Pricing
What is price? > The term price denotes money value of a product. > It is the amt. of money charged by a seller from a buyer for combined assortment of a product and its accompanying services.
Importance of Pricing
Price is the base for exchange of goods and services and helps in transfer of ownership. Pricing method or price has a bearing on the firms revenue and profits. It affects the firms competitive position. Also helps in determining the quantum of production. To consumers, it determines his purchasing power and standard of living.
Pricing Objectives
Management should decide on its pricing objective before determining the price itself.
Profit-oriented objectives: Achieve a target return pricing product to achieve a specified percentage return on sales or investment. Maximize profits followed by the most companies. Sales oriented goals: Increase sales volume. Maintain or increase market share. Status goals: Stabilize prices. Meet competition.
Objectives of pricing
To maximize profits To achieve stability in exchange value of products To achieve target rate of return on investments . To meet or prevent competition- Attain price leadership or price parity with competitors. To survive in the marketplace To build public image Make entry into new markets
External factors Demand Competitors pricing strategy Govt. interference Target buyers paying capacity Suppliers Economic/market conditions.
Pricing Strategies
Topic Outline
New-Product Pricing Strategies Product Mix Pricing Strategies Price Adjustment Strategies Price Changes
new product in order to attract a large number of buyers and a large market share. Price set to penetrate the market Low price to secure high volumes Typical in mass market products chocolate bars, food stuffs, household goods, etc. Suitable for products with long anticipated life cycles May be useful if launching into a new market
DESCRIPTION
Setting price steps between product line items
Optional product pricing Pricing optional or accessory products sold with the main product Captive product pricing Pricing products that must be used with the main product Pricing low-value by-products to get rid of them Pricing bundles of products sold together
1.Product line pricing: Setting the price steps between various products in a product line based on cost differences between the products, customer evaluations of different features and competitors price. 2.Optional product pricing: the pricing of optional or accessory products along with a main product. 3. Captive product pricing: Setting a price for products that must be used along with a main product, such as blades for a razor and a film for a camera. 4. By-product pricing: Setting a price for by- products in order to make the main products price more competitive. 5. Product bundle pricing: Combining several products and offering the bundle at a reduced price.
STRATEGY
Discount and allowance pricing Segmented pricing Psychological pricing Promotional pricing Geographic pricing
DESCRIPTION
Reducing prices to reward customer response. Adjusting prices to allow for differences in customers, products, or location Adjusting prices for psychological effect
Dynamic pricing
Temporarily reducing prices to increase short run sales Adjusting prices to account for the geographic location of customer Adjusting prices continually to meet the characteristics and needs of individual customer and situation Adjusting prices for international markets
International pricing
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Pricing methods/strategies
COST-BASED PRICING
Cost + Fixed profit percentage = Selling price involves the determination of all fixed and variable costs associated with a product or service The goal of this approach is to cover all costs incurred and to achieve a targeted level of profit. this method is simple and straightforward and does not involve examining the market or considering the competition defend its prices based on costs, and demonstrate that its prices cover costs plus a markup for profit
VALUE-BASED PRICING
Value pricers adhere to the thinking that selling price is a reflection of a product or service's perceived value by customers The value of a product or service is derived from customer needs, preferences, expectations as well as from competitors' offerings Value pricing involves setting prices to increase profitability by tapping into more of a product or service's value attributes This approach depends on strong advertising for new products or services, to communicate the value of products or services to customers and to motivate them to pay more if necessary for the value provided by these products
DEMAND-BASED PRICING
Demand-oriented pricing focuses on the level of demand for a product or service, not on the cost of materials, labor, and so forth Instead, they concentrate on the behavior and characteristics of customers and the quality and characteristics of their products or services The prices are determined by considering the cost estimates at different sales levels and expected revenues from sales volumes associated with projected prices. The success of this strategy depends on the reliability of demand estimates
COMPETITION-BASED PRICING
a company sets its prices by determining what other companies competing in the market charge
the response of competitors-is an important part of competition-based pricing, especially in markets with only a few competitors. In such a market, if one competitor lowers its price, the others will most likely lower theirs as well
this pricing policy enables companies to select from a variety of different pricing strategies to achieve their strategic goals
companies can choose to mark their prices above, below, or on par with their competitors' prices and thereby influence customer perceptions of their products
if a Company A sets its prices above those of its competitors, the higher price could suggest that Company A's products or services are superior in quality For example Harley Davidson used this with great success Harley's high prices combined with its customer loyalty and mystique help overcome buyer resistance to higher prices
CONT..
5. SELECTING THE PRICING METHOD 6. FIXING THE PRICE