how should a company set prices initially for products or services
TRANSCRIPT
DEVELOPING PRICING STRATEGY AND PROGRAMSPart
2
How should a company set prices initially for products or services
steps in price setting6
SELECTING THE PRICING OBJECTIVE
1
5 MAJOR OBJECTIVES
ARE
Survival Max. Profit Max. Market Share
Max. Market Skimming Product Quality Leadership
DETERMINING DEMAND
2
Demand
PR
ICE
Price and Demand has inverse relationship
Price Sensitivity
Price elasticity of demand
Estimation Demand curve
ESTIMATING COSTS
3
Demand sets a ceiling on the price
the company can charge for its product where costs set the floor
Companies charge a price that will at least cover
all production costs
Type of costs and
level of production
Variable cost
Fixed cost
Total cost
Average cost
Rent, Bills Electricity, Salaries
Based on units Produced
Sum of all costs
Cost per unit of production
Accumulation Product
Target Costing
Higher the production lower the per unit cost
Costs change with production Scale and experience,
Bring down costsso that cost remain in target range
ANALYZING COMPETITOR’S COSTS,PRICE AND OFFERS
4
If the firm’s offer contains features
not offered by the nearest competitor, firm should evaluate their worth
to the customer and
add that to competitor’s price
If the competitor’s offer contains some features not offered by the firm,
the firm should subtract their value from its own price
SELECTING A PRICING METHOD
5
Markup Pricing
Target Return Pricingthe firm determines the price that yield its target rate of return on investment
Add a standard markup to the product’s cost for profit
Perceived Value Pricing
Value Pricing
on customer’s perceived value i.e. product performance, Warranty quality, customer support, trust and esteem
Charging a fairly low price for a high quality product by inventing and reengineering low cost products without affecting quality
Going Rate Pricing
Auction type pricing Specially on online servicers
SELECTING THE FINAL PRICE
6
Impact of other marketing activities
Company pricing policies
Gain and risk sharing pricing
Impact of price on other parties
In selecting Final Pricecompany must consider additional factors
RECAPSETTING THE PRICE
1.Selecting price objective2.Determining demand3.Estimating costs4.Analyzing competitor’s cost, price and offer5.Selecting a price method6.Selecting the final price
Disclaimer
Created by Khemendra Raj Pingoliya, IIT Kanpur during an internship
by Prof. Sameer Mathur, IIM Lucknow.
www.IIMInternship.com
