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PRICING PRODUCTS
&
PRICING
STRATEGIES
In ordinary usage, price is the quantity of
payment or compensation for something.
Economists view price as an exchange ratio
between goods that are exchanged for each
other.
Define Price
PRICE=
Quantity of Money received by the Seller______
Quantity of goods and services received by the buyer
You
Pay a
Price
When you pay College Fees
When you pay Hostel fees
When you pay rent to the PG
When you pay the Telecom Bills
When you pay for the Birthday cakes
When you pay for the interest of the Loan
When you pay charges to your trip
When you pay for the Petrol
Then What is
Pricing????
Pricing is a fundamental aspect of financial modelling, and is one
of the four P’s of the marketing mix.
Price is the only revenue generating element amongst the four P’s, the rest being
cost centers.
Pricing is the manual or automatic process of applying prices to purchase and
sales orders, based on factors such as: a fixed amount, quantity break, promotion
or sales campaign, specific vendor quote, price prevailing on entry, shipment or
invoice date, combination of multiple orders or lines, and many others.
Pricing is the process of determining what a company will receive
in exchange for its products. Pricing factors are manufacturing
cost, market place, competition, market condition, Quality of
product.
What a price should do
A well chosen price should do three things:
• Achieve the financial goals of the company
(e.g., profitability)
• Fit the realities of the marketplace (Will
customers buy at that price?)
• Support a product's positioning and be
consistent with the other variables in
the marketing mix .
Setting Pricing Policy
1. Selecting the pricing
objective
2. Determining demand
3. Estimating costs
4. Analyzing competitors’
costs, prices, and offers
5. Selecting a pricing
method
6. Selecting final price
Price is influenced by the type of distribution channel used, the type of promotions used,
and the quality of the product.
Price will usually need to be relatively high if manufacturing is expensive, distribution is
exclusive, and the product is supported by extensive advertising and promotional
campaigns
A low price can be a viable substitute for product quality, effective promotions, or an
energetic selling effort by distributors
From the marketer's point of view, an efficient price is a price that is very close to the
maximum that customers are prepared to pay.
In economic terms, it is a price that shifts most of the consumer surplus to the producer. A
good pricing strategy would be the one which could balance between the price floor (the
price below which the organization ends up in losses) and the price ceiling (the price
beyond which the organization experiences a no demand situation).
Price is Influenced By…………………………….
Pricing
Objectives
Margin to
Middlemen
Long-Run
Welfare
Ability to
Pay
Maximize
Profit
Capture
Market
Price
Stability
Competitive
situation
Achieve
Target
Return
Pricing Strategies
• Discount / allowance
• Promotional
• Geographical
• Discriminatory pricing
• Product Mix Pricing
• Special Pricing
• Types of discounts
– Cash discount
– Quantity discount
– Functional (trade) discount
– Seasonal discount
• Allowances
– Trade-in allowances
– Promotional allowances
Strategies
Price Adjustment Strategies
• Temporarily pricing products
below the list price or even below
cost
– Loss leaders
– Special-event pricing
– Cash rebates
– Low-interest financing, longer
warranties, free maintenance
• Promotional pricing can have
adverse effects
Strategies
• Discount / allowance
• Promotional
• Geographical
• Discriminatory pricing
• Product Mix Pricing
• Special Pricing
Loss Leader Pricing
Loss Leader Pricing
Special-event pricing
Special-event pricing
Low-interest financing, longer
warranties, free maintenance
18
Geographic Pricing
Basing-Point Pricing:
The seller designates a location as a basing
point and charges all buyers the freight costs
from that point.
Freight Absorption Pricing:
The seller pays for all or part of the freight
charges and does not pass them on to the buyer.
Zone Pricing:
The U.S. is divided into zones and a flat freight
rate is charged to customers in a given zone.
Uniform Delivered Pricing
The seller pays the freight charges and bills
the purchaser an identical, flat freight charge.
FOB Origin Pricing:
The buyer absorbs the freight costs from the
shipping point (“free on board”).
Common
Methods of
Geographic
Pricing
Discriminatory Pricing
Time , Channel
Product-form
Customer Segment
Location ,Image
Customer Segment
Product-form
Time , Channel
Location ,Image
Product Mix
Pricing Strategies
• Product Line Pricing
– Setting price steps between product line items.
Eg. Suits at three price levels- Rs.800,1500,4500.
Product Line Pricing
Optional-Product
Pricing
– Pricing optional or accessory products sold with
the main product.
Product Mix
Pricing Strategies
• Captive-Product Pricing
– Pricing products that must be used with the
main product
High margins are often set for supplies
Eg: Blades are costlier than razors
Two-part pricing
strategy
Fixed fee plus a
variable usage
rate.
Eg.Wonderla
charges entry fees
+ fees for the food
is separate.
Product Mix
Pricing Strategies
• By-Product Pricing
– Pricing low-value by-products to get rid of them
Molasses can be used as:
•The principal ingredient in the distillation of rum
•In beer styles such as stouts or porters
•An additive in tobacco smoked in a hookah shisha, or narghile (found in
the brands "Cedars Tobacco", Mazaya, Al-Fakher, Nakhla, Tangiers,
Salloum and Hookafina Blak )
•In dark rye breads
•An additive in livestock feeds
•An ingredient in fishing groundbait
•A source for yeast production
•An iron supplement
•The main ingredient in the production of Citric acid
•In certain cookies
•As a humectant in jerky processing
• Product Bundle Pricing
– Pricing bundles of products sold together.
Psychological Pricing
Psychological Pricing
 Most Attractive?
 Better Value?
 Psychological
reason to price this
way?
A
.
Rs.219
B Rs.199
Assume Equal Quality
Special Pricing
Single-Price Tactic
Flexible Pricing
Professional
Services Pricing
Price Lining
Leader Pricing
Bait Pricing
Odd-Even Pricing
Price Bundling
Two-Part Pricing
All goods offered at the same price
Different customers pay different price
Used by professionals with experience,
training or certification
Several line items at specific price points- lxi/vxi/zxi
Sell product at near or below cost
Lure customers through false or misleading
price advertising
Odd-number prices imply bargain
Even-number prices imply quality- 499
Combining two or more products in a
single package
Two separate charges to consume a single good-
mobile tariff
Factors Influencing Pricing
Decisions
Internal Factors
•Organizational Factors
•Marketing Mix
•Product Differentiation
•Cost of the Product
•Objectives of the Firm Pricing Decision
External factors
•Demand
•Competition
•Suppliers
•Economic Conditions
•Buyers
•Government
Methods Of
Pricing
Cost
Oriented
Pricing
Policy
Customer
Demand
Oriented
Pricing Policy
Competition
Oriented
Pricing Policy
Other
Pricing
Policies
Cost
Oriented
Pricing
Policy
1.Cost Oriented
Policy
Mark-Up/ cost plus
pricing
Full cost/Absorption
Pricing
Marginal/Incremental
Pricing
Rate on return/Target
Pricing
1.Full cost /Mark up Pricing / Cost + Pricing Method
In this pricing method the marketer estimates the total cost of
production and then adds a mark up or a margin which the
firm wants. To arrive at a mark up price the following formula
is used:
Mark Up price = ____α_____
(1-r)
Alpha= fixed cost + variable cost
R= expected return on sales expressed as a percent
Eg. If the fixed cost of making 10,000 shirts is Rs.1,50,000
and the variable cost per shirt is Rs.30/= and the firm expects
a return of 30% on its sales. Find out the mark up price.
Did you get the Mark Up cost
as Rs.64.28/Shirt.
This is also called as “Sum of
Margin Method
2. Marginal cost/Incremental cost pricing method
Here the firm works on the premise of recovering its marginal
cost and getting a contribution towards its overheads.
This method works well for the market which is dominated by
giant firms or characterized by intense competition and the
objective of the firm is to get a foothold in the market.
This pricing method works when the firm has inventory of
finished goods and wants to liquidate it.
The prime concern being to recover the Direct Costs.
3.Rate of return / Target Pricing Method
A firm invests Rs.50,00,00,000/= as Capital for an
enterprise and the owner says that he wants a return of
minimum 10% on the Capital and profit margin of
minimum 15%.
This is the Target Pricing method.
This method is possible only when there is No
Competition at all in the Market for this
firm/enterprise /product
Customer
Demand
Oriented
Pricing Policy
Setting a high price for a new
product to skim maximum
revenues layer by layer from
segments willing to pay the high
price.
Market-Skimming Pricing
Price Skimming
Situations
when
Price
Skimming
Is Successful
Unique Advantages/Superior
Legal Protection of Product
Blocked Entry to Competitors
Technological Breakthrough
Inelastic Demand
Market-Penetration Pricing
Setting a low price for
a new product in
order to attract a large
number of buyers and
a large market share.
Penetration Pricing
Situations
when
Market
Penetration
Pricing
Is Successful
Customer Loyalty very High
Intense Competition
Price quality association weak
Entry Strategy
Huge market Size
Competition
Oriented
Pricing Policy
Parity Pricing OR
Going Rate Pricing
Pricing Below
Competition Level
Or
Discount Pricing
Pricing above the
competition
Or
Premium Pricing
Other Pricing Policies
Price Bundling
Sealed Bid Pricing
Customer Oriented Pricing
Break Even Point Pricing
Value Based Pricing
Market & Demand based
Affordability Pricing
Prestige Pricing
Break Even Point Pricing
B.E.Point (in Units)= ______________Fixed Costs_____________
Selling Price per unit – Variable Costs per unit
B.E.P (in Rs.) = _____Fixed Costs X Total Sales______
Total Sales – Total Variable Costs
Break Even price= Fixed Cost + Variable costs
Quantity
Q1. The Fixed Costs=100000
Selling Price per unit= Rs.4/unit
Variable Costs= Rs.2/unit
Sales= 50,000 units.
Required Profit = Rs. 50,000
FIND OUT THE BREAK EVEN POINT IN UNITS,
BREAK EVEN PRICE.

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it a ppt about pricing of products, a ne

  • 2. In ordinary usage, price is the quantity of payment or compensation for something. Economists view price as an exchange ratio between goods that are exchanged for each other. Define Price
  • 3. PRICE= Quantity of Money received by the Seller______ Quantity of goods and services received by the buyer
  • 4. You Pay a Price When you pay College Fees When you pay Hostel fees When you pay rent to the PG When you pay the Telecom Bills When you pay for the Birthday cakes When you pay for the interest of the Loan When you pay charges to your trip When you pay for the Petrol
  • 6. Pricing is a fundamental aspect of financial modelling, and is one of the four P’s of the marketing mix. Price is the only revenue generating element amongst the four P’s, the rest being cost centers. Pricing is the manual or automatic process of applying prices to purchase and sales orders, based on factors such as: a fixed amount, quantity break, promotion or sales campaign, specific vendor quote, price prevailing on entry, shipment or invoice date, combination of multiple orders or lines, and many others. Pricing is the process of determining what a company will receive in exchange for its products. Pricing factors are manufacturing cost, market place, competition, market condition, Quality of product.
  • 7. What a price should do A well chosen price should do three things: • Achieve the financial goals of the company (e.g., profitability) • Fit the realities of the marketplace (Will customers buy at that price?) • Support a product's positioning and be consistent with the other variables in the marketing mix .
  • 8. Setting Pricing Policy 1. Selecting the pricing objective 2. Determining demand 3. Estimating costs 4. Analyzing competitors’ costs, prices, and offers 5. Selecting a pricing method 6. Selecting final price
  • 9. Price is influenced by the type of distribution channel used, the type of promotions used, and the quality of the product. Price will usually need to be relatively high if manufacturing is expensive, distribution is exclusive, and the product is supported by extensive advertising and promotional campaigns A low price can be a viable substitute for product quality, effective promotions, or an energetic selling effort by distributors From the marketer's point of view, an efficient price is a price that is very close to the maximum that customers are prepared to pay. In economic terms, it is a price that shifts most of the consumer surplus to the producer. A good pricing strategy would be the one which could balance between the price floor (the price below which the organization ends up in losses) and the price ceiling (the price beyond which the organization experiences a no demand situation). Price is Influenced By…………………………….
  • 11. Pricing Strategies • Discount / allowance • Promotional • Geographical • Discriminatory pricing • Product Mix Pricing • Special Pricing • Types of discounts – Cash discount – Quantity discount – Functional (trade) discount – Seasonal discount • Allowances – Trade-in allowances – Promotional allowances Strategies
  • 12. Price Adjustment Strategies • Temporarily pricing products below the list price or even below cost – Loss leaders – Special-event pricing – Cash rebates – Low-interest financing, longer warranties, free maintenance • Promotional pricing can have adverse effects Strategies • Discount / allowance • Promotional • Geographical • Discriminatory pricing • Product Mix Pricing • Special Pricing
  • 18. 18 Geographic Pricing Basing-Point Pricing: The seller designates a location as a basing point and charges all buyers the freight costs from that point. Freight Absorption Pricing: The seller pays for all or part of the freight charges and does not pass them on to the buyer. Zone Pricing: The U.S. is divided into zones and a flat freight rate is charged to customers in a given zone. Uniform Delivered Pricing The seller pays the freight charges and bills the purchaser an identical, flat freight charge. FOB Origin Pricing: The buyer absorbs the freight costs from the shipping point (“free on board”). Common Methods of Geographic Pricing
  • 19.
  • 20.
  • 21. Discriminatory Pricing Time , Channel Product-form Customer Segment Location ,Image
  • 26. Product Mix Pricing Strategies • Product Line Pricing – Setting price steps between product line items. Eg. Suits at three price levels- Rs.800,1500,4500.
  • 28. Optional-Product Pricing – Pricing optional or accessory products sold with the main product.
  • 29. Product Mix Pricing Strategies • Captive-Product Pricing – Pricing products that must be used with the main product High margins are often set for supplies Eg: Blades are costlier than razors
  • 30. Two-part pricing strategy Fixed fee plus a variable usage rate. Eg.Wonderla charges entry fees + fees for the food is separate.
  • 31. Product Mix Pricing Strategies • By-Product Pricing – Pricing low-value by-products to get rid of them
  • 32. Molasses can be used as: •The principal ingredient in the distillation of rum •In beer styles such as stouts or porters •An additive in tobacco smoked in a hookah shisha, or narghile (found in the brands "Cedars Tobacco", Mazaya, Al-Fakher, Nakhla, Tangiers, Salloum and Hookafina Blak ) •In dark rye breads •An additive in livestock feeds •An ingredient in fishing groundbait •A source for yeast production •An iron supplement •The main ingredient in the production of Citric acid •In certain cookies •As a humectant in jerky processing
  • 33. • Product Bundle Pricing – Pricing bundles of products sold together.
  • 35. Psychological Pricing  Most Attractive?  Better Value?  Psychological reason to price this way? A . Rs.219 B Rs.199 Assume Equal Quality
  • 36. Special Pricing Single-Price Tactic Flexible Pricing Professional Services Pricing Price Lining Leader Pricing Bait Pricing Odd-Even Pricing Price Bundling Two-Part Pricing All goods offered at the same price Different customers pay different price Used by professionals with experience, training or certification Several line items at specific price points- lxi/vxi/zxi Sell product at near or below cost Lure customers through false or misleading price advertising Odd-number prices imply bargain Even-number prices imply quality- 499 Combining two or more products in a single package Two separate charges to consume a single good- mobile tariff
  • 37. Factors Influencing Pricing Decisions Internal Factors •Organizational Factors •Marketing Mix •Product Differentiation •Cost of the Product •Objectives of the Firm Pricing Decision External factors •Demand •Competition •Suppliers •Economic Conditions •Buyers •Government
  • 40. 1.Cost Oriented Policy Mark-Up/ cost plus pricing Full cost/Absorption Pricing Marginal/Incremental Pricing Rate on return/Target Pricing
  • 41. 1.Full cost /Mark up Pricing / Cost + Pricing Method In this pricing method the marketer estimates the total cost of production and then adds a mark up or a margin which the firm wants. To arrive at a mark up price the following formula is used: Mark Up price = ____α_____ (1-r) Alpha= fixed cost + variable cost R= expected return on sales expressed as a percent Eg. If the fixed cost of making 10,000 shirts is Rs.1,50,000 and the variable cost per shirt is Rs.30/= and the firm expects a return of 30% on its sales. Find out the mark up price.
  • 42. Did you get the Mark Up cost as Rs.64.28/Shirt. This is also called as “Sum of Margin Method
  • 43. 2. Marginal cost/Incremental cost pricing method Here the firm works on the premise of recovering its marginal cost and getting a contribution towards its overheads. This method works well for the market which is dominated by giant firms or characterized by intense competition and the objective of the firm is to get a foothold in the market. This pricing method works when the firm has inventory of finished goods and wants to liquidate it. The prime concern being to recover the Direct Costs.
  • 44. 3.Rate of return / Target Pricing Method A firm invests Rs.50,00,00,000/= as Capital for an enterprise and the owner says that he wants a return of minimum 10% on the Capital and profit margin of minimum 15%. This is the Target Pricing method. This method is possible only when there is No Competition at all in the Market for this firm/enterprise /product
  • 46. Setting a high price for a new product to skim maximum revenues layer by layer from segments willing to pay the high price. Market-Skimming Pricing
  • 47. Price Skimming Situations when Price Skimming Is Successful Unique Advantages/Superior Legal Protection of Product Blocked Entry to Competitors Technological Breakthrough Inelastic Demand
  • 48. Market-Penetration Pricing Setting a low price for a new product in order to attract a large number of buyers and a large market share.
  • 49. Penetration Pricing Situations when Market Penetration Pricing Is Successful Customer Loyalty very High Intense Competition Price quality association weak Entry Strategy Huge market Size
  • 50. Competition Oriented Pricing Policy Parity Pricing OR Going Rate Pricing Pricing Below Competition Level Or Discount Pricing Pricing above the competition Or Premium Pricing
  • 51. Other Pricing Policies Price Bundling Sealed Bid Pricing Customer Oriented Pricing Break Even Point Pricing Value Based Pricing Market & Demand based Affordability Pricing Prestige Pricing
  • 52. Break Even Point Pricing B.E.Point (in Units)= ______________Fixed Costs_____________ Selling Price per unit – Variable Costs per unit B.E.P (in Rs.) = _____Fixed Costs X Total Sales______ Total Sales – Total Variable Costs Break Even price= Fixed Cost + Variable costs Quantity
  • 53. Q1. The Fixed Costs=100000 Selling Price per unit= Rs.4/unit Variable Costs= Rs.2/unit Sales= 50,000 units. Required Profit = Rs. 50,000 FIND OUT THE BREAK EVEN POINT IN UNITS, BREAK EVEN PRICE.

Editor's Notes

  1. Setting the Right Price
  2. Setting the Right Price
  3. Setting the Right Price
  4. Setting the Right Price