setting the prices

8/8/2019 Setting the Prices

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SETTING THE PRICE

PRESENTED BY:-

Shashank KhannaShiva Talwar

Sugam MathurUpasana KhannaV.SowmyaVanisha Chawla


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Price Defined...

The term price denotes the money value of a product.

It is the value which a buyer passes on to the seller in lieu of

the product/service provided.

In a competitive economy, the price is determined by freeplay of demand and supply.

The firm must efficiently determine the price for itsproduct/service as the price structure affects the firmscompetitive position, revenues and profits and its share inthe market.


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Setting the Price

The firm sets a price-

When it develops a new product or,

When it introduces its regular product into a newdistribution channel or geographical area, etc.

The firm must decide where to position its product on

qualityand price.


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In setting the pricing policy, the firm observes thefollowing procedure:

Results lead to the final price

Selecting a pricing method

Analyzing competitors costs & prices

Determining demand & estimating costs

Selecting the Pricing Objective


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The company first decides where it wants to position its

market offering.

The clearera firms objective, easierit is to set price.

Pricing objectives ideally should follow from company

objectives.

E.g. A company like Rolls Royce or Mercedes Benz competesin super premium market; they cannot afford to fix low

prices & go into economy segment.

It would hurt the image of the company.


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Company pursue survival as their major objective if theyare plagued with over capacity,intensecompetitionandchangingconsumer wants.

As long as prices cover variable cost and some fixed costs,the company stays in the business.

Survival is a short-runobjective; in the long-run the firmmust learn how to add further value.

Once the situation that initiated the survival pricing haspassed, product prices are returned to previous or moreappropriate levels.

Survival


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Company estimatethedemandandcost associated withalternative prices ; &

choosethe pricethat producesmaximumcurrentprofit.

This strategy assumes that the firm has knowledge of itsdemand & cost functions.

While focusing on maximizing the current profits, thecompany may forgo the long-run performance by ignoringvariables like competitors reactions, etc.

Maximum Current Profit


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Also called maximummarketing penetration.

Lowest priceisset, on the basis of two conditions :

The priceelasticityofdemandishigh i.e. market isprice sensitive.

There is highcompetition prevailing in the market.

There are some companies which believe that higher salesvolume will lead to lower unit costs and higher long runprofits.

Maximum Market Share


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This strategy is also called Skimthecream pricing

.

It involves sellingatahigh pricetothose whoarewillingto pay before aiming at more price-sensitiveconsumers.

Some Companies introduces high prices and slowly drop theprices over the time.

Marketskimmingismostlydone when : A sufficient no. of buyers have a current high demand

The unit cost of producing a small volume is not so high

There is less competition

High priced product communicates the image ofsuperiority

E.g. Rolex watches

Maximum Market Skimmimg


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Many brands strive to be an affordable luxuries for thecustomers; which are expected to provide high quality,taste and status with a price just high enough and not outof reach of the customers.

E.g. BMW cars, Caf Coffee Day Positioned as Leaders in Quality

Premium Pricing

Loyal Customer Base

Product Quality Leadership


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Non-profitand publicorganizations may have otherpricing objectives.

E.g.

A university aims for partial cost recovery, knowingthat it must rely on private gifts and public grants tocover its remaining costs.

A non-profit hospital may aim for full cost recovery in

its pricing.

Other Objectives


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Each price will lead to a different level of demand and will

therefore have a different impact on a companysmarketing objectives.

Normally, price and demand are inversely related (exceptthat of luxury goods).

E.g. Diamonds, perfumes, etc


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The first step in estimating demand is to understand what affectsprice sensitivity.

Pricesensitivity means the how the customers responds to thechange in prices of goods and services offered to them.

Customers are less price sensitive to low cost items or items theybuy infrequently.

They are also less price sensitive when:

There are less substitutes in the market.

They do not readily notice the higher price.

They are slow to change their buying habits.

They think the higher prices are justified, etc.

Price Sensitivity


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InelasticInelasticDemandDemand

An increase or decrease inprice will not significantly

affect demand.

ElasticElasticDemandDemand

Slight change in prices alters thedemand by a larger magnitude.


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Surveys- explore how many units consumers would buy atdifferent proposed prices.

PriceExperiments- can vary the prices of different productsin a store or charge different prices forthe same product in similar areas tosee the affect on sales.

Statistical Analysis- of past prices & quantities sold.The data can be longitudinal (over time)or cross-sectional (from differentlocations at same time).

Estimating Demand Curves


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setting the prices

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