This document discusses pricing strategy and methods. It covers various approaches to initially setting prices such as cost-based, competitor-based, and customer value-based pricing. Factors that influence pricing decisions are also examined, including price sensitivity of customers. The document outlines how companies can initiate price changes and strategies for responding to price wars initiated by competitors.

1. Marketing Management by Arun Kumar and N Meenakshi
CHAPTER 10
PRICING STRATEGY

2. Marketing Management by Arun Kumar and N Meenakshi
LEARNING OBJECTIVES
• Various methods of fixing the initial pricing on the
basis of cost, competitors, marketing and customer
value perceptions
• Identifying and analyzing various factors that
influence pricing strategies of companies when
using a marketing-oriented approach
• Understanding how companies plan, implement
and measure pricing cues to customers
• Adjusting pricing according to consumption levels

3. Marketing Management by Arun Kumar and N Meenakshi
• Understanding price sensitivity of customers and
room for maneuverability of price levels
• Understanding when and by which methods
companies can initiate price changes
• When to follow competitor induced price changes,
when to follow quickly and when to follow slowly
• Price wars: Initiation of price cuts, response and
impact of the response strategies
Learning Objectives (Contd.)

4. Marketing Management by Arun Kumar and N Meenakshi
PRICING
• Company earns revenues by charging a price from
buyers
• Price: Value that the company expects to get from
customers in return of the product or the service
the company is providing to the customer
• Pricing should not be treated in isolation
• Blend with other elements of marketing strategy
to form a coherent mix that provides superior
customer value
• Price part of positioning strategy since it sends
quality cues to customer

5. Marketing Management by Arun Kumar and N Meenakshi
METHODS OF PRICING
• Cost oriented pricing
Full cost pricing
Direct cost pricing
• Competitor oriented pricing
Going rate pricing
Competitive bidding

6. Marketing Management by Arun Kumar and N Meenakshi
• Marketing oriented pricing
Pricing new products
Rapid skimming
Slow skimming
Rapid penetration
Slow penetration
Methods of Pricing (Contd.)

7. Marketing Management by Arun Kumar and N Meenakshi
Pricing existing products
Build objective
Hold objective
Harvest
Repositioning strategy
Methods of Pricing (Contd.)

8. Marketing Management by Arun Kumar and N Meenakshi
• Value to the customer
Buy response method
Trade-off analysis
Experimentation
Economic value to customer (EVC)
analysis
Methods of Pricing (Contd.)

9. Marketing Management by Arun Kumar and N Meenakshi
FACTORS INFLUENCING
PRICING DECISIONS
• Price-quality relationship
• Product line pricing
• Explicability
• Competition
• Negotiating margins
• Effect on distributors and retailers
• Political factors
• Earning very high profits
• Charging very low prices

10. Marketing Management by Arun Kumar and N Meenakshi
PRICING CUES
• Cues should be planned, implemented and
measured to track their success
• Sale sign announces a discount for the
customer
• ‘9’ at the end of a price denotes a bargain
• Customers do not remember prices of most
items so they cannot tell whether they are
being charged a fair amount

11. Marketing Management by Arun Kumar and N Meenakshi
• When retailers give price guarantees,
customers are more confident that the store
prices are lower than those of its
competitors
• Have measurement systems in place to
monitor the effect of a pricing cue
• Pricing cues are double-edge swords
Pricing Cues (Contd.)

12. Marketing Management by Arun Kumar and N Meenakshi
CONSUMPTION AND
PRICING
• Consumption of the offering important
• Customer steadily reminded of the cost he is
incurring if he pays for it regularly
• Regular usage reminds customers about
benefits
• Customers should consume the product that
they have bought

13. Marketing Management by Arun Kumar and N Meenakshi
• Customers feel compelled to use products that
they have paid for
• Consumption is driven by perceived cost rather
than the actual cost
• Payments that occur at or near the time of
consumption increases attention to a product’s
cost, increasing the likelihood of its
consumption
• Price bundling influences consumption.
Companies bundle prices to hide the cost of
individual components
Consumption And Pricing (Contd.)

14. Marketing Management by Arun Kumar and N Meenakshi
PRICE SENSITIVITY
• Reduce price sensitivity of customers to
increase scope for maneuvering pricing
strategies
• Determines latitude that a company will have
to increase price
• Customer is price sensitive if he bears the cost
instead of third party
• Customer less price sensitive if he does not
have to make the payments upfront

15. Marketing Management by Arun Kumar and N Meenakshi
• Allowing customers to pay later may make
him less fixated on price
• Price sensitive if the cost of the item
represents a substantial percentage of a
customer’s total expenditure
• Company will have to evaluate the price
sensitivity of its customer’s customers
• More likely to be price sensitive if he is
able to judge quality without using price as
an indicator
Price Sensitivity (Contd.)

16. Marketing Management by Arun Kumar and N Meenakshi
• Price sensitive if he can easily shop around
and assess the relative performance and
price of alternatives
• More likely to be price sensitive if he is
able to judge quality without using price as
an indicator
• Price sensitive if he can take the time he
needs to locate and assess alternatives
• Price sensitive if he can switch from one
supplier to another without incurring
additional costs
Price Sensitivity (Contd.)

17. Marketing Management by Arun Kumar and N Meenakshi
INITIATING PRICE
CHANGES
• Circumstances under which price can be
raised
• Circumstances under which prices may be
cut
• Proactive price cut
• Tactics of Price change
• Estimating competitor reaction

18. Marketing Management by Arun Kumar and N Meenakshi
• Reacting to competitors’ price changes
When to follow a competitor’s price
moves
When to ignore to a competitor’s price
move
• Tactics of reaction
Initiating Price Changes (Contd.)

19. Marketing Management by Arun Kumar and N Meenakshi
PRICE WARS
• Fight a price war without eroding brand equity
and profits
• Price cut invariably triggers a chain reaction in
the industry
• Price wars decline in the overall profits of every
player in the industry
• Customers expect and want more price
reductions, affecting industry competitiveness

20. Marketing Management by Arun Kumar and N Meenakshi
• Companies in such situations must decide their
response strategies:
Analyze the situation
Choose to reveal its strategic intentions to its
competitors without responding to the price cut in
any other manner
Compete strictly on non-price based measures
There is life after price wars for brands
Price Wars (Contd.)

21. Marketing Management by Arun Kumar and N Meenakshi
Selectively respond to such price cuts to
avoid an all out war
Last option is to fight the price war
Start planning exit strategies if it cannot
fight the war, and other stronger
competitors will fight
Price Wars (Contd.)