Amity Business School

Pricing Decisions & Strategies

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Marketing Mix : 4 P’s• Product• PRICE• Place • PromotionPricing is a very important strategic issue, as it is

directly related to product positioning. • Pricing affects other marketing mix elements

such as product features, Channel decisions and promotion.

Amity Business SchoolSteps to Price a Product (Not always same)

• Develop Marketing Strategy

Market Analysis, Segmentation, Targeting and Positioning

• Marketing Mix Decision

Define the Product, Distribution and Promotional strategies

• Manage Demand curve

Demand Price relation

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• CostAll fixed and variable cost is calculated• Environmental FactorsPEST• Set Pricing ObjectiveProfit maximization, Revenue maximization, Price

stabilization• Determination of PriceUse one or combination of the above factors and

make a pricing structure, give discounts etc.

Amity Business SchoolPricing Objectives

• Current Profit Maximization

This stresses on Current profits, taking into account revenue and costs

• Current Revenue Maximization

Stresses on increasing the Current revenue, and not profits. The motive is to maximize market share and gain profits in long term.

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• Maximize QuantityThis stresses to maximize the number units sold to

decrease long-term costs as the experience curve predicts

• Maximize Profit MarginStresses to increase the profit margin per unit, as,

number of unit being sold may be low.• Quality LeadershipUse price to signal high quality, to position the

product as quality leaders.

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• Partial Cost RecoveryOrganization which has other revenue sources

may seek partial cost recovery.• SurvivalIncase of market decline or overcapacity, the

emphasis may be on to the survival in the market only and to cover the costs.

• Status QuoPrice Stabilization to avoid price wars and maintain

stable level of profits

Amity Business SchoolSkim Pricing

• Skimming is the strategy used to pursue the objective of Profit Margin Maximization.

Amity Business SchoolSkimming is most Appropriate ..

• Demand is expected to be relatively inelastic, ie. The customers targeted are not highly price sensitive

• Large cost savings are not expected at high volumes or it is difficult to predict the cost savings that can be achieved at high volumes

• The company does not have the resources to finance the last capital expenditure for high volume production with initial low profit margins.

Amity Business SchoolPenetration Pricing, most appropriate …

Objective is to maximize the quantity by lowering the prices.

• Demand highly elastic, ie. Customers are price sensitive, the demand increases as the price decreases.

• Economies of scale

• The product should be of mass appeal.

• Major threat by competition.

Amity Business SchoolPricing Methods

• Cost Plus PricingSet the price at the production cost adding a certain profit

margin.• Target Return PricingSet the price to achieve a target return on investment.• Value Based PricingBase the price on the effective value to the customers

which is relative to the alternative product.• Psychological PricingBase the price on psychological factors of the consumer.

Amity Business SchoolPrice Discounts

• Quantity DiscountsOffer to customers who purchase is large

quantities.• Cumulative Quantity DiscountA discount that increase as the cumulative

quantity increases.• Seasonal DiscountBased on the time when the purchase is

made.

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• Cash DiscountExtended to customer who pay there bill

before a specified date.• Trade DiscountA functional discount offered to channel

members for performing there roles.• Promotional DiscountA short term discounted price, offered to

stimulate sales.

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Thank You