What is PRICING

Method adopted by a firm to

set its selling price. It usually
depends on:

Different pricing methods place

The customer's perceived value
varying degree of emphasis on
of the product in comparison to
The firm's average costs his or her perceived value of the
selection, estimation, and
evaluation of costs, comparative
competing products.
analysis, and market situation.
 Objectives of Pricing Strategy

Increase the Satisfaction Meet the

Maximize Increase
market of market
profits sales
share customers competition
PRICING METHODS

Cost-based Competition-
Pricing oriented
Methods Pricing

Demand-
Strategy-
oriented
based Pricing
Pricing
 Cost-Based Pricing
Cost Plus Pricing - Product
unit’s total cost + percentage of
profit. Commonly followed in
departmental stores. Does not
consider the competition factor
Marginal Cost Pricing - Also
called break-even pricing. Selling
price is fixed in such a way that it
covers fully the variable or
marginal cost
 Competition-Oriented Pricing
Sealed bid Pricing
This method is more popular in tenders &
contracts. Each contracting firm quotes its
price in a sealed cover called ‘tender’. All
the tenders are opened on a scheduled date
and the person who quotes the lowest price
is awarded the contract.
Going rate Pricing
Price is charged in tune with the price in
the industry as a whole. When one wants
to buy or sell gold, the prevailing market
rate at a given point of time is taken as the
basis to determine the price
 Demand-Oriented Pricing
Price discrimination
Practice of charging different
prices to customers for the
same good. It is also called
differential pricing. Prices are
discriminated on the basis of
customer requirements, nature
of product itself, geographical
areas, income group etc

Perceived value pricing

price fixed on the basis of
the perception of the
buyer of the value of the
product. For example:
Mobile phones
with/without touch
screens
Price Discrimination- Quantity Discounts
• DEGREES OF PRICE DISCRIMINATION
• 1st Degree: intensity of the DEMAND
• 2nd Degree: as per the VOLUME
• 3rd Degree: as per the CLASS of the buyer
• TYPES OF 3rd DEGREE PRICE DISCRIMINATION:-
• Customer-segment pricing
• Product-form pricing
• Image pricing
• Channel pricing
• Location pricing
• Time pricing
• EXPLODING: The phenomenon of offering different prices to different customers
and adjusting prices.
• Constant price variation may prove tricky where consumer relationship are
concerned.
 Marketing Memo
• Three Conditions For Determining the success of differentiation
1. Companies must not use differentiation tactics in isolation
2. Companies must be able to persuade consumers to pay for added
benefits
3. Companies must bring costs and benefits in line.
• Some features are
• Design cool products
• Continually innovate
• Offer unique product mix
• Brand a community
• Sell experiences
 Strategy-Based Pricing
Market Skimming: When the product is introduced for the first time in the
market, the company follows this method. The company fixes a very high price
for the product. The idea is to charge the customer maximum possible. Mostly
found in technical products

Market Penetration: Opposite to the market skimming method. Here the

product is fixed so low that the company can increase its market share

Two-part pricing: A firm charges a fixed fee for the right to purchase its
goods, plus a per unit charge for each unit purchased. Organizations such as
country clubs, golf courses charge membership fee and offer their products &
services cost-to-cost

Block Pricing: Block pricing is another way a firm with market power can
enhance its profits- Six soaps in a single pack or multiple noodle bricks in a
single pack. By selling certain number of units of a product as one package, the
firm earns more than by selling unit wise
Commodity bundling: Commodity bundling refers to the practice of
bundling two or more different products together and selling them at a single
‘bundle price’. For example: The package deals offered by the tourist companies,
airlines etc.

Peak load Pricing: During seasonal period when demand is likely to be

higher, a firm may enhance profits by peak load pricing. The firm’s philosophy is
to charge a higher price during peak times than is charged during off-peak times

Cross subsidization: When demand for two products produced by a firm is

interrelated through demand or costs-the firm may enhance the profitability of
its operation through-Using the profits generated by established products, a firm
may expand its activities by financing new product development and
diversification into new product market. For example, A computer selling both
hardware & Software..

Transfer Pricing: Transfer pricing is an internal pricing technique. It refers to

a price at which inputs of one department are transferred to another, in order to
maximize the overall profits of the company.
Strategy At-Stiff Competition Times
Price Matching
A firm promises to match a
lower price offered by any
competitor, while announcing
its own price. It is necessary
that one should be confident,
before adopting this strategy.
Promoting Brand Loyalty
An advertising strategy where
the customers are frequently
reminded by the brand value
of a given product or service.
Conviction is to retain the
brand loyalty, so that
customers will not slip away
when the competitors come up
with lower prices.
For example: Pepsi and Coke
spend huge amounts on
advertising campaigns to draw
the attention of consumers.
 Time-to-time Pricing
This is also called randomized
pricing strategy where the firm
varies its price from time-to-time,
say hour-to hour or day-to-day.
Customers cannot learn from
experience which firm charges the
lowest price in the market.
For ex: Markets of bullion, currency
and bank deposits.

Target Pricing Promotional Pricing

This is a strategy where Promoting the product by
company fixes a price intentionally charging lower
keeping in view a targeted price to attract the
profit in mind. customer
Promotional Pricing - TYPES
Loss-leader pricing
e.g. rice

Psychological Special event

discounting pricing
e.g. “Was Rs. 359, e.g. Back to school
now Rs. 299” sales

Warranties and Cash rebates

service contracts
e.g. Personal e.g. by Auto
computers manufacturers

Longer payment Low-interest

terms financing
e.g. Mortgage banks e.g. Air conditioners
Other types of Pricing Methods
Loss Leader : Goods/services deliberately sold below cost to
encourage sales elsewhere. Eg: Festival sales at supermarkets and
e-commerce sites. Purchase of other items more than covers ‘loss’
on items sold. Eg: ‘Free’ items on the purchase in bulk.

Psychological Pricing: Deals with customer perceptions. Eg:

Pricing on different sizes of popcorn tubs in multiplexes. It is usually
linked to value pricing- high value goods will have a higher price.

Destroyer/Predatory Pricing: Deliberate price cutting/ offer of

‘free’ gifts/products to force rivals out of the business or
preventing new entrants. It is anti-competitive and illegal if proved.

Full Cost Pricing: To set price both fixed and variable cost.
 Absorption Pricing: Price set to ‘absorp’ some of the fixed costs of
production.

Contribution Pricing: Prices set to ensure coverage of variable costs and a

‘contribution’ to the fixed costs. Similar to marginal cost pricing. Break even
analysis is useful in this method. (selling price-variable/direct costs)

Markup Pricing: The selling price is fixed by adding markup or margin to its
cost. Used by distributors, marketing firms, etc. Slower the turnaround of the
product larger the margin and vice-versa.

Product Line Pricing: Products in a given product line are related.

Manufacturing costs of these products therefore does not differ much. The
product line is thus priced optimally directed towards intended profits. Eg:
Pulsar 150, 180, 200, 220.

Affordability Pricing: Essential commodities comes under this category. The

purpose is to make product available to the targeted population at an affordable
rate. Public distribution systems as channels. Subsidies may be involved. Eg:
FMCG products, medicines, etc.
 Price Discounts and Allowances
Some product categories tend to
self destruct themselves by always
being on sale . Quick discounts
Many companies give price often given by the salesperson to
close a sale . This gives not a very
discounts and adjust list favourable image of the company.
prices in order to encourage Customers think that the
early payments , volume company's list price is SOFT, and
purchases and off season discounting becomes the norm.
purchasing. THE DISCOUNT UNDERMINE THE
VALUE PERCEPTION OF THE
E.g. 2/10, net 30 OFFERINGS.

Various Discounts are

• PRICE DISCOUNTS
• QUANTITY DISCOUNTS
• FUNCTIONAL DISCOUNTS
• SEASONAL DISCOUNTS
• ALLOWANCES
Price Cut and Price Increase
Strategy
 Price Cut Strategy- Issues

Low Fragile- Shallow

Price-war
quality market- pockets
trap
trap share trap trap
 Price Increase - Reasons

Cost Inflation Over demand

Anticipatory Pricing
prices are increased due increase of demand of
price hike is due to
to inflation in costs but product or service may
expected government
proportionality of price to encourage the firm to
pricing controls.
cost increase is higher. increase the prices.
 Price Increase - Initiation

Delayed Quotation Unbundling

Pricing Escalator Clauses basic price are charged Reduction of discounts
in the long run, a the present prices and as well as the price of earlier promotional
company does not set the price increase additional services and strategies such as
the final price until the before delivery are earlier promotional discounts or sales
goods are being charged in total. offers are being offers.
delivered. charged.
Alternate Approaches to Price Increase

Reducing or Reducing the

Substituting removing a
Product Using less number of Creating new
the expensive certain
amount expensive sizes and economy
inputs by low product or
shrinkage packaging. models of brands.
ones. service product.
features.
 Response towards Competitor’s Price
Changes

• The firm facing a competitor's price

change must try to understand the
competitor's intent and the likely
duration of the change.
• Strategy often depends on whether
a firm is producing homogeneous
or non homogeneous products.
• Market leaders frequently face
aggressive price-cutting by smaller
firms trying to build market share.
Legal Aspects
and
ETHICS
 Pricing- Legal Aspects and ETHICS
Deceptive or
illegal price
advertising

• Controlling market in terms of

product quality or Legal
advertising, by engaging in
pricing practices that can Price Fixing
Aspects Predatory
Pricing
unfairly reduce competition and Ethics
or harm consumers directly, of Pricing
through fraud and deception

Price
Discrimination
 Deceptive/Illegal Price Advertising

Puffery: e.g. Best deals in town

Deceptive Advertising: e.g.The lowest prices, guaranteed

Leader pricing: A legitimate attempt to build store traffic by pricing a regularly

purchased item aggresively but still above the store’s cost.

Bait and switch : A sales tactic in which a customer is attracted by the

advertisement of a low-priced item but is then encouraged to buy a higher-priced one
 Predatory Pricing- ILLEGAL?

• Firm sets a very low price for one or more of its products to drive its
competition out of business.
• SHERMAN AND THE FEDERAL TRADECOMMISSION ACT (predatory
pricing is illegal)
• Oligopoly
 Price Discrimination - ILLEGAL?

• Firms sell same product to different resellers(whole sellers, distributors,

retailers)at different prices.
• CLAYTON ACT AND THE ROBINSON-PATMAN ACT ( Forms of price
discrimination).
• Quantity Discounts
• Ethical Dilemma
 Thank You

Presented By:
Ashlesh Shah
Jubin Sharma
Mokshada Pande
Kajal Shah
Sahil Hasan