mm - pricing

8/8/2019 MM - Pricing

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Marketing Management



Pricing



Pricing- Price is all around us,We pay rent for

house,car,tution fee for our

education;fee to our dentist ,etc…..- Price is the only element in the

marketing mix that produces revenue,the other elements produce costs.



Price

• Three variables that determine profit:

Sales

Volume

Sales

Volume

Price

PriceX Cost

Cost Profit

Profit- =

Price

CustomerSeller

Benefit



Price brings in the

revenues This is the only element in the marketing

mix that brings in the revenues. All the rest

are costs

Price communicates the value positioning

of the product.



Pricing policy Selecting the pricing objective

Determining demand

Estimating costs Analysing competitors – costs, prices,

offers

Selecting a pricing method Selecting the final price

i i



•Survival•Low Prices to Cover Variable Costs and Some Fixed Coststo Stay in Business.

•Current Profit Maximization•Choose the Price that Produces the Maximum CurrentProfit, Etc.

•Market Share Leadership•Low as Possible Prices to Become the Market ShareLeader.

•Product Quality Leadership•High Prices to Cover Higher Performance Quality and R &D.

•Market Skimming

Corporate PricingObjectives



Survival(Mobile Operators)

Survival(Mobile Operators)

Maximum marketskimming

(Nokia Handsets / Intel Micro Chips)

Maximum marketskimming

(Nokia Handsets / Intel Micro Chips)

Product-qualityleadership

(Maruti)

Product-qualityleadership

(Maruti)

Maximum currentprofit

(Aiwa)

Maximum currentprofit

(Aiwa)

Maximum marketshare(Kodak KB)

Maximum marketshare(Kodak KB)

Selecting the PriceObjective



Determining Demand

Demand and price are inverselyrelated ,higher the price lower isthe demand.



Price Elasticity of Demand

Price

Quantity Demanded per Period

A. Inelastic Demand -

Demand Hardly Changes Witha Small Change in Price.

P 2

P 1

Q 1

Q 2

Price

Quantity Demanded per Period

P’ 2

P’ 1

Q 1

Q 2

B. Elastic Demand -Demand Changes Greatly Witha Small Change in Price.



Determining Demand

There are few orno substitutes

(Intel)

Buyers do notreadily notice thehigher price

(Life saving Drugs)

Buyers are slowto change theirbuying habits

(Nescafe) Buyers think

higher prices are justified

(Zodiac Shirts)

Conditions Under Which Demand

is Less Elastic:



Setting a Pricing Strategy

HIGH MEDIUM LOW

HIGH 1) PremiumStrategy

2) High-valuestrategy

3) Super-valuestrategy

MEDIUM 4) OverchargingStrategy

5) Medium-valuestrategy

6) Good-valueStrategy

LOW 7) Rip-Off Strategy

8) False economystrategy

9) EconomyStrategy

PRICE

QUA

LITY



Estimating Cost

Total CostsSum of the Fixed and Variable Costs for a Given

Level of Production

Total CostsSum of the Fixed and Variable Costs for a Given

Level of Production

Fixed Costs(Overhead)

Costs that don’tvary with sales or production levels.

Executive SalariesRent

Fixed Costs(Overhead)

Costs that don’tvary with sales or production levels.

Executive SalariesRent

Variable Costs

Costs that do varydirectly with the

level of production.

Raw materials

Variable Costs

Costs that do varydirectly with the

level of production.

Raw materials



Pricing Methods Markup price = unit cost

(1-desired return on sales)Where unit cost is variable cost + (fixed cost/unit sales)

Target return pricing (target ROI) =

Unit cost + desired return X invested capital

Unit sales Break even volume = fixed cost

Price – variable cost



Perceived Value Pricing

Pricing strategy reflects the beliefsand attitudes of the customer.

Perceived price/quality relationship.

Price is based on an understanding of

the value of the product as perceivedby the customer.

Pricing Methods



Value-Based Pricing

Product

Cost

Price

Value

Customers

Customer

Value

Price

Cost

Product

Cost-Based Pricing Value-Based Pricing

START



Going-Rate

Company Sets Prices Based On What Competitors Are

Charging.

Sealed-Bid

Company Sets Prices Based On What They ThinkCompetitors Will Charge.

Pricing Methods



Selecting the Final Price Influencing of other marketing-mix elements

The final price must be take in to account the brandsquality and advertising relative to competition

Company pricing policies The Price must be consistent with company pricing

policies

Impact of price on other parties such as dealers and distributors



Selecting the Final Price Psychological pricing

It is used to lessen the impact of the actual pricing inthe consumers mind

Sometimes price is equated to quality Reference Price

http://www.bata.com/home.htm



Marketing Management –Philip Kotler

Harry Potter – J. K. Rowling

Adjusting prices to account for the Geographical Location

of Customers

US Price $124.67

India Price Rs. 310

US Price $17.99India Price Rs. 636

Geographical Pricing



Discount & AllowanceReducing Prices to RewardCustomer Responses such as

Paying Early or Promotingthe Product.

Discount & AllowanceReducing Prices to Reward

Customer Responses such asPaying Early or Promoting

the Product.

Cash DiscountCash Discount

Quantity DiscountQuantity Discount

Seasonal DiscountSeasonal Discount

Trade-In AllowanceTrade-In AllowancePromotional AllowancePromotional Allowance



• Reducing Prices to Increase Short-Run Sales

• Reducing Prices to Reward Customer Responses suchas Paying Early or Promoting the Product.

Promotional Pricing

http://www.godrej.com/vmv.htm



Discriminatory Pricing Customer segment

Product form

Image pricing

Location pricing

Time pricing



Preconditions Market must be segmentable

The lower price segment should not be able to

resell the product to the higher price segment The competitors must not be able to undersell

the firm in the higher price segment

Price discrimination should not be illegal



Product mixProduct-Mix Pricing Tactics:

Product-line Pricing

Optional-feature pricing

Captive-product pricing

Two-Part Pricing

By-Product Pricing

Product-Bundle Pricing



Optional-Product PricingOptional-Product PricingPricing Optional or Accessory Products

Sold With The Main Product

i.e. Car Options such as a CD player

Optional-Product PricingOptional-Product PricingPricing Optional or Accessory Products

Sold With The Main Product

i.e. Car Options such as a CD player

Captive-Product PricingCaptive-Product Pricing

Pricing Products That Must BeUsed Along With The Main Product

e.g. Printer cartridges

Captive-Product PricingCaptive-Product Pricing

Pricing Products That Must BeUsed Along With The Main Product

e.g. Printer cartridges

By-Product PricingBy-Product PricingPricing Low-Value By-Products To

Get Rid of Them

e.g. Sugarcane, crude oil

By-Product PricingBy-Product PricingPricing Low-Value By-Products To

Get Rid of Them

e.g. Sugarcane, crude oil

Product-Bundle PricingProduct-Bundle PricingBundles Of Products Sold

Together at a Reduced Price

e.g. Gillete razor blades & foam

Product-Bundle PricingProduct-Bundle PricingBundles Of Products Sold

Together at a Reduced Price

e.g. Gillete razor blades & foam

ProductMix

Pricing

Strategies

ProductMix

Pricing

Strategies

Product Mix Pricing StrategiesProduct Mix Pricing Strategies



Setting Price Steps Between Product Line Items

Product Line Pricing



Analyzing Competitors ’Cost ,Prices andOffers

The company needs to benchmarkits costs against its

competitors’cost to learn whetherit is operating at a cost advantageor disadvantage.

The company also needs to learnthe price and quality of competitors’ offers



Initiating Price cuts Excess plant capacity

Competition

Aggressive pricing



Initiating price increases When demand exceeds supply

When costs go up

Govt. policies

Reduce/remove discounts andrebates



Indirect price increases Shrinking pack size for same price

Substituting less expensive raw materials

Reducing product features Removing product services

Using less expensive packaging material

Reducing the no.of packs and sizes offered Creating new economy brands

Assessing & Responding to



Hold Current Price;Continue to Monitor Competitor’s Price.

Hold Current Price;Continue to Monitor Competitor’s Price.

Reduce PriceReduce Price

Raise PerceivedQuality

Raise PerceivedQuality

Improve Quality& Increase Price

Improve Quality& Increase Price

Launch Low-Price“Fighting Brand”

Launch Low-Price“Fighting Brand”

Has Competitor CutPrice?

Has Competitor CutPrice?

Will Lower PriceNegatively Affect Our

Market Share & Profits?

Will Lower PriceNegatively Affect Our

Market Share & Profits?

Can/ Should EffectiveAction be Taken?

Can/ Should EffectiveAction be Taken?

Yes

No

No

No

Yes

Yes

Assessing & Responding toCompetitor Price Changes



Thank You

mm - pricing

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