pricing strategies & tactics
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PRICING
STRATEGIES
&
TACTICS
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PRICE STRATEGY
It refers to producers plan or art or discretion
of price fixation or price variation in a manner
such that he may successfully achieve his
stipulated target of profit maximization or
sales maximization.
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MAIN PRICING TACTICS
Cost Oriented Pricing
Competition Oriented
Pricing
Pricing based on othereconomic conditions.
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COST ORIENTED PRICING
Cost Plus Pricing or Full
Cost pricing
Marginal or Incremental
Cost Pricing
Target pricing or Rate ofReturn pricing
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Cost Plus Pricing
Means addition of certain percentage of costs
as profits to cost of production to arrive at a
price.
Also known asMark Up Pricing.
whereAV
C=A
verageV
ariable CostGPM= Gross Profit margin
P= AVC + GPM
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Cost plus
Price
Full cost
Allocated
fixed cost
Variable
Cost
Mark Up
on price
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Advantages
Easy & convenient to adopt Reduces cost of decision making
Fulfills objective of profit maximization
Disadvantages
Market demand is not considered
Does not take account of competitive forces
Ignores future costing
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Marginal Cost Pricing
Fixed costs are ignored & prices are
determined on basis of marginal cost.
Used in- Presence of unutilized capacity
- Introducing product in new method
- Stiff competition in market
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Advantages
Aggressive pricing policy Useful for pricing over life cycle of product.
Price never uncompetitive.
Disadvantages
Cannot be applied in practice
Frequent price changes
Cut throat competition
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Target pricing or Rate of Return
Pricing
Where firm expects to earn a planned or
target rate of return on its investment, price is
fixed to achieve the objective.
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COMPETITON ORIENTED PRICING
Going Rate Pricing
Loss Leader Pricing
Trade Association Pricing
Customary Pricing system
Price Leadership System
Cycling Pricing System
Initiative Pricing system
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PRICING BASED ON ECONOMIC
CONDITIONS ADMINISTERED PRICING SYSTEM
Minimum Support Pricing
Dual Pricing System
Retention pricing
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DIFFERENTIAL PRICING SYSTEM
Time Price differential
- Clock Time Price differential- Calendar Time Price Differential
Use Price Differential
Quality Price Differential
Geographic Price Differential- Uniform delivered PricingMethod
Postage Stamp Pricing
Zone pricing
- Base point PricingSingle Base point pricing
Multiple Base point pricing
Freight Equalisation pricing
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PRICING STRATEGIES
Stay Out
Pricing
Price Lining
Strategy
Psychological
or Odd
Number &Round Number
Pricing
Limit Pricing
Strategy
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PRICING STRATEGY FOR NEW PRODUCT
Skimming Price Policy
Penetration Price Policy
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PRICING STRATEGY IN LARGE
ENTERPRISES
Pricing to achieve a target return on investment
Stabilization of pricing & margin
Pricing to improve or maintain position
Pricing to meet or follow competition Pricing related to Product Differentiation
Image of fairness
Emphasis on full cost pricing
Price leadership Price with variable mark up
Pricing not to exploit the market conditions
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PRICING STRATEGIES IN SMALL
BUSINESS
Does not always follow full cost pricing
Not to aim at target rate of profit
Concerned about image
Different mark up for different products
Simply match the price
Trial & error
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PRICING PROCESS
Individuals affected by pricing decisions
Multi stage process
Determining a target groupDecision about firms image
Selection of sales strategy
Choice of pricing policy
Choosing a price strategy
Setting specific prices
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Certain price considerations
Consideration of image vis--vis price change
Consideration of rival price strategies
Impact of price change on entry of new rivals
Impact of price change in a product on product line
Coordination of pricing policy with overall corporate goals &with other policies of firm