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Marketing ManagementMarketing Management

Pricing Pricing StrategyStrategy

Minal Agarwal R. No. 3 Aditya Desai – R. No 18

Shaun Fernandes R. No. 23Nidhi Gopalani R. No. 27

Prem Joshi R. No. 29Dharmesh Kharwar R. No. 35

Veenit Kunder R. No. 38Vidhi Mehta R. No. 44

JBIMS MMM-I

Contents

Adapting the price

Selecting pricing objective

Introduction

Inititating and responding to price changes

Steps in Pricing

Determining Demand

Estimating Costs

Analyzing competitors costs, prices and offers

Selecting a pricing method

Selecting the final price

Introduction

Price

It is the monetary value of a product

Pricing Strategy

Pricing

A strategically correct value attached to a product/servic

e corresponding

to what it delivers

Price Quality Segments

Price Quality Segments High

Medium

Low

High 1. Premium Strategy

2. High Value

Strategy

3. Super Value

Strategy

Medium4.

Overcharging Strategy

5. Medium

Value Strategy

6. Good Value

Strategy

Low 7. Rip off Strategy

8. False economy Strategy

9. Economy Strategy

PRICEPRICE

PR

OD

UC

T Q

UA

LIT

YP

RO

DU

CT

QU

AL

ITY

Price Quality Segments

Price Quality Segments High

Medium

Low

High 1. Premium Strategy

2. High Value

Strategy

3. Super Value

Strategy

Medium4.

Overcharging Strategy

5. Medium

Value Strategy

6. Good Value

Strategy

Low 7. Rip off Strategy

8. False economy Strategy

9. Economy Strategy

PRICEPRICE

PR

OD

UC

T Q

UA

LIT

YP

RO

DU

CT

QU

AL

ITY

Price Quality Segments

Price Quality Segments High

Medium

Low

High 1. Premium Strategy

2. High Value

Strategy

3. Super Value

Strategy

Medium4.

Overcharging Strategy

5. Medium

Value Strategy

6. Good Value

Strategy

Low 7. Rip off Strategy

8. False economy Strategy

9. Economy Strategy

PRICEPRICE

PR

OD

UC

T Q

UA

LIT

YP

RO

DU

CT

QU

AL

ITY

Price Quality Segments

Price Quality Segments High

Medium

Low

High 1. Premium Strategy

2. High Value

Strategy

3. Super Value

Strategy

Medium4.

Overcharging Strategy

5. Medium

Value Strategy

6. Good Value

Strategy

Low 7. Rip off Strategy

8. False economy Strategy

9. Economy Strategy

PRICEPRICE

PR

OD

UC

T Q

UA

LIT

YP

RO

DU

CT

QU

AL

ITY

Price Quality Segments

VALUE RECIVEDVALUE RECIVED

PR

ICE

PA

IDP

RIC

E P

AID

Price = ValuePrice = Value

Missed OpportunityMissed Opportunity

Unharvested ValueUnharvested Value

LowLow MediumMedium HighHigh

LowLow

MediumMedium

HighHigh

Step 1

Pricing Objectives

Profit Maximization

Market Share Maximization

Maximize Quantity

Selecting Pricing

Objectives

Status Quo

Survival

Quality Leadership

Partial Cost Recovery

Pricing ObjectivesPricing Objectives

Step 2

Determining Demand

Price elasticity of demand

10095

Quantity Demanded

Pri

ce i

n R

s.

10050

Quantity Demanded

Pri

ce i

n R

s.

5

10

5

10

Inelastic Demanded Elastic Demanded

Step 3

Estimating Cost

Company Logo

Types of CostsTypes of CostsTypes of CostsTypes of Costs

FixedFixed

VariablVariablee

TotalTotal

AverageAverage

Estimating Cost

Cost Per Unit at Different Levels of Production

Accumulated Production

Experience curve (Learning curve)Experience curve (Learning curve)

Target Costing

Starts with ‘The Right’ selling price

Reversal of the usual process

Selling price – desired profit = Target Cost

Evaluation of all costs

Profit achieved through cost cutting

Step 4

Analyzing Competitors’ Costs, Prices, and Offers

Analyzing Competitors’ Costs, Prices, and Offers

Identify price of nearest competitors

Compare the features and prices of competitors

Make decision to charge more, same or less than competitors

Monitor competitors’ reactions

Step 5

Selecting a Pricing Method

Selecting a Pricing Method

Markup Pricing

Target-Return Pricing

Perceived-Value Pricing

Value Pricing

Going Rate Pricing

Sealed-Bid Pricing

Pricing method

s

Markup Pricing

Elementary method - add standard markup to product cost

Elementary method - add standard markup to product cost

Most popular pricing method

Most popular pricing methode.g. Resellers / Retailerse.g. Resellers / Retailers

Target Return Pricing

Determine the price that would yield its target rate of Return on Investment (ROI)

Determine the price that would yield its target rate of Return on Investment (ROI)Break-even VolumeBreak-even Volume

e.g. MHADAe.g. MHADA

Break-Even Chart for Determining Target-Return Price and Break-Even Volume

Break-even volume = fixed cost / (price – variable cost)

Target-Return Pricing

Perceived-Value Pricing

Use of Marketing Elements – Advtg & Sales

Use of Marketing Elements – Advtg & Sales e.g. Luxury Brandse.g. Luxury Brands

Buyers perception of value – not seller’s cost

Buyers perception of value – not seller’s cost

Value Pricing

Everyday low pricing (EDLP)

Everyday low pricing (EDLP)High-low pricingHigh-low pricing

Low price for a high-quality offering

Low price for a high-quality offering

e.g. Supermarketse.g. Supermarkets

Going Rate Pricing

Based on Competitor’s Pricing

Based on Competitor’s PricingFollow the LeaderFollow the Leader

e.g. Bottled water, Soft Drink, Toothpaste etc.

e.g. Bottled water, Soft Drink, Toothpaste etc.

Sealed Bid Pricing

Pricing based on expectations how competitor’s will price rather than on costs or demand

Pricing based on expectations how competitor’s will price rather than on costs or demande.g. Bids for Government Project

e.g. Bids for Government Project

Step 6

Selecting the Final Price

Selecting the Final Price

Selecting Selecting the Final the Final

PricePrice

AA

DD

BB

CC

EEIMPACT OF PRICE ON

OTHER PARTIES

PSYCHOLOGICAL PRICING

GAIN & RISK SHARING PRICING

COMPANY PRICING POLICY

INFLUENCE OF OTHER

MARKETING MIX ELEMENTS

Adapting the Price

OffsetOffset

Buyback arrangement

Compensation Deal

Barter

Counter-trade

Geographical Pricing

AllowanceAllowance

5.5.

Seasonal Discount

Seasonal Discount

4.4.

Functional

Discount

Functional

Discount

3.3.

Quantity Discount

Quantity Discount

2.2.

Price Discounts and Allowances

1.

Cash Discount

Cash Discount

Promotional Pricing

Promotional

Pricing

Loss-leader pricingLoss-leader pricing

Special-event pricingSpecial-event pricing

Cash rebates

Cash rebates

Low-interest financingLow-interest financing

Longer payment termsLonger payment terms

Warranties and service contracts

Warranties and service contracts

Psychological discountingPsychological discounting

Discriminatory Pricing

Customer-Customer-segmentsegmentpricingpricing

Product-Product-form pricingform pricing Image Image

pricingpricingChannel Channel pricingpricing

First-degree price discrimination

Third-degree price discriminationAs in the following cases:

Second-degree price discrimination

TimeTimepricingpricing

Location Location pricingpricing

Discriminatory Pricing (continued…)

Competitors - not undersell firm

Cost of segmenting and policing

Not breed customer resentment

No resell of product

For price discrimination to work, certain conditions must exist:

Not be illegal

Segmentable & different intensities of demand

Product-LinePricing

Product-LinePricing

Product-mix Pricing

(six situations involving product-mix pricing)

(six situations involving product-mix pricing)

Optional-FeaturePricing

Optional-FeaturePricing

Main product + Optional products, Features, Services

Main product + Optional products, Features, Services

Captive-ProductPricing

Captive-ProductPricing

Product + Ancillary / Captive, products

Product + Ancillary / Captive, products

Product-Bundling Pricing

Product-Bundling Pricing

Pure bundling & Mixed bundling

Pure bundling & Mixed bundling

Product-mix Pricing (continued…)

Two-PartPricing

Two-PartPricing

Fixed fee + Variable usage fee

Fixed fee + Variable usage fee

By-ProductPricing

By-ProductPricing

Initiating and Responding to Price

Changes

Circumstances leading to Price cuts

Initiating Price Cuts

AA

Aggressive PricingCC

DD

EE

Excess plant capacity

Economic recession

Drive to dominate the market through lower costs

BBDeclining market share

Initiating Price Cuts

1

Low quality trap: Consumers will assume quality is low

2Fragile- market-share trap: Initial gains to market share but no loyalty

3Shallow-pockets trap: Higher priced competitors cut price and stay longer

Traps due to price cutting

Initiating Price Increases

Over-Over-demanddemand

BB

EE

CC

DD

AACost inflation & Anticipatory Pricing

Delayed Quotation Pricing

Escalator Clauses

Reduction of Discounts

Unbundling

Initiating Price Changes

Possible responses to higher costs or overhead without raising prices include:

Shrinking the amount of product instead of raising the price

Substituting less expensive materials or ingredients Reducing or removing product features Removing or reducing product services, such as

installation or free delivery Using less expensive packaging material or larger

package sizes Reducing the number of sizes and models offered Creating new economy brands

Reactions to price changes

▼

Customers’

Reactions

▼

Competitor’s

Reactions

Responding to competitors’ price changes

If competitors lower price for homogenous products

Try augmentin

g the product

If it doesn’t

work or if it is not likely to

work, then meet the price cut head-on

Responding to Competitors’ Price Changes

In a non-Homogeneous MarketIn a non-Homogeneous MarketIn a non-Homogeneous MarketIn a non-Homogeneous Market

Evaluate

Why a Why a change?change?

Is Is change change

temporartemporary / y /

PermanenPermanent ?t ?

Effect Effect on Mkt on Mkt Share / Share / ProfitProfit

Response(sResponse(s) from ) from

competitorcompetitorss

If competitors raise priceIf competitors raise priceIn a Homogeneous In a Homogeneous Market, follow if Market, follow if whole market is whole market is likely to followlikely to follow

In a Homogeneous In a Homogeneous Market, follow if Market, follow if whole market is whole market is likely to followlikely to follow

When a Market Leader is Being Attacked on Price

OptionsOptions AvailableAvailable

AA

DD

BB

CC

EELaunch a low-price fighter line

Manage Price

Maintain price and add value

Increase price &improve quality

Reduce Price

Price-Reaction Program for meeting a competitor’s price cut

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Ref. Marketing by Kotler