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PRICINGPRICING--
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Importance of price tomarketers
Price is a key element in the marketing mixbecause:
Directly
- Price relates directly to the generation of total
revenue -Price is also the only marketing mix elementthat generates revenue, others are costs
Indirectly -Price can be a major determinant of the
quantity of goods sold
-Price also influences total costs through itsimpact on quantity sold Symbolically Price has a psychological impact on customers By raising price the quality of the product can
be emphasised By lowering price marketers can emphasis a
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decisions INTERNAL FACTORS:
Costs - the relationship between price and cost; balancing
the need to cover costs against the price the market willbear.
Organisational objectives - the role pricing can play in
achieving long and short-term corporate objectives.
-
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Contd EXTERNAL FACTORS:
Demand- The market demand for a product or service has abig impact on pricing.
Competition What price does the competitor is charging
for similar products and possibilities lie ahead for raisingand lowering prices.
Buyers- The nature and behavior of the consumer and usersto purchase a particular product.
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Pricing - link between priceand business objectives.
The pricing objectives of businesses aregenerally related to satisfying one offive common strategic objectives:
Objective 1: To Maximize Profits Although the maximization of profits
can have negative connotations forthe public, in economic theory, onefunction of profit is to attract new
entrants to the market and theadditional suppliers keep prices at areasonable level. By seeking todifferentiate their product from thoseof other suppliers, new entrants alsoexpand the choice to consumers, and
may vary prices as niche marketsdevelop
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Contd . .
Objective 2: To Meet a Specific TargetReturn on Investment (or on net sales)
Assuming a standard volume operation (i.e.production and sales) target pricing isconcerned with determining the necessarymark-up (on cost) per unit sold, to achievethe overall target profit goal. Target returnpricing is effective as an overall performancemeasure of the entire product line, but forindividual items within the line, certainstrategic pricing considerations may requirethe raising or lowering of the standard price.
Objective 3: To Achieve a Target Sales Level Many businesses measure their success in
terms of overall revenues. This is often aproxy for market share. Pricing strategies withthis objective in mind usually focus on settingprice that maximizes the volumes sold.
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Contd. . . .
Objective 4: To Maintain or Enhance MarketShare
As an organizational goal, the achievement of adesired share of the market is generallylinked to increased profitability. An offensivemarket share strategy involves attainingincreased market share, by lowering prices inthe short term. This can lead to increasedsales, which in the longer term can lead tolower costs (through benefits of scale andexperience) and ultimately to higher pricesdue to increased volume/market share.
Objective 5: To Meet or Prevent Competition Prices are set at a level that reflects the
average industry price, with smalladjustments made for unique features of thecompanys specific product(s). Firms thatadopt this objective must work backwardsfrom price and tailor costs to enable the
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PRICING STRATEGY
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SETTING PRICING POLICY
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PRICING OBJECTIVES
SURVIVAL
MAXIMUM CURRENT PROFIT
MAXIMUM MARKET SHARE
MAXIMUM MARKET SKIMMING
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No possible Profit
at this Price
DETERMINING PRICING METHOD
High PriceNo possible Demand
at this Price
Low Price
Cost FLOOR PRICE
Customer Assessment
& Demand CEILING PRICE
Competitors &
Substitute Price ORIENTATION POIN
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PRICE - QUALITY STRATEGIES
Premium
Strategy
Overcharging
Strategy
Good-Value
Strategy
Economy
Strategy
Price
Higher Lower
High
er
Lower
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Selecting a Pricing Method
Markup Pricing
Target-Return Pricing
Perceived-Value Pricing
Value Pricing
Going Rate Pricing
Sealed-Bid Pricing
Pricingmethods
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Markup Pricing
Elementary method - add standard markup toproduct cost
Most popular pricing method
e.g. Resellers / Retailers
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Target Return Pricing
Determine the price that would yield its targetrate of Return on Investment (ROI)
Break-even Volume
e.g. MHADA
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Perceived-Value Pricing
Use of Marketing Elements Advtg & Sales
e.g. Luxury Brands
Buyers perception of value not sellers cost
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Value Pricing
Everyday low pricing (EDLP)
High-low pricing
Low price for a high-quality offering
e.g. Supermarkets
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Going Rate Pricing
Based on Competitors Pricing
Follow the Leadere.g. Bottled water, Soft Drink, Toothpaste etc.
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Sealed Bid Pricing
Pricing based on expectations how competitorswill price rather than on costs or demand
e.g. Bids for Government Project
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NEW PRODUCT PRICING STRATEGIES
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PRODUCT MIX PRICING STARTEGIES
Product Line PricingProduct Line PricingSetting Price Steps Between Product Line Items
i.e. Rs.299, Rs.399
Optional-Product PricingOptional-Product PricingPricing Optional or Accessory ProductsSold With The Main Product
i.e. Car Options
Captive-Product PricingCaptive-Product PricingPricing Products That Must Be Used
With The Main Producti.e. Razor Blades, Film, Software
Product-Bundle PricingProduct-Bundle PricingPricing Bundles Of Products Sold TogetherPricing Bundles Of Products Sold Together
ProductMix
Pricing
Strategies
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= -Price Adjustment
Strategies=
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PRICE-ADJUSTMENT STRATEGIES
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Initiating and Responding to Price Changes
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Initiating and Responding to Price Changes
InitiatingPriceIncreases
CompetitorReactions
toPrice
Changes
InitiatingPrice Cuts
Buyer
ReactionstoPrice
Changes
PriceChanges
P i Adj S i
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Price-Adjustment StrategiesPrice-Adjustment Strategies
HoldCurrentPrice;ContinuetoMonitorCompetitorsPrice.
HoldCurrentPrice;ContinuetoMonitorCompetitorsPrice.
ReducePriceReducePrice
RaisePerceivedQuality
RaisePerceivedQuality
ImproveQuality&IncreasePriceImproveQuality&IncreasePrice
LaunchLow-PriceFightingBrandLaunchLow-PriceFightingBrand
HasCompetitorCutPrice? HasCompetitorCutPrice?
WillLowerPriceNegativelyAffectOurMarketShare&Profits?
WillLowerPriceNegativelyAffectOur
MarketShare&Profits?
Can/ShouldEffectiveActionbeTaken?Can/ShouldEffective
ActionbeTaken?Yes
No
No
No
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-- thank youthank you--