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PRICING MODULE 8
What is Price? <ul><li>Price represents the value of a good or service for both seller and buyer. </li></ul><ul><li>Price ...
Procedure for Establishing Initial Prices <ul><li>Demand, Competition, Channel members are the factors affecting pricing d...
1. PRICING OF NEW PRODUCTS <ul><li>For New Product Pricing, following strategies can be employed: </li></ul><ul><li>1.  Pe...
<ul><li>2. Price Skimming Policy: charging high prices for a new product especially when no competition exists in market. ...
2. PRODUCT MIX PRICING STRATEGIES <ul><li>Pricing becomes difficult when the various products have demand and cost interre...
<ul><li>4. Two Part Pricing: Service firms often charge a fixed price plus or variable image usage fee like telephone pric...
3. PRICE ADJUSTMENT STRATEGIES <ul><li>1. GEOGRAPHICAL PRICING( Based on different parts of the country)— </li></ul><ul><l...
<ul><li>2. DISCOUNT PRICING: (deductions from final selling price)— </li></ul><ul><li>A. Trade Discount: offered by seller...
<ul><li>3. DISCRIMINATORY PRICING:( different prices are charged from different customers for the same good or service)— <...
<ul><li>4. PSYCHOLOGICAL PRICING: ( based on setting prices according to the mindsets of customers)— </li></ul><ul><li>A. ...
<ul><li>5. PROMOTIONAL PRICING: ( generally prices are below list price)— </li></ul><ul><li>A. Special Event Pricing: spec...
4. INITIATING PRICE CHANGE <ul><li>Price change can be either a price cut or price increase. Both leads to certain disturb...
Important Terms <ul><li>Trading up : A product line strategy wherein a company adds a higher priced prestige product (s) t...
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34332 pricing module_8

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34332 pricing module_8

  1. 1. PRICING MODULE 8
  2. 2. What is Price? <ul><li>Price represents the value of a good or service for both seller and buyer. </li></ul><ul><li>Price is the only element of marketing mix which generate revenue otherwise all elements have cost. </li></ul><ul><li>Pricing objectives are overall goals that describe what the firm wants to achieve through its pricing efforts like: </li></ul><ul><li>SURVIVAL, PROFIT, ROI, MARKET SHARE, CASH FLOW, PRODUCT QUALITY etc. </li></ul>
  3. 3. Procedure for Establishing Initial Prices <ul><li>Demand, Competition, Channel members are the factors affecting pricing decision. </li></ul><ul><li>Companies follow the six step process for setting price: </li></ul><ul><li>1. Setting the Pricing Objective </li></ul><ul><li>2. Determining Demand </li></ul><ul><li>3. Establishing Costs </li></ul><ul><li>4. Analysing competitors price and offers </li></ul><ul><li>5. Selecting pricing methods/ approaches </li></ul><ul><li>6. Selecting the final price </li></ul>
  4. 4. 1. PRICING OF NEW PRODUCTS <ul><li>For New Product Pricing, following strategies can be employed: </li></ul><ul><li>1. Penetration Pricing : marketer sets low prices in order to penetrate quickly and deeply in the market. Profits may not be very attractive at first because of low prices but it keeps away competition. </li></ul><ul><li>When low price is successful in excluding competition, a company may find it possible to raise prices and profits. </li></ul><ul><li>Penetration approach is desirable because: </li></ul><ul><li>-- large markets can be captured where buyers are sensitive to price </li></ul><ul><li>-- discouraging competition </li></ul><ul><li>-- customers are relunctant to pay premium prices for new products </li></ul>
  5. 5. <ul><li>2. Price Skimming Policy: charging high prices for a new product especially when no competition exists in market. </li></ul><ul><li>The initial high prices can build image of quality and prestige. </li></ul><ul><li>The marketer can cover high initial investment incurred on technology, promotion and other costs by charging high prices. </li></ul><ul><li>As no competition exists , buyers are ready to pay high prices for unique product </li></ul><ul><li>Initial high prices skim the segments insensitive to prices. </li></ul>
  6. 6. 2. PRODUCT MIX PRICING STRATEGIES <ul><li>Pricing becomes difficult when the various products have demand and cost interrelationships. There are 6 product mix pricing strategies: </li></ul><ul><li>1. Product Line Pricing: Firms usually develop product lines rather than single product. </li></ul><ul><li>2. Optional Feature Pricing: Most firm offer optional products or features alongwith their main product. </li></ul><ul><li>3. Captive Product Pricing: Companies that use captive pricing make products which can be used alongwith a main product like razor – blades, camera- film </li></ul>
  7. 7. <ul><li>4. Two Part Pricing: Service firms often charge a fixed price plus or variable image usage fee like telephone pricing </li></ul><ul><li>5. By- Product Pricing: In pricing of some products, there are some residue products which are called by products. For example, while processing of crude oil we get petrol as the main product and some by products also come out as diesel, kerosene, coaltar etc. The prices of by products are kept at a lower price. </li></ul><ul><li>6. Product Bundling Pricing: Bundle pricing is less than individual item pricing. Consumers might not otherwise buy , but the combined price must be low enough to get them buy bundle. </li></ul>
  8. 8. 3. PRICE ADJUSTMENT STRATEGIES <ul><li>1. GEOGRAPHICAL PRICING( Based on different parts of the country)— </li></ul><ul><li>FOB ( Free on board) buyer selects the transportation form and pays all freight charges. The seller pays the cost of loading the goods and hence is FOB. </li></ul><ul><li>Basing Point Pricing: seller selects the given city as a basing point and charges all customers the freight cost from that city to the customer location regardless of the city from which the goods are actually shipped. </li></ul><ul><li>Uniform Delivered Pricing: same price plus average freight to all customers regardless of their location. </li></ul><ul><li>Zone Pricing: within a geographical zone goods are delivered at same prices and vary by zones. </li></ul>
  9. 9. <ul><li>2. DISCOUNT PRICING: (deductions from final selling price)— </li></ul><ul><li>A. Trade Discount: offered by seller to the channel members to compensate for distribution tasks they perform. </li></ul><ul><li>B. Cash Discount: reduction in invoice amount to stimulate early payments. </li></ul><ul><li>C. Quantity Discount: price reduction to buyers who buy large volumes. </li></ul><ul><li>D. Seasonal Discount: reductions for those who buy goods out of season. </li></ul>
  10. 10. <ul><li>3. DISCRIMINATORY PRICING:( different prices are charged from different customers for the same good or service)— </li></ul><ul><li>A. Customer Segment Pricing: different customers pay different prices for the same service like students get concessions for rail transport, buses etc. </li></ul><ul><li>B. location Pricing: different prices based on location like in cinema hall different prices for balcony, first class etc. </li></ul><ul><li>C. Time Pricing: varied prices according to timings like mobile services cost less during late nights, happy hours in saloons etc. </li></ul>
  11. 11. <ul><li>4. PSYCHOLOGICAL PRICING: ( based on setting prices according to the mindsets of customers)— </li></ul><ul><li>A. Prestige Pricing: it is based on assumption that consumers do not buy goods or services if they consider price to be too low or high. Within a range customers are happy with any price charged but if it is less than that , quality is suspected and greater than that range, it is considered to be over priced. </li></ul><ul><li>B. Odd Pricing: setting prices in odd numbers like 999, 1999 etc. </li></ul><ul><li>C. Leader Pricing: lower prices are set so that others also follow. It generates customer interest like 5 rupees me coca cola </li></ul><ul><li>D. Bait Pricing: bait pricing is illegal wherein say suppose a furniture seller advertises a chair at a low price and customer who comes to inspect is talked about the faults in that chair and instead advantages of other high priced chair is talked about. </li></ul>
  12. 12. <ul><li>5. PROMOTIONAL PRICING: ( generally prices are below list price)— </li></ul><ul><li>A. Special Event Pricing: special prices for Diwali, New year, Christmas etc. </li></ul><ul><li>B. Low Interest Financing: it has become common to provide low financing on consumer durables. </li></ul><ul><li>C. Warranties and Service Contracts: marketer can promote sale by offering warranties and after free service promises. </li></ul>
  13. 13. 4. INITIATING PRICE CHANGE <ul><li>Price change can be either a price cut or price increase. Both leads to certain disturbances like: </li></ul><ul><li>A. Price Cut: leads to low quality trap, other competitors also follow and thus the same competition, customers do not accept price cut for a long time. </li></ul><ul><li>B. Price Increase: because of inflation and demand more than supply. </li></ul><ul><li>In both the cases it should not be all of a sudden and rather factors like state of economy, market structure, strength of product, competitors position should be seen. </li></ul>
  14. 14. Important Terms <ul><li>Trading up : A product line strategy wherein a company adds a higher priced prestige product (s) to its line in order to increase sales of its existing lower priced products. </li></ul><ul><li>Trading Down: in this strategy company adds lower priced items to reach a market that cannot afford higher priced goods. </li></ul><ul><li>Cannibalization: it occurs when increasing sales of a firm’s new product are mainly due to decreasing sales of its established products. </li></ul>

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