The document outlines the 6 steps in developing pricing strategies and programs: 1. Selecting the pricing objective such as maximizing profits, market share, or product leadership. 2. Determining demand through analyzing price sensitivity and estimating demand curves. 3. Estimating costs such as fixed, variable, total, and average costs as well as learning curves. 4. Analyzing competitors' costs, prices, and potential price reactions. 5. Selecting a pricing method like markup pricing, target return pricing, perceived value pricing, or value pricing. 6. Selecting the final price after considering additional factors like marketing activities and company policies.

1. DEVELOPING PRICING
STRATEGIES AND PROGRAMS

2. How should a company set
prices initially for products or
services?

3. Steps in setting a pricing policy

4. Step 1
SELECTING THE PRICING
OBJECTIVE
Decide where you want to position
the market offering

5. Survival (B/E)
Maximize profit
Maximize profit
Maximize
market share
Product
leadership
Maximize market
Skimming (setting high
price and slowly
dropping them)
5 MAJOR OBJECTIVES

6. Step 2
DETERMINING DEMAND

7. Price sensitivity- how responsive
demand is to change in price

8. Estimating demand curves-
measure demand using-
surveys, price experiments,
statistical analysis

9. Step 3
ESTIMATING COSTS
Costs sets the lower floor for pricing

10. TYPES OF COSTS AND LEVELS OF
PRODUCTION
Fixed cost- do not vary with production
Variable cost- vary directly with the
level of production
Total cost- sum of fixed and variable
costs
Average cost- cost per unit at a
particular level of production-
graphs

12. Accumulated production- decline in
average cost with accumulated
production experience is called
experience/ learning curve

13. Step 4
ANALYZING COMPETITOR’S
COSTS, PRICES AND OFFERS

14. Firm must take competitor’s costs,
prices, and possible price reactions into
account
Example- coke and Pepsi

15. Step 5
SELECTING A PRICING METHOD

16. Markup pricing
Add markup to the product’s cost

17. Target return pricing
Firm determines the price that yields
target rate on return on investment

18. Perceived value pricing
Companies base their price on the
customer’s perceived value.

19. Value pricing
Companies win loyal customers by
charging a fairly low price for high-
quality offering

20. Going rate pricing
Firm bases its price largely on
competitors’ prices
Smaller firms “follow the leader”

21. Auction-type pricing
English auctions- highest bidder gets
the item
Dutch auctions- an auctioneer
announces a high price for a product
and then slowly decreases the price
until a bidder accepts
Sealed-bid auctions- suppliers submit
only one bid ; they cannot know the
other bids.

22. Step 6
SELECTING THE FINAL PRICE
In selecting final price company must
consider other factors like marketing
activities, company pricing policy, gain and
risk sharing pricing and impact of price on
other parties.

25. Created by :
Tanvi Maheshwari
Lady Shri Ram College for
Women,
during an internship by
Prof. Sameer Mathur,
IIM Lucknow