Principles of Marketing
Lecture-25
Summaryof
Lecture-24
Factors Affecting Price Decisions
Internal FactorsInternal Factors
PricingDecisionsPricing
Decisions
External FactorsExternal Factors
Target Market
Positioning Objectives
Today’s Topics
Setting Pricing Policy
1. Selecting the pricing objective
2. Determining demand
3. Estimating costs
4.Analyzing competitors’costs, prices, and offers
6. Selecting final price
5.Selecting a pricing method
Pricing Objectives
Profit-Oriented
Sales-Oriented
StatusQuo
Pricing ObjectivesPricing Objectives
PricingObjectives
ProfitOriented
TargetReturn
MaximizeProfits
Pricing ObjectivesPricing Objectives
PricingObjectives
SalesOriented
ProfitOriented
Dollar or UnitSales Growth
Growth in Market Share
TargetReturn
MaximizeProfits
Pricing ObjectivesPricing Objectives
PricingObjectives
SalesOriented
Dollar or UnitSales Growth
ProfitOriented
Status QuoOriented
Growth in Market Share
TargetReturn
MaximizeProfits
MeetingCompetition
NonpriceCompetition
General Pricing Approaches
Cost-based Pricing
Value-based Pricing
Competition-based Pricing
Cost-based pricing
Cost plus pricing–add a standard mark up to cost
Break even pricing
total costs = total revenue
Break-even…forDetermining Target
Return Price and Break-even Volume
Ru
pee
s (i
n t
ho
usa
nd
s)R
up
ees
(in
th
ou
san
ds)12001200
10001000
800800
600600
400400
200200
00
Total costTotal cost
Fixed costFixed cost
TargetTarget profitprofit
Total revenueTotal revenue
1010 2020 3030 4040 5050
Sales volume in units (thousands)Sales volume in units (thousands)
Break-even pointBreak-even point
Break-even Volume =Fixed Cost---------------
Price - Variable Cost
Value-Based Pricing
Uses buyer’s perceptions of value not the seller’s cost as the basis for pricing.
Price is considered along with the other marketing-mix variables before the marketing program is set.
ProductProduct
CostCost
PricePrice
ValueValue
CustomersCustomers
CustomerCustomer
ValueValue
PricePrice
CostCost
ProductProduct
Cost-Based Pricing Value-Based Pricing
Competition-based pricing
Setting PricesSetting Prices
Sealed-BidCompany Sets Prices Based on What They Think Competitors
Will Charge.
Sealed-BidCompany Sets Prices Based on What They Think Competitors
Will Charge.
Going-Rate Company Sets Prices Based on What
Competitors Are Charging.
Going-Rate Company Sets Prices Based on What
Competitors Are Charging.
?
New Product Pricing Strategies
•Market Skimming
•Market Penetration
Market-Skimming Setting a High Price for a New
Product to “Skim” Maximum Revenues from the Target Market.
Results in Fewer, But More Profitable Sales.
I.e. Intel
Use Under These Conditions
–Product’s quality and image must support its higher price.
–Costs can’t be so high that they cancel the advantage of charging more.
–Competitors shouldn’t be able to enter market easily and undercut the high price.
Market Penetration
Setting a Low Price for a New Product in Order to “Penetrate” the Market Quickly and Deeply.
Attract a Large Number of Buyers and Win a Larger Market Share.
I.e. Dell
Use Under These ConditionsMarket must be highly price-sensitive so
a low price produces more market growth.
Production/distribution costs must fall as sales volume increases.
Must keep out competition & maintain its low price position or benefits may only be temporary.
Product Mix Pricing Strategies
Product Line PricingProduct Line PricingProduct Line PricingProduct Line Pricing
Optional-Product PricingOptional-Product PricingOptional-Product PricingOptional-Product Pricing
Captive-Product PricingCaptive-Product PricingCaptive-Product PricingCaptive-Product Pricing
By-Product PricingBy-Product PricingBy-Product PricingBy-Product Pricing
Product-Bundle PricingProduct-Bundle PricingProduct-Bundle PricingProduct-Bundle Pricing
ProductMix
PricingStrategies
ProductMix
PricingStrategies
Product Line PricingProduct Line Pricing
Setting Price Steps Between Product Line Items
i.e. Rs. 299, Rs. 399
Optional-Product Optional-Product PricingPricing
Pricing Optional or Accessory Products
Sold With The Main Product
i.e. Car Options
Captive-Product PricingCaptive-Product Pricing
Pricing Products That Must Be Used With The Main Product
i.e. Razor Blades, Film, Software
By-Product PricingBy-Product Pricing
Pricing low-value By-Products to get rid of them
Product-Bundle PricingProduct-Bundle Pricing
Pricing bundles of products sold together
i.e. Season tickets, Computer makers
Enough for today. . .
Summary
Setting Pricing Policy
General Pricing Approaches
New Product Pricing Strategies
•Market Skimming
•Market Penetration
Product Mix Pricing Strategies
Product Line PricingProduct Line PricingProduct Line PricingProduct Line Pricing
Optional-Product PricingOptional-Product PricingOptional-Product PricingOptional-Product Pricing
Captive-Product PricingCaptive-Product PricingCaptive-Product PricingCaptive-Product Pricing
By-Product PricingBy-Product PricingBy-Product PricingBy-Product Pricing
Product-Bundle PricingProduct-Bundle PricingProduct-Bundle PricingProduct-Bundle Pricing
ProductMix
PricingStrategies
ProductMix
PricingStrategies
Next….
Pricing (cont..)
Principles of Marketing
Lecture-25