 Rate
 Toll
 Premium
 Honorarium
 Special assessment
 Bribe
 Dues
 Salary
 Commission
 Wage
 Tax

4. Sell value,
not price.
Kotler on
Marketing

5. Price Should Align with Value

6. Nine Price-Quality Strategies

7. Steps in Setting Price
Select the price objective
Determine demand
Estimate costs
Analyze competitor price mix
Select pricing method
Select final price

8. Step 1: Selecting the Pricing Objective
 Survival
 Maximum
current profit
 Maximum market
share
 Maximum market
skimming
 Product-quality
leadership

9. Many companies engage in “market
skimming” and “market penetration”
pricing for new products. Can you think
of products that would fit
these pricing model?

10. Step 2: Determining Demand
Price Sensitivity
(TCO)
Estimating
Demand Curves
(surveys, statistical analysis,
experiments)
Price Elasticity
of Demand

11. Step 3: Estimating Costs
Types of Costs
(fixed/variable, average/total)
Target Costing
Accumulated
Production
(experience curve)

12. Tata motors developed ‘Nano’
with a target price

13. Step 4: Analyzing Competitors’
Cost, Prices, and Offers
The 3 Cs Model
for Price setting

14. Step 5: Selecting a Pricing
Method
 Markup pricing
(unit cost/1-desired return on sales) where
unit cost is VC+ FC/ expected units to be
sold
 Target-return pricing
(unit cost+ [desired return x invested capital]/unit sales)
 Perceived-value pricing
 Value pricing
 Going-rate pricing
 Auction-type pricing

15. Auction-Type Pricing
English auctions
(ascending bids)
Dutch auctions
(descending bids)
Sealed-bid auctions

16. Step 6: Selecting the Final Price
 Psychological pricing
 Impact of other marketing activities
 Company pricing policies including
penalties
 Gain-and-risk sharing pricing
 Impact of price on other parties
(distributors, own sales force,
competitors, Govt.)

17. Price-Adaptation Strategies
Geographical Pricing
Discounts/Allowances
Differentiated Pricing
e.g. on location, time, customer segment
Promotional Pricing
e.g. loss leader, psychological discounting

18. Price-Adaptation Strategies
Countertrade
 Barter
 Compensation deal
(cash and kind)
 Buyback
arrangement
(goods [manufactured with
supplied equipments]
accepted as partial
payment)
 Offset
(receives full payment, but
agrees to spending the
money in that country)
Discounts/
Allowances
 Cash discount
 Quantity discount
 Functional discount
 Seasonal discount
 Allowance

19. Promotional Pricing Tactics
 Loss-leader pricing
 Special-event pricing
 Cash rebates
 Low-interest financing
 Warranties and service
contracts
 Psychological
discounting

20. Differentiated Pricing
 Customer-segment
pricing
 Product-form pricing
 Image pricing
 Channel pricing
 Location pricing
 Time pricing
 Yield pricing

21. Let’s recap