pricing strategy
TRANSCRIPT
LOGO
Marketing ManagementMarketing Management
Pricing Pricing StrategyStrategy
Minal Agarwal R. No. 3 Aditya Desai – R. No 18
Shaun Fernandes R. No. 23Nidhi Gopalani R. No. 27
Prem Joshi R. No. 29Dharmesh Kharwar R. No. 35
Veenit Kunder R. No. 38Vidhi Mehta R. No. 44
JBIMS MMM-I
Contents
Adapting the price
Selecting pricing objective
Introduction
Inititating and responding to price changes
Steps in Pricing
Determining Demand
Estimating Costs
Analyzing competitors costs, prices and offers
Selecting a pricing method
Selecting the final price
Introduction
Price
It is the monetary value of a product
Pricing Strategy
Pricing
A strategically correct value attached to a product/servic
e corresponding
to what it delivers
Price Quality Segments
Price Quality Segments High
Medium
Low
High 1. Premium Strategy
2. High Value
Strategy
3. Super Value
Strategy
Medium4.
Overcharging Strategy
5. Medium
Value Strategy
6. Good Value
Strategy
Low 7. Rip off Strategy
8. False economy Strategy
9. Economy Strategy
PRICEPRICE
PR
OD
UC
T Q
UA
LIT
YP
RO
DU
CT
QU
AL
ITY
Price Quality Segments
Price Quality Segments High
Medium
Low
High 1. Premium Strategy
2. High Value
Strategy
3. Super Value
Strategy
Medium4.
Overcharging Strategy
5. Medium
Value Strategy
6. Good Value
Strategy
Low 7. Rip off Strategy
8. False economy Strategy
9. Economy Strategy
PRICEPRICE
PR
OD
UC
T Q
UA
LIT
YP
RO
DU
CT
QU
AL
ITY
Price Quality Segments
Price Quality Segments High
Medium
Low
High 1. Premium Strategy
2. High Value
Strategy
3. Super Value
Strategy
Medium4.
Overcharging Strategy
5. Medium
Value Strategy
6. Good Value
Strategy
Low 7. Rip off Strategy
8. False economy Strategy
9. Economy Strategy
PRICEPRICE
PR
OD
UC
T Q
UA
LIT
YP
RO
DU
CT
QU
AL
ITY
Price Quality Segments
Price Quality Segments High
Medium
Low
High 1. Premium Strategy
2. High Value
Strategy
3. Super Value
Strategy
Medium4.
Overcharging Strategy
5. Medium
Value Strategy
6. Good Value
Strategy
Low 7. Rip off Strategy
8. False economy Strategy
9. Economy Strategy
PRICEPRICE
PR
OD
UC
T Q
UA
LIT
YP
RO
DU
CT
QU
AL
ITY
Price Quality Segments
VALUE RECIVEDVALUE RECIVED
PR
ICE
PA
IDP
RIC
E P
AID
Price = ValuePrice = Value
Missed OpportunityMissed Opportunity
Unharvested ValueUnharvested Value
LowLow MediumMedium HighHigh
LowLow
MediumMedium
HighHigh
Step 1
Pricing Objectives
Profit Maximization
Market Share Maximization
Maximize Quantity
Selecting Pricing
Objectives
Status Quo
Survival
Quality Leadership
Partial Cost Recovery
Pricing ObjectivesPricing Objectives
Step 2
Determining Demand
Price elasticity of demand
10095
Quantity Demanded
Pri
ce i
n R
s.
10050
Quantity Demanded
Pri
ce i
n R
s.
5
10
5
10
Inelastic Demanded Elastic Demanded
Step 3
Estimating Cost
Company Logo
Types of CostsTypes of CostsTypes of CostsTypes of Costs
FixedFixed
VariablVariablee
TotalTotal
AverageAverage
Estimating Cost
Cost Per Unit at Different Levels of Production
Accumulated Production
Experience curve (Learning curve)Experience curve (Learning curve)
Target Costing
Starts with ‘The Right’ selling price
Reversal of the usual process
Selling price – desired profit = Target Cost
Evaluation of all costs
Profit achieved through cost cutting
Step 4
Analyzing Competitors’ Costs, Prices, and Offers
Analyzing Competitors’ Costs, Prices, and Offers
Identify price of nearest competitors
Compare the features and prices of competitors
Make decision to charge more, same or less than competitors
Monitor competitors’ reactions
Step 5
Selecting a Pricing Method
Selecting a Pricing Method
Markup Pricing
Target-Return Pricing
Perceived-Value Pricing
Value Pricing
Going Rate Pricing
Sealed-Bid Pricing
Pricing method
s
Markup Pricing
Elementary method - add standard markup to product cost
Elementary method - add standard markup to product cost
Most popular pricing method
Most popular pricing methode.g. Resellers / Retailerse.g. Resellers / Retailers
Target Return Pricing
Determine the price that would yield its target rate of Return on Investment (ROI)
Determine the price that would yield its target rate of Return on Investment (ROI)Break-even VolumeBreak-even Volume
e.g. MHADAe.g. MHADA
Break-Even Chart for Determining Target-Return Price and Break-Even Volume
Break-even volume = fixed cost / (price – variable cost)
Target-Return Pricing
Perceived-Value Pricing
Use of Marketing Elements – Advtg & Sales
Use of Marketing Elements – Advtg & Sales e.g. Luxury Brandse.g. Luxury Brands
Buyers perception of value – not seller’s cost
Buyers perception of value – not seller’s cost
Value Pricing
Everyday low pricing (EDLP)
Everyday low pricing (EDLP)High-low pricingHigh-low pricing
Low price for a high-quality offering
Low price for a high-quality offering
e.g. Supermarketse.g. Supermarkets
Going Rate Pricing
Based on Competitor’s Pricing
Based on Competitor’s PricingFollow the LeaderFollow the Leader
e.g. Bottled water, Soft Drink, Toothpaste etc.
e.g. Bottled water, Soft Drink, Toothpaste etc.
Sealed Bid Pricing
Pricing based on expectations how competitor’s will price rather than on costs or demand
Pricing based on expectations how competitor’s will price rather than on costs or demande.g. Bids for Government Project
e.g. Bids for Government Project
Step 6
Selecting the Final Price
Selecting the Final Price
Selecting Selecting the Final the Final
PricePrice
AA
DD
BB
CC
EEIMPACT OF PRICE ON
OTHER PARTIES
PSYCHOLOGICAL PRICING
GAIN & RISK SHARING PRICING
COMPANY PRICING POLICY
INFLUENCE OF OTHER
MARKETING MIX ELEMENTS
Adapting the Price
OffsetOffset
Buyback arrangement
Compensation Deal
Barter
Counter-trade
Geographical Pricing
AllowanceAllowance
5.5.
Seasonal Discount
Seasonal Discount
4.4.
Functional
Discount
Functional
Discount
3.3.
Quantity Discount
Quantity Discount
2.2.
Price Discounts and Allowances
1.
Cash Discount
Cash Discount
Promotional Pricing
Promotional
Pricing
Loss-leader pricingLoss-leader pricing
Special-event pricingSpecial-event pricing
Cash rebates
Cash rebates
Low-interest financingLow-interest financing
Longer payment termsLonger payment terms
Warranties and service contracts
Warranties and service contracts
Psychological discountingPsychological discounting
Discriminatory Pricing
Customer-Customer-segmentsegmentpricingpricing
Product-Product-form pricingform pricing Image Image
pricingpricingChannel Channel pricingpricing
First-degree price discrimination
Third-degree price discriminationAs in the following cases:
Second-degree price discrimination
TimeTimepricingpricing
Location Location pricingpricing
Discriminatory Pricing (continued…)
Competitors - not undersell firm
Cost of segmenting and policing
Not breed customer resentment
No resell of product
For price discrimination to work, certain conditions must exist:
Not be illegal
Segmentable & different intensities of demand
Product-LinePricing
Product-LinePricing
Product-mix Pricing
(six situations involving product-mix pricing)
(six situations involving product-mix pricing)
Optional-FeaturePricing
Optional-FeaturePricing
Main product + Optional products, Features, Services
Main product + Optional products, Features, Services
Captive-ProductPricing
Captive-ProductPricing
Product + Ancillary / Captive, products
Product + Ancillary / Captive, products
Product-Bundling Pricing
Product-Bundling Pricing
Pure bundling & Mixed bundling
Pure bundling & Mixed bundling
Product-mix Pricing (continued…)
Two-PartPricing
Two-PartPricing
Fixed fee + Variable usage fee
Fixed fee + Variable usage fee
By-ProductPricing
By-ProductPricing
Initiating and Responding to Price
Changes
Circumstances leading to Price cuts
Initiating Price Cuts
AA
Aggressive PricingCC
DD
EE
Excess plant capacity
Economic recession
Drive to dominate the market through lower costs
BBDeclining market share
Initiating Price Cuts
1
Low quality trap: Consumers will assume quality is low
2Fragile- market-share trap: Initial gains to market share but no loyalty
3Shallow-pockets trap: Higher priced competitors cut price and stay longer
Traps due to price cutting
Initiating Price Increases
Over-Over-demanddemand
BB
EE
CC
DD
AACost inflation & Anticipatory Pricing
Delayed Quotation Pricing
Escalator Clauses
Reduction of Discounts
Unbundling
Initiating Price Changes
Possible responses to higher costs or overhead without raising prices include:
Shrinking the amount of product instead of raising the price
Substituting less expensive materials or ingredients Reducing or removing product features Removing or reducing product services, such as
installation or free delivery Using less expensive packaging material or larger
package sizes Reducing the number of sizes and models offered Creating new economy brands
Reactions to price changes
▼
Customers’
Reactions
▼
Competitor’s
Reactions
Responding to competitors’ price changes
If competitors lower price for homogenous products
Try augmentin
g the product
If it doesn’t
work or if it is not likely to
work, then meet the price cut head-on
Responding to Competitors’ Price Changes
In a non-Homogeneous MarketIn a non-Homogeneous MarketIn a non-Homogeneous MarketIn a non-Homogeneous Market
Evaluate
Why a Why a change?change?
Is Is change change
temporartemporary / y /
PermanenPermanent ?t ?
Effect Effect on Mkt on Mkt Share / Share / ProfitProfit
Response(sResponse(s) from ) from
competitorcompetitorss
If competitors raise priceIf competitors raise priceIn a Homogeneous In a Homogeneous Market, follow if Market, follow if whole market is whole market is likely to followlikely to follow
In a Homogeneous In a Homogeneous Market, follow if Market, follow if whole market is whole market is likely to followlikely to follow
When a Market Leader is Being Attacked on Price
OptionsOptions AvailableAvailable
AA
DD
BB
CC
EELaunch a low-price fighter line
Manage Price
Maintain price and add value
Increase price &improve quality
Reduce Price
Price-Reaction Program for meeting a competitor’s price cut
LOGO
Ref. Marketing by Kotler