This document provides an overview of pricing concepts and strategies. It begins by defining price and exploring the objectives and factors that influence pricing decisions. It then discusses how to set prices, including determining demand, estimating costs, analyzing competitors, and selecting a pricing method. The document also covers adapting prices through strategies like discounts, segmented pricing, and promotional pricing. It concludes by examining how to initiate and respond to price changes. The overall document provides a comprehensive introduction to the key elements of pricing for products and services.

1. MBA-I 2019 PAT SPPU
Marketing Management Unit No. 2
Price
Dr. Reshma Kabugade

2. Learning Objectives
After studying this chapter, you should be able to:
1. Meaning, The Role of Pricing, Importance and Factors
influencing pricing decisions.
2. Setting the Price: Setting pricing objectives, Determining
demand, Estimating costs, Analyzing competitors’ pricing,
Selecting pricing method, selecting final price.
3. Adapting the Price: Geographical pricing, Price discounts &
allowances, Promotional pricing, Differentiated pricing,
concept of transfer pricing, Dynamic pricing (surge pricing,
auction pricing),
4. Pricing in online marketing (free, premium, freemium).
5. Price Change: Initiating & responding to price changes.
11-2Dr. Reshma Kabugade

3. What is Price?
Price Has Many Names
• Rent
• Fee
• Rate
• Commission
• Assessment
Tuition
Fare
Toll
Premium
Allowances
Bribe
Salary
Wage
Interest
Tax
Dr. Reshma Kabugade

4. Definition
• Price
–The amount of money charged for a
product or service, or the sum of the
values that consumers exchange for the
benefits
of having or using the
product or service.
Dr. Reshma Kabugade

5. NATURE AND IMPORTANCE OF PRICE
• The Many Names of Price - ???
• Hotel
• Doctor
• Insurance
• apartment
• What Is Price?
To the seller...
Price is revenue
and profit source
To the consumer...
Price is what you give
up to get what you want
Dr. Reshma Kabugade

6. Objectives of pricing:
Profit oriented : 1. Target return
2. Maximize profit
Sales oriented : 1. Unit growth in sale
2. Growth in Market share
Status Quo Oriented: 1. Meeting competition
2. Non price competition
Dr. Reshma Kabugade

7. Factor influencing on pricing
• Internal Factors:
 Cost of manufacturing
 Objective of the firm
 Public image through pricing policies
 Marketing Strategy: Marketing mix
 Product Differentiation
• External Factor:
 Condition of Economy
 Nature of competition
 Bargaining power of customer and supplier
 Government control
 Adaption of technology
Dr. Reshma Kabugade

8. Establish pricing goals
pricing objectives:
– Survival
– Current profit maximization
– Market share leadership
– Product quality leadership
– Maximization of profit
Dr. Reshma Kabugade

9. Determine the demand
1. Price sensitivity
• Unique value effect: Product differentiation
• Substitute awareness effect: Substitute product
• Difficult comparison effect : can’t easily compare
with quality of substitute
• Total expenditure effect:
• End benefit effect:
• Shared cost effect : cost is borne by another party
• Price quality
• Inventory effect : product cannot store
2. Estimation of demand curves
3. Price elasticity of demandDr. Reshma Kabugade

10. Estimation of Costs
1. Fixed Cost : e.g. Land cost remain same
whatever amount you produce
2. Variable costs: These costs vary directly with
level of production
Eg. The costs of raw material varies with the
amount you produce.
3. Total Cost: Fixed cost + variable cost
Dr. Reshma Kabugade

11. Analyzing the competitors pricing
Based on
Competitors costs, Price and offers
Following are 3 possibilities:
1. Firm offer inferior product than competitors:
offer price less than competitors
2. Firm offer similar product as that of it’s
competitors: offer price same or close to the
competitors
3. Firm offer superior product than competitors:
Firm can charge more than competitors
Dr. Reshma Kabugade

12. Steps in Setting the Price
Results lead to the right price
Select the pricing Method
Analyzing the competitors pricing & Choose a price strategy
Estimate demand, costs, and profits
Establish pricing goals
Dr. Reshma Kabugade

13. Method of Pricing
1. Cost oriented pricing:
• Full Cost pricing : Fixed cost + variable cost +
Profit margin
• Direct cost pricing : It indicates the lowest price
at which it is sensible to take business if the
alternative is to sit idle.
• Break Even Point pricing: No Profit no loss
pricing method.
Dr. Reshma Kabugade

14. 2. Customer Demand Based Pricing:
The basic feature of all these demand based
method . Profit can be expected independent
to the costs involved but are dependent on the
demand.
• Skimming based pricing: High price is perceived to
mean of high quality product. Product is perceived to status in
the society.
• Penetration based price : It opposed to skimming
price. Main objective to increase market share. Price of
product comparatively lower.
Dr. Reshma Kabugade

15. 3. Market/ Competitor based pricing:
• Parity pricing or going rate pricing:
• Discount pricing/ Pricing below competitive pricing
• Premium Pricing/ Pricing above competitive pricing
• Competitive bidding or tender pricing : Mainly track in
B-B marketing.
4. Other Method of pricing:
• Value based pricing
• Affordability based pricing
• Prestige based pricing
Dr. Reshma Kabugade

16. Pricing Strategies
I. New-Product Pricing Strategies
Market skimming pricing is a strategy with high initial prices
to “skim” revenue layers from the market
• Product quality and image must support the price
• Buyers must want the product at the price
• Costs of producing the product in small volume should
not cancel the advantage of higher prices
• Competitors should not be able to enter the market
easily
11-5Dr. Reshma Kabugade

17. I. New-Product Pricing Strategies
Market penetration pricing sets a low initial price in order to
penetrate the market quickly and deeply to attract a large
number of buyers quickly to gain market share
• Price sensitive market
• Inverse relationship of production and distribution cost to
sales growth
• Low prices must keep competition out of the market
11-6Dr. Reshma Kabugade

18. II. Product Mix Pricing Strategies
1. Product line pricing
takes into account the cost differences between products in the line,
customer evaluation of their features, and competitors’ prices
2. Optional product pricing
takes into account optional or accessory products along with the main
product
3. Captive product pricing involves products that must be used along
with the main product
4. Two-part pricing is where the price is broken into:
• Fixed fee
• Variable usage fee
5. By-product pricing refers to products with little or no value
produced as a result of the main product. Producers will seek little
or no profit other than the cost to cover storage and delivery.
6. Product bundle pricing combines several products at a reduced
price
Dr. Reshma Kabugade

19. II. Price Adjustment Strategies
1. Discount and allowance pricing reduces prices to reward
customer responses such as paying early or promoting
the product
Discounts: Cash discount for paying promptly
• Quantity discount for buying in large volume
• Functional (trade) discount for selling, storing, distribution,
and record keeping
Allowances:
• Trade in allowance for turning in an old item when buying a
new one
• Promotional allowance to reward dealers for participating in
advertising or sales support programs
Dr. Reshma Kabugade

20. Price Adjustment Strategies
2. Segmented pricing is used when a company sells a product at two
or more prices even though the difference is not based on cost
e.g commonly-experienced example of price segmentation is in the
airline industry. First class seats cost between 5 and 20 times the
price of a coach seat on the same flight. There is no way it costs
an airline five times more to service a first-class passenger than a
coach passenger.
To be effective:
• Market must be segmentable
• Segments must show different degrees of demand
• Must be legal
Segmented pricing based on
I. Customer segment pricing
II. Product form segment pricing
III. Location pricing
Dr. Reshma Kabugade

21. Price Adjustment Strategies
I Customer segment pricing is when different customers pay
different prices for the same product or service
II Product form segment pricing is when different versions of the
product are priced differently but not according to
differences in cost
III. Location pricing is when the product is sold in different
geographic areas and priced differently in those areas, even
thought the cost is the same
Dr. Reshma Kabugade

22. Price Adjustment Strategies
3. Psychological pricing occurs when sellers consider the
psychology of prices and not simply the economics
• Reference prices are prices that buyers carry in their minds
and refer to when looking at a given product
• Noting current prices
• Remembering past prices
• Assessing the buying situations
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23. Price Adjustment Strategies
4. Promotional pricing is when prices are
temporarily priced below list price or cost
to increase demand
Complementary Pricing:
Loss leaders: are products sold below cost to attract customers in the
hope they will buy other items at normal markups
Special event pricing is used to attract customers during certain seasons
or periods
Cash rebates are given to consumers who buy products within a
specified time
Low interest financing, longer warrantees, and free maintenance lower
the consumer’s “total price”
Risks of promotional pricing
• Used too frequently, and copies by competitors can create “deal-
prone” customers who will wait for promotions and avoid buying at
regular price
• Creates price wars Dr. Reshma Kabugade

24. Price Adjustment Strategies
5. Geographical pricing is used for customers in different parts of the
country or the world
6. Dynamic pricing is when prices are adjusted continually to meet the
characteristics and needs of the individual customer and
situations
7. International pricing is when prices are set in a specific country
based on country-specific factors
• Economic conditions
• Competitive conditions
• Laws and regulations
• Infrastructure
• Company marketing objective
11-24Dr. Reshma Kabugade

25. Price Changes
Initiating Pricing Changes
Price cuts is a reduction in price
• Excess capacity
• Increase market share
Price increases is an increase in
selling price
• Cost inflation
• Increased demand and lack
of supply
Buyer Reactions to
Pricing Changes
• Price cuts
• New models will be
available
• Models are not selling
well
• Quality issues
• Price increases
• Product is “hot”
• Company greed
Dr. Reshma Kabugade

26. Price Changes
Responding to Price Changes
Questions
• Why did the competitor change the price?
• Is the price cut permanent or temporary?
• What is the effect on market share and profits?
• Will competitors respond?
Dr. Reshma Kabugade

27. Price Changes
Responding to Price Changes
Solutions
• Reduce price to match competition
• Maintain price but raise the perceived value
through communications
• Improve quality and increase price
• Launch a lower-price “fighting brand”
Dr. Reshma Kabugade

28. THE PRICING EQUATION FOR CONSUMERS
PRICE = LIST PRICE - INCENTIVES & ALLOWANCES + EXTRA FEES
Dr. Reshma Kabugade

29. Pricing in online marketing (free, premium,
freemium).
Freemium pricing is the practice of offering a basic set
of services for free, and enhanced features and/or
content for a fee. Customers can use a service for a
certain amount of time for free, after which they
will be charged for any continuing provision of
services.
Free + Premium
Dr. Reshma Kabugade