The document discusses pricing strategies and considerations. It begins by outlining key questions around how consumers evaluate prices, how companies should initially set prices and adapt prices over time. It then defines price and discusses factors to consider like customer perceptions of value, cost, and other marketing mix variables. The document also covers types of pricing like value-based, cost-based, good-value pricing and value-added pricing. It outlines the pricing process, including selecting objectives, estimating costs and demand, and choosing a final price. The document concludes by discussing strategies for adapting prices based on factors like location, promotions, and customer segments.

1. PRICING
Understanding and capturing customer value

2. Chapter Questions
• How do consumers process and evaluate
prices?
• How should a company set prices initially for
products or services?
• How should a company adapt prices to meet
varying circumstances and opportunities?
• When should a company initiate a price
change?
• How should a company respond to a
competitor‟s price challenge?

3. WHAT IS A PRICE?
• In the narrowest sense, price is the amount of money
charged for a product or service.
• More broadly, price is the sum of all the values that
customers give up in order to gain the benefits of having
or using a product or service.
• Price is the only element in the marketing mix that
produces revenue.
• Price is one of the most flexible marketing mix elements.
• Pricing Rests on Value; Capturing Value is Its
Purpose

4. FACTORS TO CONSIDER WHEN
SETTING PRICES
• Customer Perceptions of Value the customer will decide
whether a product‟s price is right.
• Value-based pricing uses buyers‟ perceptions of value,
not the seller‟s cost, as the key to pricing.
• Price is considered along with the other marketing mix
variables before the marketing program is set.
• Cost-based pricing is product driven.
• “Good value” is not the same as “low price.”

5. Changed pricing environment
• pricing strategies are changing due to the change in
technology and trend in market
• differentiated products also changed the mindset of the
consumers now a days
• Internet revolution and its impact over the fixed pricing
decisions –
 thousands of vendors offering prices to one product
 one platform to compare the price of a product from various sellers
 Free products- McDonalds, Mad Over Donuts are few examples
offered free breakfast ranges and donuts


6. Two types of value-based pricing are good-
value pricing and value-added pricing.
1. Good-Value Pricing:- Good-value pricing is offering
just the right combination of quality and good service at
a fair price.
• Everyday low pricing (EDLP)- EDLP involves charging a
constant, everyday low price with few or no temporary
price discounts.
• High-low pricing- involves charging higher prices on an
everyday basis but running frequent promotions to lower
prices temporarily on selected items.

7. • Value-Added Pricing- Value-added pricing is the strategy
of attaching value-added features and services to
differentiate their offers and thus support higher prices.

8. Types of Costs
• Fixed costs (also known as overhead) are costs that do
not vary with production or sales level.
• Variable costs vary directly with the level of production.
They are called variable because their total varies with the
number of units produced.
• Total costs are the sum of the fixed and variable costs for
any given level of production.

9. Common Pricing Mistakes
• Determine costs and take traditional industry
margins
• Failure to revise price to capitalize on market
changes
• Setting price independently of the rest of the
marketing mix
• Failure to vary price by product item, market
segment, distribution channels, and purchase
occasion

10. Copyright © 2009 Dorling Kindersley (India) Pvt. Ltd. 14-10
When to Use Price Cues
• Customers purchase
item infrequently
• Customers are new
• Product designs vary
over time
• Prices vary
seasonally
• Quality or sizes vary
across stores

11. Steps in Setting Price
Select the price objective
Determine demand
Estimate costs
Analyze competitor price mix
Select pricing method
Select final price

12. Copyright © 2009 Dorling Kindersley (India) Pvt. Ltd. 14-12
Step 1: Selecting the Pricing Objective
• Survival
• Maximum current
profit
• Maximum market
share
• Maximum market
skimming
• Product-quality
leadership

13. Step 3: Estimating Costs
Types of Costs
Target Costing
Accumulated
Production
Activity-Based
Cost Accounting

14. Tata motors developed „Nano‟its small car
with a target price

15. Price-Adaptation Strategies
Geographical Pricing
Discounts/Allowances
Differentiated Pricing
Promotional Pricing

16. Price-Adaptation Strategies
Countertrade
• Barter
• Compensation deal
• Buyback arrangement
• Offset
Discounts/ Allowances
• Cash discount
• Quantity discount
• Functional discount
• Seasonal discount
• Allowance

17. Copyright © 2009 Dorling Kindersley (India) Pvt. Ltd. 14-17
Promotional Pricing Tactics
• Loss-leader pricing
• Special-event pricing
• Cash rebates
• Low-interest financing
• Longer payment terms
• Warranties and service
contracts
• Psychological
discounting

18. Special festival
pricing by
Coca-Cola on the
occasion of
Ramzan in
Pakistan.

19. Copyright © 2009 Dorling Kindersley (India) Pvt. Ltd. 14-19
Differentiated Pricing
• Customer-segment
pricing
• Product-form pricing
• Image pricing
• Channel pricing
• Location pricing
• Time pricing
• Yield pricing

20. Pricing for rural markets
• A large proportion have a low and seasonal income
• Several approaches adopted by retailers and
companies to address this
• Rural retailers often extend credit
• Retailers also “break the bulk” and sell in loose form,
in small quantities
• Companies use a similar strategy by introducing “low-
unit packing” or LUP
• Companies also develop low-priced products with a
target price for rural markets
• Companies might offer refill packs or recyclable and
reusable packs

21. Increasing Prices
Delayed quotation pricing
Escalator clauses
Unbundling
Reduction of discounts