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Pricing strategy

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Pricing strategy

  1. 1. The marketing functions of pricing By Uttam Raj Regmi
  2. 2. What is price? <ul><li>Price is the value placed on what is exchanged. Price is expressed in different terms, such as: </li></ul><ul><ul><li>Interest: Price paid for a bank loan </li></ul></ul><ul><ul><li>Rent: Price paid for physical assets </li></ul></ul><ul><ul><li>Fare: Price paid for transportation </li></ul></ul><ul><ul><li>Fee: Price paid for education </li></ul></ul><ul><ul><li>Salary : Price paid for employees service </li></ul></ul><ul><ul><li>Commision: Price paid for executing a deal </li></ul></ul><ul><ul><li>- Bribe: Price paid for getting things done </li></ul></ul>
  3. 3. What is pricing ? <ul><li>Pricing is the act of determining the exchange value between the purchasing power and utility or satisfaction acquired by an individual, group or an organization through the purchase of goods, services, ideas, rights. Pricing involves many activities performed within an organization to determine the exchange value, such as seeting the base price, formulating objectives, policies and strategies. </li></ul>
  4. 4. Importance of pricing <ul><li>Price affects demand </li></ul><ul><li>Price affects savings </li></ul><ul><li>Price regulates factors of production </li></ul><ul><li>Pricing a major government activity </li></ul><ul><li>Determining the revenue and profits </li></ul><ul><li>Deal with competition </li></ul><ul><li>Non price competition </li></ul>
  5. 5. Pricing objectives <ul><li>Profit oriented objectives </li></ul><ul><ul><li>Profit maximization </li></ul></ul><ul><ul><li>Return on investment </li></ul></ul><ul><li>Sales oriented objectives </li></ul><ul><ul><li>Maintain or expand market share </li></ul></ul><ul><ul><li>Increase sales volume </li></ul></ul><ul><li>Status quo oriented objectives </li></ul><ul><ul><li>Survival </li></ul></ul><ul><ul><li>Price stabilization </li></ul></ul><ul><ul><li>Meet Competition </li></ul></ul>
  6. 6. Importance of pricing <ul><li>Price affects demand </li></ul><ul><li>Price affects savings </li></ul><ul><li>Price regulates factors of production </li></ul><ul><li>Pricing a major government activity </li></ul><ul><li>Determining the revenue and profits </li></ul><ul><li>Deal with competition </li></ul><ul><li>Non price competition </li></ul>
  7. 7. Factors affecting the pricing of product <ul><li>Internal Factors </li></ul><ul><ul><li>Pricing objectives </li></ul></ul><ul><ul><li>Marketing Mix </li></ul></ul><ul><ul><li>Structure of pricing </li></ul></ul><ul><ul><li>Costs: Cost of products, selling costs, promotion costs </li></ul></ul><ul><li>External factors </li></ul><ul><ul><li>Market demand </li></ul></ul><ul><ul><li>Competition </li></ul></ul><ul><ul><li>Government control </li></ul></ul><ul><ul><li>Social concerns </li></ul></ul>
  8. 8. Function of pricing in social marketing <ul><li>The accessibility function </li></ul><ul><li>The product-positioning function </li></ul><ul><li>The demarketing function. </li></ul>
  9. 9. Methods of Setting Price <ul><li>Cost oriented pricing methods </li></ul><ul><ul><li>Cost – plus or mark up pricing method </li></ul></ul><ul><ul><li>Target return on investment –return pricing </li></ul></ul><ul><ul><li>Target profit or beak –even pricing </li></ul></ul><ul><li>Value oriented pricing methods </li></ul><ul><ul><li>Perceived value pricing </li></ul></ul><ul><ul><li>Customer value pricing </li></ul></ul><ul><li>Market oriented pricing methods </li></ul>
  10. 10. Methods of Setting Price <ul><li>Cost oriented pricing methods </li></ul><ul><ul><li>Cost – plus or mark up method </li></ul></ul><ul><ul><li>Target return on investment pricing </li></ul></ul><ul><ul><li>Target profit or beak –even pricing </li></ul></ul><ul><li>Value oriented pricing methods </li></ul><ul><ul><li>Perceived value pricing </li></ul></ul><ul><ul><li>Customer value pricing </li></ul></ul><ul><li>Market oriented pricing methods </li></ul>
  11. 11. Cost-based pricing method <ul><li>Cost based pricing methods are primarily based on the notion that the price should cover all types of costs and be able to give the organization a fair amount of profit. </li></ul><ul><ul><li>Mark up pricing method: the marketers seeks a given percentage return on sales </li></ul></ul><ul><ul><li>Investment – return pricing method: the marketer figures a price that will yield a given rate of return on the program’s invested capital. </li></ul></ul>
  12. 12. Mark up pricing method <ul><li>An organization has Rs 10,000 as direct cost of manufacturing 1000 units of product and Rs 5,000 as fixed cost. If the organization wishes a profit or mark up of Rs 5 per unit, what will be the price per unit of products. </li></ul><ul><li>Illustration: </li></ul><ul><li>Direct Cost (labour, material etc) = Rs 10,000 </li></ul><ul><li>Fixed overhead cost = Rs 5,000 </li></ul><ul><li>Total Cost = Rs 15,000 </li></ul><ul><li>Average cost per unit = Rs 15, 000/ 1,000 = Rs 15 (A) </li></ul><ul><li>Mark – up or profit per unit = Rs 5 , (B) </li></ul><ul><li>Therefore, price per unit = A+ B = 15 + 5 = Rs 20 </li></ul>
  13. 13. Investment – return pricing method <ul><li>Investment return pricing method is popular among manufacturing organizations that need to recover a fixed target return (profit) on their investment. </li></ul><ul><li>Illustration: A firm has invested Rs 100,000 in plant and machinery and wants to get 10 % annual return on the investment producing and selling 1000 units of a product. If the manufacturer has total fixed costs at Rs 50,000 and variable cost per unit at Rs 30, then what will be the price of the product. </li></ul><ul><li>Total investment = Rs 100,000.00 </li></ul><ul><li>Total fixed cost = Rs 50,000.00 </li></ul><ul><li>ROI: 10% on investment = Rs 10,000 </li></ul><ul><li>Fixed cost + ROI = Rs 60,000 </li></ul><ul><li>Per unit (FC +ROI) = Rs 60,000/ 1,000 unit = Rs 60 (A) </li></ul><ul><li>Variable cost per unit = Rs 30 (B) </li></ul><ul><li>Price of the product = A + B = Rs 90 </li></ul>
  14. 14. Exercise 3 <ul><li>Participants will learn the method of pricing by using the cost based pricing method. </li></ul><ul><li>Case I </li></ul><ul><li>Requirements: </li></ul><ul><li>Fixed cost = ? </li></ul><ul><li>Variable cost = ? </li></ul><ul><li>Units to be sold = ? </li></ul><ul><li>Mark –up price or profit expected = ? </li></ul><ul><li>Price per unit = ? </li></ul>
  15. 15. <ul><li>Thanks </li></ul>

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