SlideShare a Scribd company logo
1 of 33
PRICING
STRATEGIES

Prof. Bauer-Ramazani

MECHELLE V.
BALBOA
MBA
“Pricing is a critical ingredient in the
marketing mix that diffirentiates the
brand. In some cases, it is the
major factor that determines brand
image.”
ALEX FERNANDEZ
Head of Consumer Health, United Laboratories, Inc.
Overview










Definition of price
Function of Price
International Pricing
Psychological Pricing
Price Elasticity
Price Expectations
Price Sensitivity Meter
Price Adjustment
Fighting Price Attacks
Price - Definition




the amount of money asked or given for
“something”
the sum of all the values that consumers
exchange for the benefits of having or
using the product or service


Lessor – rent; schools – tuition; employees –
wages; banks – interest; lawyers and doctors
– professional fee; fixers – consultancy fee
Pricing Strategy
It can be defined as “a reasoned
choice from set of a alternative prices (or
price schedules) that aim at profit
maximization within a planning period in
response to a given scenario” (Gerard
Tellis, 1986)
Function of Price


It makes the product affordable to its
target market





Firms offer installment plan

It reflects the value of the product
A major tool for business model
innovation
al
rn on
te titi
Ex pe

m
Co

M E
ar x
ke te
t D rn
em al
an
d

Factors to Consider in Pricing

Internal Factor:
Product Cost
Company Objectives
Factors to Consider in Pricing


Internal Factor 1: Product Cost




Product cost must be broken down to fixed
and variable cost as most companies sell
more than one item and the fixed cost must
be allocated to different products in a
sensible way
Under the cost-based pricing strategy, two
common types of setting prices:
Mark-up
 Target Profit

Internal Factor 1: Product Cost




Mark-up – a retail price of P1000 with
10% mark-up on sales = P900
Target Profit Pricing =
= unit cost + target ROI x investment
Unit sales
= P20 + 35% x P2,000,000
P100,000
= P27
Internal Factor 1: Product Cost


Unit Cost Pricing =

= variable cost + fixed cost
Unit sales
= P10 + P1,000,000
P100,000
= P10 + P10
= P20
Cost vs Expense Structure


Your main competitor has just lowered
their price. Should you also lower your
price or will it risk an expensive price
war?
Internal Factor 2: Company’s
Objectives
Pricing Objectives of the firm:
 Differential Pricing Strategy
 Competitive Pricing Strategy
 Product Line Pricing Strategy
Characteristics of the consumers:
 Some consumers have high search costs
 Some consumers have a low reservation for
the price
 All consumers have certain special
transaction costs other than search costs
Pricing Strategies based on Company’s
Objectives and Consumer Characteristics

Characteristics of
Consumer

Differential Pricing

Competitive
Pricing

Product line
Pricing

Some consumers
have high search
costs

Random
Discounting

Price Signalling

Image Pricing

Some consumers
have a low
reservation for the
price
All consumers
have certain
special transaction
costs other than
search costs

Periodic
Discounting

Penetration /
Experience Curve

Price Bundling /
Premium

Second Market
Discounting

Georgraphic
Pricing

Complementary
Pricing
Differential Pricing
Random Discounting - Common examples are
“sale” prices or special discounts provided by
companies.
Second Market Discounting – Only the second
market segment enjoys through lower price
Periodic Discounting – the manner of
discounting is predictable over time and
known to consumers and the discount can be
used by all consumers
Competitive Pricing
Price Signaling – Prices are set high
regardless of high or basic product quality
Penetration Pricing – Exploits economies
of scale having cheaper cost, superior
technology, and an efficient organization
Experience Curve – Exploits a firm’s
production experience as cost decreases
due to cumulative volume
Geographic Pricing – Can be adopted
when there are adjacent markets
separated by transport costs rather than
reservation or transaction costs
Product Line Pricing
Image Pricing – Makes use of high price
to signal high quality and uses the profit
it makes from higher priced versions to
subsidize the price of lower priced
version
Price Bundling – Buying the whole
bundle is cheaper than the buying the
parts separately
Premium Pricing – the firms set a high
price emphasizing on unique product
features
Complementary Pricing – Captive
pricing, two-part pricing, loss-leader
pricing
Generic Strategy: The Bigger
Picture of Pricing
Product

Market

Low-cost

Differentiation

Broad

Broad Cost

Broad
Differentiation

Focus

Focus Cost

Focus
Differentiation
The Practice of Foolish
Penetration
Marketers may be tempted to price their
products low during the introductory period,
regardless of product quality and choices of
available distribution methods. The obvious
intention is to gain market shares quickly. The
temporary market shares gained, however,
may create a permanent price image for a
brand which may be difficult to change over
time.
External Factor 1: Market Demand
Different market create different market
demand.
Two of the most common ways in setting
prices under the market demand-based
pricing strategy are:
a. Perceived value
b. Demand Differential
Diagnostic Perception Pricing
Products have different features or attributes.
These attributes have different levels of
importance to the customers.
External Factor 2: Competition
Two of the most common ways in setting
prices under the competition-based pricing
strategy are:
a. Going rate
b. Sealed bid
The Practice of “Foolish
Fellowship”
While external factors may be similar to
competing companies, internal factors are
not. Different companies have different
objectives, different cost structures, and
different strengths. Abusing and overusing
competitor’s price or “going rate” pricing is
common practice among lazy marketers.
Marketers remember that the more unique
their products are, the more flexible they
can be in formulating pricing.
INTERNATIONAL PRICING
F.O.B. – FREE ON BOARD. The supplier pays the freight
up to a certain point, usually the point of origin.
C&F – COST AND FREIGHT. It means that the Philippine
exporter is quoting a price inclusive of freight from the
Philippines.
C.I.F. – COST, INSURANCE and FREIGHT – has a
similar meaning with C&F except that it includes the
cargo insurance covering the shipment from the port
of origin
INTERNATIONAL PRICING
International marketers have to consider buyer’s
landed cost and not only the competitiveness
of their final quote price. Landed cost would
take into consideration additional expenses
that the buyer would incur such as freight,
insurance, brokerage and arrester charges,
and tariff (which may vary from country to
country).
PSYCHOLOGICAL PRICING
Also called “Noticeable Price Difference”, this
technique is used most specially in
supermarkets and department stores to
create an impression of “good value”.
PRICE ELASTICITY
The term Elasticity connects the relationship
between changes in price and quantity of
sales. Price elasticity means that demand will
change if change in pricing occurs. Price
elasticity means that demand will not change
even when changes in pricing occur.
Price elasticity measurement allows companies
to evaluate how price changes will affect total
revenue.
Price elasticity of demand for a product is the
ratio of the percentage change in quantity
sold to the percentage in price.
PRICE ELASTICITY OF DEMAND
Price Elasticity of Demand =
% Change in Quantity Sold
% Change in Price
1.

2.

If the price elasticity of demand is
more than one, we can say that
demand is elastic.
If the price elasticity of demand is
less than one, we can say that
demand in inelastic.
Significant Findings on Price
Elasticity
1.

2.

3.

“Consumers tend to be more price-elastic
towards an impending price increase than
what actually takes place when the price
increase happens.”
“Consumers appear to be more sensitive to
price decreases than to price increases. They
are more ‘downside elastic’ than being ‘upside
elastic’.”
“The consumer’s price elasticity is observed
to diminish when shopping with a friend or
when being persuaded by a salesman
perceived as an expert.”
PRICE EXPECTATIONS
Using pricing research, price expectation can be
identified. The objective is to know the fair
range of the upper and lower threshold limits
of pricing. Within the fair price range, there is
likely to be neither change in quantity
purchased nor any brand switching. Above
the upper threshold limit, consumers will feel
the product is too expensive. Below the lower
threshold limit, consumers will doubt the
quality of the product and may not buy it.
PRICE SENSITIVITY METER
Van Westendorp’s Price Sensitivity Meter is one
of a number of direct techniques to research
pricing. Direct techniques assume that people
have some understanding of what a product
or service is worth, and therefore that it
makes sense to ask explicitly about price. By
contrast, indirect techniques, typically using
conjoint or discrete choice analysis, combine
the price with other attributes, ask questions
about the total package, and then extract
feelings about price from the results.
BPTO MODEL
BPTO enables marketers to understand the
implications of any change of price as well as
the way in which price and brand relate for
each respondent type,
BPTO identifies price premiums customers are
willing to pay and the added advantage of
identifying which brands are directly
competing with each other. A consumer brand
loyalty specifying their favorite and second
choices can also be identified in the model.
PRICING CRITERIA
…BASED ON COMPANY’S OBJECTIVES:
Objectives

When to charge
Lower Price

When to charge
Higher Price

Sales Volume
Turnover

Fast

Slow

Market
Dominance

Low

High

Profit Objective

Long-term

Short-term
PRICING CRITERIA
…BASED ON PRODUCT SPECIFICATIONS:
Product
Specifications

When to Charge
Lower Price

When to charge
Higher Price

Product Type

Commodity

Patented

Product Usage

Single Use

Multiple Use

Product
Obsolescence
Product Appeal

Slow

Fast

Price Sensitive

Price Insensitive

Production Method

Mass Production

Custom Made

Production Quantity

Big

Small

Production Capacity

Excess

Limited

Types of Service

Regular

Extra

Perceived Value

Overpriced

Underpriced

More Related Content

What's hot

Product, Services, and Brands - Building Customer Value - Marketing
Product, Services, and Brands - Building Customer Value - MarketingProduct, Services, and Brands - Building Customer Value - Marketing
Product, Services, and Brands - Building Customer Value - MarketingFaHaD .H. NooR
 
Developing the marketing mix
Developing the marketing mixDeveloping the marketing mix
Developing the marketing mixJeannie Barcelona
 
Developing Pricing Strategy
Developing Pricing StrategyDeveloping Pricing Strategy
Developing Pricing StrategyChoudhry Asad
 
Designing and managing services
Designing and managing servicesDesigning and managing services
Designing and managing servicesShimranz Skillls
 
Chapter 1 DEFINING MARKETING FOR THE 21st CENTURY
Chapter 1  DEFINING MARKETING FOR THE 21st CENTURYChapter 1  DEFINING MARKETING FOR THE 21st CENTURY
Chapter 1 DEFINING MARKETING FOR THE 21st CENTURYNishant Agrawal
 
12 managing people in service organisation
12 managing people in service organisation12 managing people in service organisation
12 managing people in service organisationRavi Gupta
 
CHAPTER 2 Marketing Management
CHAPTER 2 Marketing ManagementCHAPTER 2 Marketing Management
CHAPTER 2 Marketing ManagementPeleZain
 
Principles of Marketing - Pricing Strategies- Ch-11
Principles of Marketing -  Pricing Strategies- Ch-11Principles of Marketing -  Pricing Strategies- Ch-11
Principles of Marketing - Pricing Strategies- Ch-11Sadril ASif
 
Pricing Strategy ppt
Pricing Strategy pptPricing Strategy ppt
Pricing Strategy pptFahad Ali
 
Relationship marketing
Relationship  marketingRelationship  marketing
Relationship marketingNaveen Prasad
 
Pricing- Understanding & Capturing Customer Value
Pricing- Understanding & Capturing Customer ValuePricing- Understanding & Capturing Customer Value
Pricing- Understanding & Capturing Customer ValueAkib Hasan Srabon
 
PPT on pricing strategies
PPT on pricing strategiesPPT on pricing strategies
PPT on pricing strategiesITC Limited
 
Kotler Chapter 14 Developing Pricing Strategies and Programs
Kotler Chapter 14Developing PricingStrategies and ProgramsKotler Chapter 14Developing PricingStrategies and Programs
Kotler Chapter 14 Developing Pricing Strategies and Programsdona_sia
 
Pricing Understanding and Capturing Customer Value - Marketing
Pricing Understanding and Capturing Customer Value - MarketingPricing Understanding and Capturing Customer Value - Marketing
Pricing Understanding and Capturing Customer Value - MarketingFaHaD .H. NooR
 
Chapter 14 - Developing Pricing Strategies and Programs
Chapter 14 - Developing Pricing Strategies and ProgramsChapter 14 - Developing Pricing Strategies and Programs
Chapter 14 - Developing Pricing Strategies and ProgramsDr. Ankit Kesharwani
 
01 principles of marketing - introduction
01   principles of marketing - introduction01   principles of marketing - introduction
01 principles of marketing - introductionthe bank of khyber
 
Marketing Mix - Place
Marketing Mix - PlaceMarketing Mix - Place
Marketing Mix - Placetutor2u
 
Relationship marketing presentation
Relationship marketing presentationRelationship marketing presentation
Relationship marketing presentationAfzaal Ali
 

What's hot (20)

Product, Services, and Brands - Building Customer Value - Marketing
Product, Services, and Brands - Building Customer Value - MarketingProduct, Services, and Brands - Building Customer Value - Marketing
Product, Services, and Brands - Building Customer Value - Marketing
 
Developing the marketing mix
Developing the marketing mixDeveloping the marketing mix
Developing the marketing mix
 
Developing Pricing Strategy
Developing Pricing StrategyDeveloping Pricing Strategy
Developing Pricing Strategy
 
Designing and managing services
Designing and managing servicesDesigning and managing services
Designing and managing services
 
Chapter 1 DEFINING MARKETING FOR THE 21st CENTURY
Chapter 1  DEFINING MARKETING FOR THE 21st CENTURYChapter 1  DEFINING MARKETING FOR THE 21st CENTURY
Chapter 1 DEFINING MARKETING FOR THE 21st CENTURY
 
12 managing people in service organisation
12 managing people in service organisation12 managing people in service organisation
12 managing people in service organisation
 
CHAPTER 2 Marketing Management
CHAPTER 2 Marketing ManagementCHAPTER 2 Marketing Management
CHAPTER 2 Marketing Management
 
Principles of Marketing - Pricing Strategies- Ch-11
Principles of Marketing -  Pricing Strategies- Ch-11Principles of Marketing -  Pricing Strategies- Ch-11
Principles of Marketing - Pricing Strategies- Ch-11
 
Pricing strategies
Pricing strategiesPricing strategies
Pricing strategies
 
Pricing Strategy ppt
Pricing Strategy pptPricing Strategy ppt
Pricing Strategy ppt
 
Relationship marketing
Relationship  marketingRelationship  marketing
Relationship marketing
 
Pricing- Understanding & Capturing Customer Value
Pricing- Understanding & Capturing Customer ValuePricing- Understanding & Capturing Customer Value
Pricing- Understanding & Capturing Customer Value
 
PPT on pricing strategies
PPT on pricing strategiesPPT on pricing strategies
PPT on pricing strategies
 
Pricing
PricingPricing
Pricing
 
Kotler Chapter 14 Developing Pricing Strategies and Programs
Kotler Chapter 14Developing PricingStrategies and ProgramsKotler Chapter 14Developing PricingStrategies and Programs
Kotler Chapter 14 Developing Pricing Strategies and Programs
 
Pricing Understanding and Capturing Customer Value - Marketing
Pricing Understanding and Capturing Customer Value - MarketingPricing Understanding and Capturing Customer Value - Marketing
Pricing Understanding and Capturing Customer Value - Marketing
 
Chapter 14 - Developing Pricing Strategies and Programs
Chapter 14 - Developing Pricing Strategies and ProgramsChapter 14 - Developing Pricing Strategies and Programs
Chapter 14 - Developing Pricing Strategies and Programs
 
01 principles of marketing - introduction
01   principles of marketing - introduction01   principles of marketing - introduction
01 principles of marketing - introduction
 
Marketing Mix - Place
Marketing Mix - PlaceMarketing Mix - Place
Marketing Mix - Place
 
Relationship marketing presentation
Relationship marketing presentationRelationship marketing presentation
Relationship marketing presentation
 

Similar to PRICING STRATEGIES: KEY CONCEPTS FOR SETTING THE RIGHT PRICE

Pricing by Philiph Kotler
Pricing by Philiph KotlerPricing by Philiph Kotler
Pricing by Philiph KotlerFahad Aziz
 
Bus169 Kotler Chapter 10
Bus169 Kotler Chapter 10Bus169 Kotler Chapter 10
Bus169 Kotler Chapter 10Alwyn Lau
 
Lecture 9 pricing considerations and approaches
Lecture 9 pricing considerations and approachesLecture 9 pricing considerations and approaches
Lecture 9 pricing considerations and approachesLisamarieTamange
 
Pricing In Marketing - UNIT-5 & 6-PRICING.ppt
Pricing In Marketing - UNIT-5 & 6-PRICING.pptPricing In Marketing - UNIT-5 & 6-PRICING.ppt
Pricing In Marketing - UNIT-5 & 6-PRICING.pptetebarkhmichale
 
price is to set a monetary cost for products and services of financial and ba...
price is to set a monetary cost for products and services of financial and ba...price is to set a monetary cost for products and services of financial and ba...
price is to set a monetary cost for products and services of financial and ba...MengsongNguon
 
Lecture 5 pricing strategies
Lecture 5 pricing strategiesLecture 5 pricing strategies
Lecture 5 pricing strategiesAshmond Ansere
 
Pricing methods for Managerial Economics
Pricing methods for Managerial EconomicsPricing methods for Managerial Economics
Pricing methods for Managerial EconomicsDr. Durgaprasad Navulla
 
Marketing Analytics, Slide 6.pptx
Marketing Analytics, Slide 6.pptxMarketing Analytics, Slide 6.pptx
Marketing Analytics, Slide 6.pptxANSHUMANMODAK
 
VOC 198_LECTURE - 6 (1).pptggbffffffffffg
VOC 198_LECTURE - 6 (1).pptggbffffffffffgVOC 198_LECTURE - 6 (1).pptggbffffffffffg
VOC 198_LECTURE - 6 (1).pptggbffffffffffgahmetcanpro
 
Marketing Mix Priced OP 09
Marketing Mix Priced OP 09Marketing Mix Priced OP 09
Marketing Mix Priced OP 09Hillary Jenkins
 
Marketing Mix Priced Op 08
Marketing Mix Priced Op 08Marketing Mix Priced Op 08
Marketing Mix Priced Op 08susanellis
 
Services marketing mix - product, price, place, promotion
Services marketing mix - product, price, place, promotionServices marketing mix - product, price, place, promotion
Services marketing mix - product, price, place, promotionkartiktherealhero3
 
Marketing Mix Priced
Marketing Mix Priced Marketing Mix Priced
Marketing Mix Priced duong tit
 

Similar to PRICING STRATEGIES: KEY CONCEPTS FOR SETTING THE RIGHT PRICE (20)

Mm.12.10
Mm.12.10Mm.12.10
Mm.12.10
 
Pricing by Philiph Kotler
Pricing by Philiph KotlerPricing by Philiph Kotler
Pricing by Philiph Kotler
 
Bus169 Kotler Chapter 10
Bus169 Kotler Chapter 10Bus169 Kotler Chapter 10
Bus169 Kotler Chapter 10
 
Lecture 9 pricing considerations and approaches
Lecture 9 pricing considerations and approachesLecture 9 pricing considerations and approaches
Lecture 9 pricing considerations and approaches
 
Pricing (marketing)
Pricing (marketing)Pricing (marketing)
Pricing (marketing)
 
Pricing
PricingPricing
Pricing
 
Pricing In Marketing - UNIT-5 & 6-PRICING.ppt
Pricing In Marketing - UNIT-5 & 6-PRICING.pptPricing In Marketing - UNIT-5 & 6-PRICING.ppt
Pricing In Marketing - UNIT-5 & 6-PRICING.ppt
 
price is to set a monetary cost for products and services of financial and ba...
price is to set a monetary cost for products and services of financial and ba...price is to set a monetary cost for products and services of financial and ba...
price is to set a monetary cost for products and services of financial and ba...
 
Lecture 5 pricing strategies
Lecture 5 pricing strategiesLecture 5 pricing strategies
Lecture 5 pricing strategies
 
MARKETING-CH8
MARKETING-CH8MARKETING-CH8
MARKETING-CH8
 
Pricing methods for Managerial Economics
Pricing methods for Managerial EconomicsPricing methods for Managerial Economics
Pricing methods for Managerial Economics
 
Cmarketing 13
Cmarketing 13Cmarketing 13
Cmarketing 13
 
Pricing decisions
Pricing decisionsPricing decisions
Pricing decisions
 
Marketing Analytics, Slide 6.pptx
Marketing Analytics, Slide 6.pptxMarketing Analytics, Slide 6.pptx
Marketing Analytics, Slide 6.pptx
 
VOC 198_LECTURE - 6 (1).pptggbffffffffffg
VOC 198_LECTURE - 6 (1).pptggbffffffffffgVOC 198_LECTURE - 6 (1).pptggbffffffffffg
VOC 198_LECTURE - 6 (1).pptggbffffffffffg
 
Marketing Mix Priced OP 09
Marketing Mix Priced OP 09Marketing Mix Priced OP 09
Marketing Mix Priced OP 09
 
Marketing Mix Priced Op 08
Marketing Mix Priced Op 08Marketing Mix Priced Op 08
Marketing Mix Priced Op 08
 
Services marketing mix - product, price, place, promotion
Services marketing mix - product, price, place, promotionServices marketing mix - product, price, place, promotion
Services marketing mix - product, price, place, promotion
 
Marketing Mix - Price
Marketing Mix - PriceMarketing Mix - Price
Marketing Mix - Price
 
Marketing Mix Priced
Marketing Mix Priced Marketing Mix Priced
Marketing Mix Priced
 

Recently uploaded

Traction part 2 - EOS Model JAX Bridges.
Traction part 2 - EOS Model JAX Bridges.Traction part 2 - EOS Model JAX Bridges.
Traction part 2 - EOS Model JAX Bridges.Anamaria Contreras
 
Guide Complete Set of Residential Architectural Drawings PDF
Guide Complete Set of Residential Architectural Drawings PDFGuide Complete Set of Residential Architectural Drawings PDF
Guide Complete Set of Residential Architectural Drawings PDFChandresh Chudasama
 
(Best) ENJOY Call Girls in Faridabad Ex | 8377087607
(Best) ENJOY Call Girls in Faridabad Ex | 8377087607(Best) ENJOY Call Girls in Faridabad Ex | 8377087607
(Best) ENJOY Call Girls in Faridabad Ex | 8377087607dollysharma2066
 
Ten Organizational Design Models to align structure and operations to busines...
Ten Organizational Design Models to align structure and operations to busines...Ten Organizational Design Models to align structure and operations to busines...
Ten Organizational Design Models to align structure and operations to busines...Seta Wicaksana
 
8447779800, Low rate Call girls in Rohini Delhi NCR
8447779800, Low rate Call girls in Rohini Delhi NCR8447779800, Low rate Call girls in Rohini Delhi NCR
8447779800, Low rate Call girls in Rohini Delhi NCRashishs7044
 
Cybersecurity Awareness Training Presentation v2024.03
Cybersecurity Awareness Training Presentation v2024.03Cybersecurity Awareness Training Presentation v2024.03
Cybersecurity Awareness Training Presentation v2024.03DallasHaselhorst
 
Unlocking the Future: Explore Web 3.0 Workshop to Start Earning Today!
Unlocking the Future: Explore Web 3.0 Workshop to Start Earning Today!Unlocking the Future: Explore Web 3.0 Workshop to Start Earning Today!
Unlocking the Future: Explore Web 3.0 Workshop to Start Earning Today!Doge Mining Website
 
Church Building Grants To Assist With New Construction, Additions, And Restor...
Church Building Grants To Assist With New Construction, Additions, And Restor...Church Building Grants To Assist With New Construction, Additions, And Restor...
Church Building Grants To Assist With New Construction, Additions, And Restor...Americas Got Grants
 
Innovation Conference 5th March 2024.pdf
Innovation Conference 5th March 2024.pdfInnovation Conference 5th March 2024.pdf
Innovation Conference 5th March 2024.pdfrichard876048
 
International Business Environments and Operations 16th Global Edition test b...
International Business Environments and Operations 16th Global Edition test b...International Business Environments and Operations 16th Global Edition test b...
International Business Environments and Operations 16th Global Edition test b...ssuserf63bd7
 
Financial-Statement-Analysis-of-Coca-cola-Company.pptx
Financial-Statement-Analysis-of-Coca-cola-Company.pptxFinancial-Statement-Analysis-of-Coca-cola-Company.pptx
Financial-Statement-Analysis-of-Coca-cola-Company.pptxsaniyaimamuddin
 
Memorándum de Entendimiento (MoU) entre Codelco y SQM
Memorándum de Entendimiento (MoU) entre Codelco y SQMMemorándum de Entendimiento (MoU) entre Codelco y SQM
Memorándum de Entendimiento (MoU) entre Codelco y SQMVoces Mineras
 
Pitch Deck Teardown: Geodesic.Life's $500k Pre-seed deck
Pitch Deck Teardown: Geodesic.Life's $500k Pre-seed deckPitch Deck Teardown: Geodesic.Life's $500k Pre-seed deck
Pitch Deck Teardown: Geodesic.Life's $500k Pre-seed deckHajeJanKamps
 
FULL ENJOY Call girls in Paharganj Delhi | 8377087607
FULL ENJOY Call girls in Paharganj Delhi | 8377087607FULL ENJOY Call girls in Paharganj Delhi | 8377087607
FULL ENJOY Call girls in Paharganj Delhi | 8377087607dollysharma2066
 
Darshan Hiranandani [News About Next CEO].pdf
Darshan Hiranandani [News About Next CEO].pdfDarshan Hiranandani [News About Next CEO].pdf
Darshan Hiranandani [News About Next CEO].pdfShashank Mehta
 
APRIL2024_UKRAINE_xml_0000000000000 .pdf
APRIL2024_UKRAINE_xml_0000000000000 .pdfAPRIL2024_UKRAINE_xml_0000000000000 .pdf
APRIL2024_UKRAINE_xml_0000000000000 .pdfRbc Rbcua
 
Buy gmail accounts.pdf Buy Old Gmail Accounts
Buy gmail accounts.pdf Buy Old Gmail AccountsBuy gmail accounts.pdf Buy Old Gmail Accounts
Buy gmail accounts.pdf Buy Old Gmail AccountsBuy Verified Accounts
 
Youth Involvement in an Innovative Coconut Value Chain by Mwalimu Menza
Youth Involvement in an Innovative Coconut Value Chain by Mwalimu MenzaYouth Involvement in an Innovative Coconut Value Chain by Mwalimu Menza
Youth Involvement in an Innovative Coconut Value Chain by Mwalimu Menzaictsugar
 
TriStar Gold Corporate Presentation - April 2024
TriStar Gold Corporate Presentation - April 2024TriStar Gold Corporate Presentation - April 2024
TriStar Gold Corporate Presentation - April 2024Adnet Communications
 
Cyber Security Training in Office Environment
Cyber Security Training in Office EnvironmentCyber Security Training in Office Environment
Cyber Security Training in Office Environmentelijahj01012
 

Recently uploaded (20)

Traction part 2 - EOS Model JAX Bridges.
Traction part 2 - EOS Model JAX Bridges.Traction part 2 - EOS Model JAX Bridges.
Traction part 2 - EOS Model JAX Bridges.
 
Guide Complete Set of Residential Architectural Drawings PDF
Guide Complete Set of Residential Architectural Drawings PDFGuide Complete Set of Residential Architectural Drawings PDF
Guide Complete Set of Residential Architectural Drawings PDF
 
(Best) ENJOY Call Girls in Faridabad Ex | 8377087607
(Best) ENJOY Call Girls in Faridabad Ex | 8377087607(Best) ENJOY Call Girls in Faridabad Ex | 8377087607
(Best) ENJOY Call Girls in Faridabad Ex | 8377087607
 
Ten Organizational Design Models to align structure and operations to busines...
Ten Organizational Design Models to align structure and operations to busines...Ten Organizational Design Models to align structure and operations to busines...
Ten Organizational Design Models to align structure and operations to busines...
 
8447779800, Low rate Call girls in Rohini Delhi NCR
8447779800, Low rate Call girls in Rohini Delhi NCR8447779800, Low rate Call girls in Rohini Delhi NCR
8447779800, Low rate Call girls in Rohini Delhi NCR
 
Cybersecurity Awareness Training Presentation v2024.03
Cybersecurity Awareness Training Presentation v2024.03Cybersecurity Awareness Training Presentation v2024.03
Cybersecurity Awareness Training Presentation v2024.03
 
Unlocking the Future: Explore Web 3.0 Workshop to Start Earning Today!
Unlocking the Future: Explore Web 3.0 Workshop to Start Earning Today!Unlocking the Future: Explore Web 3.0 Workshop to Start Earning Today!
Unlocking the Future: Explore Web 3.0 Workshop to Start Earning Today!
 
Church Building Grants To Assist With New Construction, Additions, And Restor...
Church Building Grants To Assist With New Construction, Additions, And Restor...Church Building Grants To Assist With New Construction, Additions, And Restor...
Church Building Grants To Assist With New Construction, Additions, And Restor...
 
Innovation Conference 5th March 2024.pdf
Innovation Conference 5th March 2024.pdfInnovation Conference 5th March 2024.pdf
Innovation Conference 5th March 2024.pdf
 
International Business Environments and Operations 16th Global Edition test b...
International Business Environments and Operations 16th Global Edition test b...International Business Environments and Operations 16th Global Edition test b...
International Business Environments and Operations 16th Global Edition test b...
 
Financial-Statement-Analysis-of-Coca-cola-Company.pptx
Financial-Statement-Analysis-of-Coca-cola-Company.pptxFinancial-Statement-Analysis-of-Coca-cola-Company.pptx
Financial-Statement-Analysis-of-Coca-cola-Company.pptx
 
Memorándum de Entendimiento (MoU) entre Codelco y SQM
Memorándum de Entendimiento (MoU) entre Codelco y SQMMemorándum de Entendimiento (MoU) entre Codelco y SQM
Memorándum de Entendimiento (MoU) entre Codelco y SQM
 
Pitch Deck Teardown: Geodesic.Life's $500k Pre-seed deck
Pitch Deck Teardown: Geodesic.Life's $500k Pre-seed deckPitch Deck Teardown: Geodesic.Life's $500k Pre-seed deck
Pitch Deck Teardown: Geodesic.Life's $500k Pre-seed deck
 
FULL ENJOY Call girls in Paharganj Delhi | 8377087607
FULL ENJOY Call girls in Paharganj Delhi | 8377087607FULL ENJOY Call girls in Paharganj Delhi | 8377087607
FULL ENJOY Call girls in Paharganj Delhi | 8377087607
 
Darshan Hiranandani [News About Next CEO].pdf
Darshan Hiranandani [News About Next CEO].pdfDarshan Hiranandani [News About Next CEO].pdf
Darshan Hiranandani [News About Next CEO].pdf
 
APRIL2024_UKRAINE_xml_0000000000000 .pdf
APRIL2024_UKRAINE_xml_0000000000000 .pdfAPRIL2024_UKRAINE_xml_0000000000000 .pdf
APRIL2024_UKRAINE_xml_0000000000000 .pdf
 
Buy gmail accounts.pdf Buy Old Gmail Accounts
Buy gmail accounts.pdf Buy Old Gmail AccountsBuy gmail accounts.pdf Buy Old Gmail Accounts
Buy gmail accounts.pdf Buy Old Gmail Accounts
 
Youth Involvement in an Innovative Coconut Value Chain by Mwalimu Menza
Youth Involvement in an Innovative Coconut Value Chain by Mwalimu MenzaYouth Involvement in an Innovative Coconut Value Chain by Mwalimu Menza
Youth Involvement in an Innovative Coconut Value Chain by Mwalimu Menza
 
TriStar Gold Corporate Presentation - April 2024
TriStar Gold Corporate Presentation - April 2024TriStar Gold Corporate Presentation - April 2024
TriStar Gold Corporate Presentation - April 2024
 
Cyber Security Training in Office Environment
Cyber Security Training in Office EnvironmentCyber Security Training in Office Environment
Cyber Security Training in Office Environment
 

PRICING STRATEGIES: KEY CONCEPTS FOR SETTING THE RIGHT PRICE

  • 2. “Pricing is a critical ingredient in the marketing mix that diffirentiates the brand. In some cases, it is the major factor that determines brand image.” ALEX FERNANDEZ Head of Consumer Health, United Laboratories, Inc.
  • 3. Overview          Definition of price Function of Price International Pricing Psychological Pricing Price Elasticity Price Expectations Price Sensitivity Meter Price Adjustment Fighting Price Attacks
  • 4. Price - Definition   the amount of money asked or given for “something” the sum of all the values that consumers exchange for the benefits of having or using the product or service  Lessor – rent; schools – tuition; employees – wages; banks – interest; lawyers and doctors – professional fee; fixers – consultancy fee
  • 5. Pricing Strategy It can be defined as “a reasoned choice from set of a alternative prices (or price schedules) that aim at profit maximization within a planning period in response to a given scenario” (Gerard Tellis, 1986)
  • 6. Function of Price  It makes the product affordable to its target market    Firms offer installment plan It reflects the value of the product A major tool for business model innovation
  • 7. al rn on te titi Ex pe m Co M E ar x ke te t D rn em al an d Factors to Consider in Pricing Internal Factor: Product Cost Company Objectives
  • 8. Factors to Consider in Pricing  Internal Factor 1: Product Cost   Product cost must be broken down to fixed and variable cost as most companies sell more than one item and the fixed cost must be allocated to different products in a sensible way Under the cost-based pricing strategy, two common types of setting prices: Mark-up  Target Profit 
  • 9. Internal Factor 1: Product Cost   Mark-up – a retail price of P1000 with 10% mark-up on sales = P900 Target Profit Pricing = = unit cost + target ROI x investment Unit sales = P20 + 35% x P2,000,000 P100,000 = P27
  • 10. Internal Factor 1: Product Cost  Unit Cost Pricing = = variable cost + fixed cost Unit sales = P10 + P1,000,000 P100,000 = P10 + P10 = P20
  • 11. Cost vs Expense Structure  Your main competitor has just lowered their price. Should you also lower your price or will it risk an expensive price war?
  • 12. Internal Factor 2: Company’s Objectives Pricing Objectives of the firm:  Differential Pricing Strategy  Competitive Pricing Strategy  Product Line Pricing Strategy Characteristics of the consumers:  Some consumers have high search costs  Some consumers have a low reservation for the price  All consumers have certain special transaction costs other than search costs
  • 13. Pricing Strategies based on Company’s Objectives and Consumer Characteristics Characteristics of Consumer Differential Pricing Competitive Pricing Product line Pricing Some consumers have high search costs Random Discounting Price Signalling Image Pricing Some consumers have a low reservation for the price All consumers have certain special transaction costs other than search costs Periodic Discounting Penetration / Experience Curve Price Bundling / Premium Second Market Discounting Georgraphic Pricing Complementary Pricing
  • 14. Differential Pricing Random Discounting - Common examples are “sale” prices or special discounts provided by companies. Second Market Discounting – Only the second market segment enjoys through lower price Periodic Discounting – the manner of discounting is predictable over time and known to consumers and the discount can be used by all consumers
  • 15. Competitive Pricing Price Signaling – Prices are set high regardless of high or basic product quality Penetration Pricing – Exploits economies of scale having cheaper cost, superior technology, and an efficient organization Experience Curve – Exploits a firm’s production experience as cost decreases due to cumulative volume Geographic Pricing – Can be adopted when there are adjacent markets separated by transport costs rather than reservation or transaction costs
  • 16. Product Line Pricing Image Pricing – Makes use of high price to signal high quality and uses the profit it makes from higher priced versions to subsidize the price of lower priced version Price Bundling – Buying the whole bundle is cheaper than the buying the parts separately Premium Pricing – the firms set a high price emphasizing on unique product features Complementary Pricing – Captive pricing, two-part pricing, loss-leader pricing
  • 17. Generic Strategy: The Bigger Picture of Pricing Product Market Low-cost Differentiation Broad Broad Cost Broad Differentiation Focus Focus Cost Focus Differentiation
  • 18. The Practice of Foolish Penetration Marketers may be tempted to price their products low during the introductory period, regardless of product quality and choices of available distribution methods. The obvious intention is to gain market shares quickly. The temporary market shares gained, however, may create a permanent price image for a brand which may be difficult to change over time.
  • 19. External Factor 1: Market Demand Different market create different market demand. Two of the most common ways in setting prices under the market demand-based pricing strategy are: a. Perceived value b. Demand Differential
  • 20. Diagnostic Perception Pricing Products have different features or attributes. These attributes have different levels of importance to the customers.
  • 21. External Factor 2: Competition Two of the most common ways in setting prices under the competition-based pricing strategy are: a. Going rate b. Sealed bid
  • 22. The Practice of “Foolish Fellowship” While external factors may be similar to competing companies, internal factors are not. Different companies have different objectives, different cost structures, and different strengths. Abusing and overusing competitor’s price or “going rate” pricing is common practice among lazy marketers. Marketers remember that the more unique their products are, the more flexible they can be in formulating pricing.
  • 23. INTERNATIONAL PRICING F.O.B. – FREE ON BOARD. The supplier pays the freight up to a certain point, usually the point of origin. C&F – COST AND FREIGHT. It means that the Philippine exporter is quoting a price inclusive of freight from the Philippines. C.I.F. – COST, INSURANCE and FREIGHT – has a similar meaning with C&F except that it includes the cargo insurance covering the shipment from the port of origin
  • 24. INTERNATIONAL PRICING International marketers have to consider buyer’s landed cost and not only the competitiveness of their final quote price. Landed cost would take into consideration additional expenses that the buyer would incur such as freight, insurance, brokerage and arrester charges, and tariff (which may vary from country to country).
  • 25. PSYCHOLOGICAL PRICING Also called “Noticeable Price Difference”, this technique is used most specially in supermarkets and department stores to create an impression of “good value”.
  • 26. PRICE ELASTICITY The term Elasticity connects the relationship between changes in price and quantity of sales. Price elasticity means that demand will change if change in pricing occurs. Price elasticity means that demand will not change even when changes in pricing occur. Price elasticity measurement allows companies to evaluate how price changes will affect total revenue. Price elasticity of demand for a product is the ratio of the percentage change in quantity sold to the percentage in price.
  • 27. PRICE ELASTICITY OF DEMAND Price Elasticity of Demand = % Change in Quantity Sold % Change in Price 1. 2. If the price elasticity of demand is more than one, we can say that demand is elastic. If the price elasticity of demand is less than one, we can say that demand in inelastic.
  • 28. Significant Findings on Price Elasticity 1. 2. 3. “Consumers tend to be more price-elastic towards an impending price increase than what actually takes place when the price increase happens.” “Consumers appear to be more sensitive to price decreases than to price increases. They are more ‘downside elastic’ than being ‘upside elastic’.” “The consumer’s price elasticity is observed to diminish when shopping with a friend or when being persuaded by a salesman perceived as an expert.”
  • 29. PRICE EXPECTATIONS Using pricing research, price expectation can be identified. The objective is to know the fair range of the upper and lower threshold limits of pricing. Within the fair price range, there is likely to be neither change in quantity purchased nor any brand switching. Above the upper threshold limit, consumers will feel the product is too expensive. Below the lower threshold limit, consumers will doubt the quality of the product and may not buy it.
  • 30. PRICE SENSITIVITY METER Van Westendorp’s Price Sensitivity Meter is one of a number of direct techniques to research pricing. Direct techniques assume that people have some understanding of what a product or service is worth, and therefore that it makes sense to ask explicitly about price. By contrast, indirect techniques, typically using conjoint or discrete choice analysis, combine the price with other attributes, ask questions about the total package, and then extract feelings about price from the results.
  • 31. BPTO MODEL BPTO enables marketers to understand the implications of any change of price as well as the way in which price and brand relate for each respondent type, BPTO identifies price premiums customers are willing to pay and the added advantage of identifying which brands are directly competing with each other. A consumer brand loyalty specifying their favorite and second choices can also be identified in the model.
  • 32. PRICING CRITERIA …BASED ON COMPANY’S OBJECTIVES: Objectives When to charge Lower Price When to charge Higher Price Sales Volume Turnover Fast Slow Market Dominance Low High Profit Objective Long-term Short-term
  • 33. PRICING CRITERIA …BASED ON PRODUCT SPECIFICATIONS: Product Specifications When to Charge Lower Price When to charge Higher Price Product Type Commodity Patented Product Usage Single Use Multiple Use Product Obsolescence Product Appeal Slow Fast Price Sensitive Price Insensitive Production Method Mass Production Custom Made Production Quantity Big Small Production Capacity Excess Limited Types of Service Regular Extra Perceived Value Overpriced Underpriced