Chapter # 7 slides of Marketing.

1. PRICING
STRATEGY
Presented By
Mahmoona Mahmood
Amber Hansia
Presented To:
Miss Fatima

2. PRICE
“You don’t sell through
price. You sell the price”.
Price is the value that is put to
a product or service and is the
result of the complex set of
calculations, research and
understanding and risk taking
ability.

3. IMPORTANT CONSIDERATIONS BEFORE SETTING PRICE
1. Know how much it Costs to make and deliver product
2. Know your Breakeven point
3. Research current prices in the market
4. Consider your market positioning and competitive
advantage

4. PRICING STRATEGY
A pricing strategy takes into account segments
ability to pay, market conditions, competitor’s
actions, trade margins and input cost amongst
others.

5. SETTING PRICING POLICY

6.  Maximizing short term and long run profit
 Increase sales volume (Quantity)
 Increase market share
 Obtain a target rate of return on investment
 Obtain a target rate of return on sales
 Increase Sales Growth
 Maintain pricing leadership
 Discourage new entrants into the industry
 Match competitors prices
STEP 1: PRICING GOALS

7. STEP 2: ANALYZING PRICING SITUATION

8. PRICING SITUATION FACTORS
A – Cost (Direct & Indirect) Analysis
B – Product Quality and its determinants Analysis
C – Customer Sensitivity Analysis
D – Competitors Analysis

9. INDIRECT COST
• Building operations, including heating, air conditioning and lighting;
depreciation cost
• Salaries of permanent staff only indirectly involved such as:
1. Accounting
2. Legal
3. Human resources
• Supplies from general stock
• Supplemental services (e.g.: printing, billing)
A-COST ANALYSIS
1 – Indirect Cost
2 – Direct Cost

10. • Rent/ Space
• Salaries for continuing and temporary personnel
• Staff directly involved in special products or services
• Other areas involved in producing the product or service, such as
technology, marketing or educational services
• Supplies specially for the product or services
• Promotional expenses
DIRECT COST

11. B-PRODUCT QUALITY ANALYSIS
“Product quality means to incorporate features that have a
capacity to meet consumer needs (wants) and gives
customer satisfaction by altering products (goods) to
make them free from deficiencies or defects.”

12. PRODUCT QUALITY DETERMINANTS

13. C-CUSTOMER PRICE SENSITIVITY ANALYSIS
1. How Buyer respond?
Price Elasticity:
effect of price change on quantity sale
Quantity sold/ Price change
Estimating the Demand curve (Price Quantity Relationship)
Non-price Factors:
Buyers willingness to pay premium price to gain other advantages
OR
Forgo certain advantages for lower price
Quality, Uniqueness, Availability, convenience, Service & warranty

14. – Which firms represent most direct competition
– How competing firms are positions on relative price
– How successful each firm price strategy has been
D- COMPETITOR ANALYSIS

15. STEP 3: SELECTING PRICING STRATEGY

16. 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.
Conditions:
1. A sufficient number of buyers have a high current demand;
2. The unit costs of producing a small volume are not so high that they
cancel the advantage of charging what the traffic will bear;
3. The high initial price does not attract more competitors to market;
4. The high price communicates the image of a superior product.
1-MARKET SKIMMING PRICING STRATEGY

17. Setting a low price for a new product in order to attract
a large number of buyers and a large market share.
Conditions:
1. The market is highly price sensitive,and a low price stimulates
market growth;
2. Production and distribution costs fall with accumulated
production experience;
3. A low price discourages actual and potential competition.
2-MARKET PENETRATION PRICING STRATEGY

18. Premium pricing is the strategy of consistently pricing at the
high end of the possible price range to help attract status
conscious consumers. The high pricing of a premium product
is used to enhance and reinforce a product’s luxury image.
Conditions:
1. They believe the high price is an indication of good quality
2. They believe it to be a sign of self-worth.
3. They require flawless performance in this applicaion.
3-PREMIUM PRICING STRATEGY

19.  Goods/services deliberately sold below cost to encourage
sales elsewhere
 Typical in supermarkets, e.g. at Ramzan, selling bottles of
Coke at PkR60 in the hope that people will be attracted to the
store and buy other things
 Purchases of other items more than covers ‘loss’ on item
sold
4-LOSS LEADER PRICING STRATEGY

20.  In case of price leader, rivals have difficulty in competing on
price – too high and they lose market share, too low and the
price leader would match price and force smaller rival out of
market
 May follow pricing leads of rivals especially where those
rivals have a clear dominance of market share
 Where competition is limited, ‘going rate’ pricing may be
applicable – banks, petrol, supermarkets, electrical goods –
find very similar prices in all outlets
5-GOING RATE PRICING STRATEGY

21.  Many contracts awarded on a tender basis
 Firm (or firms) submit their price for carrying out the work
 Purchaser then chooses which represents best value
 Most government contracts
7-TENDER PRICING STRATEGY

22.  Charging a different price for the same good/service in
different markets
 Requires each market to be impenetrable
 Requires different price elasticity of demand in each market
 Air/rail
–First class
–Business class
–Economy class
8- PRICE DESCRIMINATION STRATEGY

23.  Loss Leader Pricing – offering very popular items for sale at
below-cost prices
 Rebates and coupons
• Special-Event
–Back-to-school specials
–Dollar days
–Anniversary sales
9- PROMOTIONAL PRICING STRATEGY

24.  Deliberate price cutting or offer of ‘free gifts/products’ to
force rivals (normally smaller and weaker) out of business or
prevent new entrants
 Anti-competitive and illegal if it can be proved
 Typical of oligopoly with collusion
10- DESTROYER/PREDATORY PRICING STRATEGY

25.  Setting price to ‘target’ a specified profit level
 Estimates of the cost and potential revenue at different
prices, and thus the break-even have to be made, to
determine the mark-up
 Mark-up = Profit/Cost x 100
This strategy is used by many clothes retailers where they
can add upto 60% mark-up on the basic cost of the clothes.
So even with a 50% sales offer they still make a profit!
11- TARGET PRICE STRATEGY

26. STEP 4: DETERMINING SPECIFIC PRICES & POLICIES
Choosing the right pricing strategy strengthens the chance of achieving
turnover and profit in line with company objectives
Final Pricing Decision
• Understand how much it costs to produce or procure a
product/service.
• Ensure that general overhead has been taken into account when
setting pricing.
• Research the typical market price for your product and service and
pitch accordingly.
• Understand your position in the market.
– High end value, cheap and cheerful or somewhere in between.
– Set your price level, and review on going.

27. ANY QUESTIONS?
THANK YOU
FOR CO-OPERATION