Principles of Marketing

Lecture-27

Summaryof

Lecture-26

Price - Quality Strategies

Premium Strategy

Overcharging Strategy

Overcharging Strategy

Good-Value Strategy

Good-Value Strategy

Economy Strategy

Economy Strategy

Price

Higher Lower

Higher

Lower

Qu

alit

y

Price-Adjustment Strategies

Discount and Allowance Pricing

Segmented Pricing

Psychological Pricing

Promotional Pricing

Geographical Pricing

International Pricing

Today’s Topics

Initiating and Responding to Price Changes

InitiatingPrice

Increases

CompetitorReactionsTo Price Changes

Initiating Price Cuts

Buyer Reactions

to PriceChanges

Price Changes

Price Changes

Initiating Price Cuts is Desirable When a Firm:

–Has excess capacity

–Faces falling market share due to price competition

–Desires to be a market share leader

Price Increases are Desirable:

–If a firm can increase profit, faces cost inflation, or faces greater demand than can be supplied.

Alternatives to Increasing Price

–Reducing product size, using less expensive materials, unbundling the product.

Buyer reactions to price changes must be considered.

Competitors are more likely to react to price changes under certain conditions.–Product is uniform–Buyers are well informed

Responding to price changes

Hold Current Price;Continue to MonitorCompetitor’s Price.

Hold Current Price;Continue to MonitorCompetitor’s Price.

Reduce PriceReduce Price

Raise PerceivedQuality

Raise PerceivedQuality

Improve Quality& Increase PriceImprove Quality& Increase Price

Launch Low-Price“Fighting Brand”

Launch Low-Price“Fighting Brand”

Has Competitor CutPrice?

Has Competitor CutPrice?

Will Lower Price Negatively Affect Our

Market Share & Profits?

Will Lower Price Negatively Affect Our

Market Share & Profits?

Can/ Should EffectiveAction be Taken?

Can/ Should EffectiveAction be Taken?

Yes

No

No

No

Respond To Price Changes Only If… –Market share / profits will be negatively affected if nothing is changed.

Four strategies

Reduce price

Raise perceived quality

Improve quality and increase price

Launch a low price fighting brand

End of Price part…..

Review 2nd P (Price)

What is Price?

Price Has Many NamesPrice Has Many Names

Rent

Fee

Rate

Commission

Tuition

Fare

Toll

Premium

Bribe

Salary

Wage

Interest

Tax

Definition

Price–The amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service.

Factors Affecting Price Decisions

Internal FactorsInternal Factors

PricingDecisionsPricing

Decisions

External FactorsExternal Factors

Target Market

Positioning Objectives

Internal Factors Affecting Pricing

Decisions

Marketing Objectives

Marketing-MixStrategy

Costs

OrganizationalConsiderations

External factors affecting Pricing

decisions

Market andDemand

Competitors’ Costs, Prices, and Offers

Other External FactorsEconomic Conditions

Reseller NeedsGovernment Actions

Social Concerns

Price Elasticity of Demand

How quantity demanded responds to price changes

Pri

ce

Quantity Demanded per Period

A. Inelastic Demand - Demand Hardly Changes Witha Small Change in Price.

P2

P1

Q1Q2

Pri

ce

Quantity Demanded per Period

P’2

P’1

Q1Q2

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

General Pricing Approaches

Cost-based Pricing

Value-based Pricing

Competition-based Pricing

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

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

Price - Quality Strategies

Premium Strategy

Overcharging Strategy

Overcharging Strategy

Good-Value Strategy

Good-Value Strategy

Economy Strategy

Economy Strategy

Price

Higher Lower

Higher

Lower

Qu

alit

y

Price-Adjustment Strategies

Discount and Allowance Pricing

Segmented Pricing

Psychological Pricing

Promotional Pricing

Geographical Pricing

International Pricing

InitiatingPrice

Increases

CompetitorReactionsTo Price Changes

Initiating Price Cuts

Buyer Reactions

to PriceChanges

Price Changes

Responding to price changes

Hold Current Price;Continue to MonitorCompetitor’s Price.

Hold Current Price;Continue to MonitorCompetitor’s Price.

Reduce PriceReduce Price

Raise PerceivedQuality

Raise PerceivedQuality

Improve Quality& Increase PriceImprove Quality& Increase Price

Launch Low-Price“Fighting Brand”

Launch Low-Price“Fighting Brand”

Has Competitor CutPrice?

Has Competitor CutPrice?

Will Lower Price Negatively Affect Our

Market Share & Profits?

Will Lower Price Negatively Affect Our

Market Share & Profits?

Can/ Should EffectiveAction be Taken?

Can/ Should EffectiveAction be Taken?

Yes

No

No

No

Enough for Pricing. . .

Summary

Next….

Principles of Marketing

Lecture-27