The whole effort is to support and uplift beginners in marketing who search essentials in marketing. Reference Text - Principles of Marketing, 15th Edition, By Phillip Kotler and Gary Armstrong

1. PRICING STRATEGIES
Mahesh Weeratunge
Senior Lecturer and Examiner

2. Recommended StudyText
Principles of Marketing
15th Edition
By
Phillip Kotler
Gary Armstrong
Cannot be duplicated or modified without any permission6/4/2018 2

3. Coverage… (Chapter 10,11)
■ What is a Price?
■ Major Pricing Strategies
■ Internal and External consideration for pricing decision.
■ New Product Pricing Strategies
■ Product Mix Pricing Strategies
■ Price Adjustment Strategies
■ Price Changes
Cannot be duplicated or modified without any permission6/4/2018 3

4. Price
■ The amount of money charged for a product or service, or the sum of the values that
customers exchange for the benefit of having or using the product or service.
6/4/2018 Cannot be duplicated or modified without any permission 4

5. Major Pricing Strategies
■ We can identify three main pricing strategies namely
– CustomerValue Based Pricing
■ Good-Value Pricing
■ Value-Added Pricing
– Cost Based Pricing
■ Cost-Plus pricing
■ Break-even pricing
– Competition Based Pricing
6/4/2018 Cannot be duplicated or modified without any permission 5

6. CustomerValue-Based Pricing
■ Setting the pricing based on the customers’ perception of values rather than on the
seller’s cost is defined as CustomerValue-Based Pricing.
■ We can examine two types of value-based pricing namely; good-value pricing and
value-added pricing
– Good-Value Pricing – Offering just the right combination of quality and good
service at a fair price
– Value-Added Pricing – Attaching value-added features and services to differentiate
a company’s offers and charging higher price
6/4/2018 Cannot be duplicated or modified without any permission 6

7. Cost-Bases Pricing
■ Cost-Based Pricing approach is defines as Setting prices based on the costs of producing,
distributing and selling the product plus a fair rate of return for effort and risk. Cost-Plus (markup)
pricing and Break-Even (target return) pricing are two major pricing techniques under Cost-Based
Pricing
■ There are three major cost elements to be concentrate when setting up the pricing.They are;
– FixedCosts (Overheads) – Costs that do not change or vary with production or sales level
– Variable Costs – Costs that change or vary directly with the level of production
– Total Costs –The sum of the fixed and variable costs for any given level of production is total
costs
6/4/2018 Cannot be duplicated or modified without any permission 7

8. Cost-Plus and Break-Even Pricing
■ Cost-Plus Pricing – this technique also named as markup pricing.Cost-Plus pricing
defined as adding a standard markup to the cost of the product.
■ Break-Even pricing – this method also named as target return pricing approach.
Setting price to the break even on the costs of making and marketing a product, or
setting price to make a target return.
6/4/2018 Cannot be duplicated or modified without any permission 8

9. Break-Even
Chart
6/4/2018 Cannot be duplicated or modified without any permission 9

10. Competitor Based Pricing
■ Setting pricing based on the competitors’ strategies, prices, costs and market
offerings.
6/4/2018 Cannot be duplicated or modified without any permission 10

11. Internal and External Factors Affecting
Price Decisions
■ Overall Marketing Strategy
■ Marketing Objectives
■ Marketing MixApproach
■ Organizational culture, policies and other considerations
■ External environment factors such as Micro and Macro environment factors
6/4/2018 Cannot be duplicated or modified without any permission 11

12. New-Product Pricing Strategies
■ Setting pricing for new product is a challenging task along with the other marketing
mix strategies.
■ It can identify two broad strategies in setting new product pricing, namely;
– Market Skimming Pricing Strategy
– Market Penetration Pricing Strategy
6/4/2018 Cannot be duplicated or modified without any permission 12

13. Market Skimming Pricing Strategies
■ Setting a high price for a new product to skim maximum revenues layer by layer from
the segments willing to pay the high price; the company makes fewer but more
profitable sales.
■ Market skimming makes sense under;
– Higher product quality and brand image
– Cost of making smaller volume cannot be so high
– Competitor should not be able to enter the market so easily
6/4/2018 Cannot be duplicated or modified without any permission 13

14. Market Penetration Pricing
■ Setting a low price for a new product in order to attract a larger number of buyers and a
larger market share.
■ This works on following conditions.
– Highly price sensitive market
– Production and distribution cost must decrease as sales volume increase
– Low price must help to keep out the competition
6/4/2018 Cannot be duplicated or modified without any permission 14

15. Product Mix Pricing Strategies
6/4/2018 Cannot be duplicated or modified without any permission 15

16. Price Adjustment Strategies
■ Discounts – a straight reduction in price on purchases during a stated period of time or in large quantities
■ Allowance – promotional money paid by manufacturer to the retailer in return for an agreement to
feature the manufacturer’s products in some way.
■ Segmented Pricing – selling a product or service at two or more prices, where the difference in price is not
based on the difference in costs.
■ Psychological pricing – pricing that considers the psychology of prices and not simply the economics; the
price is used to say something about the product.
■ Promotional Pricing – temporarily pricing products bellow the list price and sometimes even bellow the
costs to increase short run sales.
6/4/2018 Cannot be duplicated or modified without any permission 16