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Pricing
- 1. Tankertanker Design Tankertanker Design TankertankerDesign Pricing By – Nagendra Dewangan
- 2. Tankertanker Design Tankertanker Design TankertankerDesign What is Price ? • It is a market value expressed in terms of money. • Price is the amount of money to be paid to buy something. • As the consideration given in exchange for transfer of ownership, price forms the essential basis of commercial transactions.
- 3. Tankertanker Design Tankertanker Design TankertankerDesign Conti. ... • Price is determined by what a buyer is willing to pay, a seller is willing to accept, and the competition is allowing to be charged. • Price = Prime cost + factory cost + Office and administrative cost + Marketing cost + Profit + Brand Value
- 4. Tankertanker Design Tankertanker Design TankertankerDesign What is Pricing ? • Pricing is the process whereby a business sets the price. • Method adopted by a firm to set its product price. • Pricing is the method of determining the value a producer will get in the exchange of goods and services.
- 5. Tankertanker Design Tankertanker Design TankertankerDesign Important point of pricing • Nature of the product/service. • The price of similar product/service in the market. • Target audience i.e. for whom the product is manufactured (high, medium or lower class) • The cost of production viz. Labor cost, raw material cost, machinery cost, inventory cost, transit cost, etc.
- 6. Tankertanker Design Tankertanker Design TankertankerDesign Pricing Objective • Return on Investment. – To achieve the expected profit • Target share of the market. – Increase the market share • Meeting or keeping out competition. – To eliminate competition • Profit maximisation. – Basic Goal of marketers • Stabilisation of price. – Stability in price that can maintain reputation.
- 7. Tankertanker Design Tankertanker Design TankertankerDesign Pricing Policies or Methods or Decision A major factor in determining the profitability of any product is establishing a base price : Cost oriented pricing Demand oriented pricing Competition oriented pricing Leader pricing 1 2 3 4
- 8. Tankertanker Design Tankertanker Design TankertankerDesign 1. Cost oriented pricing • Also Known as cost-plus pricing method. • The cost estimate(cost-plus) of the product is made and a margin(Mark-up) of profit is added to determine the price. • This policy is completely overlooks the influence of competition and market demand. • Selling Price = Total Cost + Desired Profit
- 9. Tankertanker Design Tankertanker Design TankertankerDesign • Pricing attempt to determine what consumers are willing to pay for goods and services. – High price is fixed when the demand increase. – Low price is charged when the demand low. 2. Demand oriented pricing
- 10. Tankertanker Design Tankertanker Design TankertankerDesign • Marketer decides the prices of his product after careful study of competitors prices. • Three actions after learning their competitors’ prices: – Price above the competition – Price below the competition – Price in line with the competition (going-rate pricing) 3. Competition oriented pricing
- 11. Tankertanker Design Tankertanker Design TankertankerDesign • Marketer tries to capture the market by setting up low price. – Also known as “Loss Leader Price”. • High price may be fixed for a prestigious product to improve the image. – This known as “Profit Leader Pricing”. 4. Leader oriented pricing
- 12. Tankertanker Design Tankertanker Design TankertankerDesign • High premium price in charged when a product is launched in the market. – High profit margins in the early stages . Types :- • Rapid Skimming Pricing - High price with high promotional activity expenditure. • Slow Skimming Pricing - High price with low promotional activity expenditure. Skimming Pricing Strategy
- 13. Tankertanker Design Tankertanker Design TankertankerDesign • Low price in charged when a product is launched in the market. – Capture the large share of the market in the early stages . Types :- • Rapid Penetration pricing - High price with high promotional activity expenditure. • Slow Penetration Pricing - High price with low promotional activity expenditure. Penetration Pricing Strategy
- 14. Tankertanker Design Tankertanker Design TankertankerDesign Steps in Setting price for a product 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 the Final Price
- 15. Tankertanker Design Tankertanker Design TankertankerDesign • The company first decides where it wants to position its market offering. • The clearer a firm’s objectives, the easier it is to set price. – Survival – Maximum current profit – Maximum market share – Maximum market skimming – Product-quality leadership Step 1: Selecting the Pricing Objective
- 16. Tankertanker Design Tankertanker Design TankertankerDesign • Each price will lead to a different level of demand and have a different impact on a company’s marketing objectives. • Most companies attempt to measure their demand curves using several different methods. – Surveys – Price experiments – Statistical analysis Step 2: Determining Demand
- 17. Tankertanker Design Tankertanker Design TankertankerDesign • Variable and Fixed Cost : – Price must cover variable & fixed costs and as production increases costs may decrease. – The firm gains experience, obtains raw materials at lower prices, etc., so costs should be estimated at different production levels. Step 3: Estimating Costs
- 18. Tankertanker Design Tankertanker Design TankertankerDesign• Target Costing : – firm may attempt Target Costing (TG). – TG is when a firm estimates a new product’s desired functions & determines the price that it could be sold at. – From this price the desired profit margin is calculated. – Now the firm knows how much it can spend on production whether it be engineering, design, or sales but the costs now have a target range. – The goal is to get the costs into the target range. Conti. ...
- 19. Tankertanker Design Tankertanker Design TankertankerDesign • The firm should benchmark its price against competitors. • Learn about the quality of competitors offering, • Learn about competitor’s costs. Step 4: Analyzing Competitors’ Costs, Prices, and Offers
- 20. Tankertanker Design Tankertanker Design TankertankerDesign • Cost oriented pricing • Demand oriented pricing • Competition oriented pricing • Leader pricing Step 5: Selecting a Pricing Method
- 21. Tankertanker Design Tankertanker Design TankertankerDesign • Pricing methods narrow the range from which the company must select its final price. • In selecting that price, the company must consider additional factors. – Impact of other marketing activities – Company pricing policies – Gain-and-risk-sharing pricing – Impact of price on other parties Step 6: Selecting the Final Price
- 22. Tankertanker Design Tankertanker Design TankertankerDesign • Internal Factors • External Factors Factors Affecting Pricing Product:
- 23. Tankertanker Design Tankertanker Design TankertankerDesign 1. Cost: • While fixing the prices of a product, the firm should consider the cost involved in producing the product. • This cost includes both the variable and fixed costs. • Thus, while fixing the prices, the firm must be able to recover both the variable and fixed costs. Internal Factors
- 24. Tankertanker Design Tankertanker Design TankertankerDesign Conti. ... 2. The predetermined objectives: • While fixing the prices of the product, the marketer should consider the objectives of the firm. • if the objective of a firm is to increase return on investment, then it may charge a higher price. • if the objective is to capture a large market share, then it may charge a lower price.
- 25. Tankertanker Design Tankertanker Design TankertankerDesign Conti. ... 3. Image of the firm: • The price of the product may also be determined on the basis of the image of the firm in the market. • For Example, HUL and Procter & Gamble can demand a higher price for their brands, as they enjoy goodwill in the market.
- 26. Tankertanker Design Tankertanker Design TankertankerDesign Conti. ... 4. Product life cycle: • The stage at which the product is in its product life cycle also affects its price. • During the introductory stage the firm may charge lower price to attract the customers. • During the growth stage, a firm may increase the price.
- 27. Tankertanker Design Tankertanker Design TankertankerDesign Conti. ... 5. Credit period offered: • The pricing of the product is also affected by the credit period offered by the company. – Longer the credit period, Higher may be the price of the product. – shorter the credit period, lower may be the price of the product.
- 28. Tankertanker Design Tankertanker Design TankertankerDesign Conti. ... 6. Promotional activity: • The promotional activity undertaken by the firm also determines the price. • If the firm incurs heavy advertising and sales promotion costs, then the pricing of the product shall be kept high in order to recover the cost.
- 29. Tankertanker Design Tankertanker Design TankertankerDesign External Factors: 1. Competition: • While fixing the price of the product, the firm needs to study the degree of competition in the market. • If there is high competition, the prices may be kept low to effectively face the competition. • if competition is low, the prices may be kept high.
- 30. Tankertanker Design Tankertanker Design TankertankerDesign Conti. ... 2. Consumers: • The marketer should consider various consumer factors while fixing the prices. • The consumer factors that must be considered includes the price sensitivity of the buyer, purchasing power, and so on.
- 31. Tankertanker Design Tankertanker Design TankertankerDesign Conti. ... 3. Government control: • Government rules and regulation must be considered while fixing the prices. • In certain products, government may announce administered prices, and therefore the marketer has to consider such regulation while fixing the prices.
- 32. Tankertanker Design Tankertanker Design TankertankerDesign Conti. ... 4. Economic conditions: • The marketer may also have to consider the economic condition prevailing in the market while fixing the prices. • At the time of recession, the consumer may have less money to spend, so the marketer may reduce the prices in order to influence the buying decision of the consumers.
- 33. Tankertanker Design Tankertanker Design TankertankerDesign Conti. ... 5. Channel intermediaries: • The marketer must consider a number of channel intermediaries and their expectations. • The longer the chain of intermediaries, the higher would be the prices of the goods.