mm-ch-4-pricing strategies & practice

7/30/2019 MM-CH-4-Pricing Strategies & Practice

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Chapter :-4

Basic Pricing Strategies and Practices


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Objectives of Pricing

Profitoriented

To achieve a target return

To maximize profit

Salesoriented

To increase sales volume

To maintain or increase market share

Status quo-oriented

To stabilize price

To meet competition

Differentiation


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Consumer Psychology

and Pricing

Reference Prices

Price-Quality inferences

Price cues


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When to Use Price Cues

Customers purchase

item infrequently

Customers are new

Product designs vary

over time

Prices vary seasonally

Quality or sizes varyacross stores


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Steps in Setting Price

Select the price objective

Determine demand

Estimate costs

Analyze competitor price mix

Select pricing method

Select final price


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Step 1: Selecting the Pricing Objective

Survival

Maximum currentprofit

Maximum marketshare

Maximum marketskimming

Product-qualityleadership


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Step 2: Determining Demand

Price Sensitivity

Estimating

Demand Curves

Price Elasticity

of Demand


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Step 3: Estimating Costs

Types of Costs

Target Costing

Accumulated

Production

Activity-Based

Cost Accounting


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Types of Costs

Fixed costs :- are costs that do not vary with

production or sales revenue

Variable costs :- vary directly with the level of

production

Total costs:- consist of the sum of the fixed

and variable costs for any given level of

production


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Step 4: Analyzing competitors costs, prices,

and offers

Step 5:- Selecting a Pricing Method

Markup pricing

Target-return pricing

Perceived-value pricing

Value pricing

Going-rate pricingAuction-type pricing

Group pricing :-


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Markup pricing:- in mark-up pricing the selling price

of the product is fixed by adding a particular margin

or mark up to its cost

Target-return pricing :- the firm determines the price

that would yield its target of return on investment

(general motors)

Perceived-value pricing:- Perceived value is made upof several elements, such as the buyers image of the

product performance, the channel deliverables, the

warranty quality, customer support, and softer

attributes such as supplier's reputation,

trustworthiness, and esteem.


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Value pricing:- charging a fairly low price for a high

quality offering ( Walmart) .it is a matter of

reengineering the companies operation to become a

lower-cost producer without sacrificing quality. to

attract value seeking customer. Going-rate pricing :- the firm bases its price largely

on competitors prices. (Steel, Cement, Fertilizer co)

Group Pricing:- consumer and business buyer can

join groups to avail a volume discount and other

concession


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Auction-type pricing

English auctions :- one seller and many buyers

Dutch auctions:- one seller and many buyers

or one buyer and many sellers

Sealedbid auction:- wouldbe suppliers can

submit only one bid and cannot know the

other bids (Quotation)


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Step 6: Selecting the Final Price

Impact of other marketing activities

Company pricing policies

Gain-and-risk sharing pricing

Impact of price on other parties


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Price-Adaptation Strategies

Geographical Pricing

Discounts/Allowances

Differentiated Pricing

Promotional Pricing


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Discounts and Allowances

Quantity

Discounts

Cash

Discounts

Trade

Discounts

Reductions based on buyer

performing marketing functions

Reductions based on

size of purchase

Deductions based on

paying within a specified time


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Promotional Pricing Tactics

Loss-leader pricing

Special-event pricing

Cash rebates

Low-interest financing

Longer payment terms

Warranties and service

contracts

Psychological discounting


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Differentiated Pricing

Customer-segment

pricing

Product-form pricing

Image pricing

Channel pricing

Location pricing

Time pricing


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Pricing for rural markets A large proportion have a low and seasonal income

Several approaches adopted by retailers and companiesto address this

Rural retailers often extend credit

Retailers also break the bulk and sell in loose form, insmall quantities

Companies use a similar strategy by introducing low-unitpacking or LUP

Companies also develop low-priced products with a targetprice for rural markets

Companies might offer refill packs or recyclable andreusable packs

mm-ch-4-pricing strategies & practice

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