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7/30/2019 MM-CH-4-Pricing Strategies & Practice
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Chapter :-4
Basic Pricing Strategies and Practices
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Objectives of Pricing
Profitoriented
To achieve a target return
To maximize profit
Salesoriented
To increase sales volume
To maintain or increase market share
Status quo-oriented
To stabilize price
To meet competition
Differentiation
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Consumer Psychology
and Pricing
Reference Prices
Price-Quality inferences
Price cues
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When to Use Price Cues
Customers purchase
item infrequently
Customers are new
Product designs vary
over time
Prices vary seasonally
Quality or sizes varyacross stores
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Steps in Setting Price
Select the price objective
Determine demand
Estimate costs
Analyze competitor price mix
Select pricing method
Select final price
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Step 1: Selecting the Pricing Objective
Survival
Maximum currentprofit
Maximum marketshare
Maximum marketskimming
Product-qualityleadership
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Step 2: Determining Demand
Price Sensitivity
Estimating
Demand Curves
Price Elasticity
of Demand
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Step 3: Estimating Costs
Types of Costs
Target Costing
Accumulated
Production
Activity-Based
Cost Accounting
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Types of Costs
Fixed costs :- are costs that do not vary with
production or sales revenue
Variable costs :- vary directly with the level of
production
Total costs:- consist of the sum of the fixed
and variable costs for any given level of
production
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Step 4: Analyzing competitors costs, prices,
and offers
Step 5:- Selecting a Pricing Method
Markup pricing
Target-return pricing
Perceived-value pricing
Value pricing
Going-rate pricingAuction-type pricing
Group pricing :-
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Markup pricing:- in mark-up pricing the selling price
of the product is fixed by adding a particular margin
or mark up to its cost
Target-return pricing :- the firm determines the price
that would yield its target of return on investment
(general motors)
Perceived-value pricing:- Perceived value is made upof several elements, such as the buyers image of the
product performance, the channel deliverables, the
warranty quality, customer support, and softer
attributes such as supplier's reputation,
trustworthiness, and esteem.
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Value pricing:- charging a fairly low price for a high
quality offering ( Walmart) .it is a matter of
reengineering the companies operation to become a
lower-cost producer without sacrificing quality. to
attract value seeking customer. Going-rate pricing :- the firm bases its price largely
on competitors prices. (Steel, Cement, Fertilizer co)
Group Pricing:- consumer and business buyer can
join groups to avail a volume discount and other
concession
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Auction-type pricing
English auctions :- one seller and many buyers
Dutch auctions:- one seller and many buyers
or one buyer and many sellers
Sealedbid auction:- wouldbe suppliers can
submit only one bid and cannot know the
other bids (Quotation)
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Step 6: Selecting the Final Price
Impact of other marketing activities
Company pricing policies
Gain-and-risk sharing pricing
Impact of price on other parties
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Price-Adaptation Strategies
Geographical Pricing
Discounts/Allowances
Differentiated Pricing
Promotional Pricing
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Discounts and Allowances
Quantity
Discounts
Cash
Discounts
Trade
Discounts
Reductions based on buyer
performing marketing functions
Reductions based on
size of purchase
Deductions based on
paying within a specified time
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Promotional Pricing Tactics
Loss-leader pricing
Special-event pricing
Cash rebates
Low-interest financing
Longer payment terms
Warranties and service
contracts
Psychological discounting
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Differentiated Pricing
Customer-segment
pricing
Product-form pricing
Image pricing
Channel pricing
Location pricing
Time pricing
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Pricing for rural markets A large proportion have a low and seasonal income
Several approaches adopted by retailers and companiesto address this
Rural retailers often extend credit
Retailers also break the bulk and sell in loose form, insmall quantities
Companies use a similar strategy by introducing low-unitpacking or LUP
Companies also develop low-priced products with a targetprice for rural markets
Companies might offer refill packs or recyclable andreusable packs