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Pricing

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by

J Singh

on 17 December 2015

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Transcript of Pricing

PRICING
Pooja Gupta
Jaspal Singh
Pranav Tyagi
Varun Sareen
Yuvraj Chopra
and
present
Price is:
• The
money charged
for a product or service
• Everything that a
customer has to give up
in order to acquire a product or service

• Usually
expressed in terms of Rupees
per unit

Price
Cost
is the amount of money for which a thing is bought or sold
the expenditure involved in the manufacturing of a product
Price does not determine the cost of a good or service
includes profit
represents the actual expenses incurred in production
cost determines the price of a product or a service
Importance
of
pricing
most flexible variable in marketing mix
setting the right price
trigger of first impressions
important part of sales promotion
Price
Product
Promotion
Place
Objectives
of
pricing
Profitability
Objectives
target rate of return on investment
Maximisation of profits
Market related
Objectives
meeting or preventing competition
maintaining or improving market state
price stabilisation
Public relations
Objective
enhancing public image of the firm
Factors affecting
pricing decisions
demand
objectives of the firm
Pricing
Decisions
organisational factors
cost of the product
product differentiation
marketing mix
competition
input suppliers
government
regulations
Internal factors
External factors
Policies
of
pricing
Strategies
of
pricing
Competitive
pricing
it is the setting of the price of a product or service based on what the competition is charging
is used more often by businesses selling similar products as the attributes of a product remain similar


generally used once a price for a product or service has reached a level of equilibrium


Penetration
pricing
It is a policy of using a low price as the principal instrument for penetrating mass markets early
used for pricing a new product and to popularize it initially
Profits may not be earned in the initial stages. Prices may be increased as and when the product is established and its demand picks up
used when:
demand is elastic
there is mass competition
tight competition
Skimming
Price
Follow the
pricing
Leader
Dual
pricing
Premium/Prestige
pricing
Leader
pricing
Psychological
pricing
Price
Lining
Resale Price
Maintenance
When a firm that is the leader in its sector determines the price of goods or services
leaves the rivals with little choice but to follow its lead and match these prices if they are to hold onto their market share
competitors may also choose to lower their prices in the hope of gaining market share as discounters
the practice of keeping the price of a product or service artificially high in order to encourage favorable perceptions among buyers, based solely on the price
used to maximize profit in areas where customers are happy to pay more, where there are no substitutes for the product, where there are barriers to entering the market or when the seller cannot save on costs by producing at a high volume
psychological pricing uses the customer's emotional response to encourage sales. By pricing products strategically, a company may increase sales without significantly reducing prices
this method helps consumers build an impression of the brand without making significant changes to the product
in this strategy, while launching a product, the company sets high price for a product initially and then reduces the price as time passes by so as to recover cost of a product quickly
helps the company in recovering the research and development costs which are associated with the development of new products
is the technique in which different prices are offered for the same product in different markets
common practice in many developing nations which have a strong emphasis on the tourism industry wherein, the local citizens are offered lower prices whereas the foreigners are required to pay higher prices
business sets the price of its product and service offerings to be the same as its largest competitor
can entail either raising or lowering the price
competitor may choose to counter this strategy by continually raising and lowering prices to make matching difficult
is a marketing process wherein products or services within a specific group are set at different price points
The higher the price, the higher the perceived quality to the consumer
relies on a number of factors to make it work and is not always the best pricing option for every product or service
is the practice whereby a manufacturer and its distributors agree that the distributors will sell the manufacturer's product at certain prices, at or above a price floor or at or below a price ceiling
prevents resellers from competing too fiercely on price
Product Life
cycle
and pricing
Introduction
Stage
Growth
Stage
Maturity
Stage
Decline
Stage
Abandonment
pricing policies constitute the general framework within which pricing decisions should be taken so as to reach the pricing objectives
maximising profits of the
product line
prices are set to discourge competition in the market
provides predetermined and systematic method of pricing
prices are adopted and individualised to fit the diverse competitive situations
AIMS OF PRICING POLICIES:

Low Sales
High per unit cost
Negative Profits
Creating product awareness and trial is the main objective
Heavy advertisment
Skim the cream pricing
or Skimming Pricing
Penetration Pricing
Maximising the market share is the main objective
Rapidly rising sales
Average per unit cost
Rising Profits
Advertisments aim at building interest and awareness
Product extensions, warranty, etc. are offered
Peak sales
Low per unit cost
High Profits
Advertisments stress at brand differences & benefits
Product brand is diversified
Maximising profits while defending market share is the main objective
Declining sales
Low per unit cost
Declining Profits
Advertisments reduced to level where retaining customes is priority
Product brand is diversified
Reducing expenditure and making most of the brand is the main objective
Minimal sales
High unit cost
Minimal Profits
Advertisments may be discontinued
Product is practically off the market
Selling remaining stock and re-allocationg factors of production is the main objective
large scale production is undertaken
there is inadequate, high income in the market
A high price is charged when the demand is high
Demand
oriented pricing
Operates on the basis of the Law of Demand and Supply
A low price is charged when the demand is low
Cost
oriented pricing
cost provides the base for a possible price range, some firms may consider cost-oriented meth­ods to fix the price
Cost
plus pricing
cost estimate of a product is made and profit margin is added to determine the price
size of markup (profit) depends on competition, uniqueness of the product, etc.
Merits
helps in achieving reasonable return on capital
discourages manufacturers from cut-throat competition
safest method of pricing
Demerits
ignores level & nature of demand
does not reflect market competition
presumes a fixed profit margin
willingness to pay of consumer might be over or under estimated
Selling Price = Unit Total Cost + Desired Unit Profit
Markup
pricing
often utilized by resellers who acquire products from suppliers, uses a percentage increase on top of product cost to arrive at an initial price
The calculation for setting initial price is determined by simply multiplying the cost of each item by a predetermined percentage then adding the result to the cost:

made by:
Jaspal Singh
Pooja Gupta
Pranav Tyagi
Yuvraj Chopra
Varun Sareen
Item Cost + (Item Cost of each unit x Predetermined Percentage)
= Price
Break-even
pricing
Break even pricing is the practice of setting a price point at which a business will earn zero profits on a sale.
Selling Price per unit - Variable Cost per unit
Break-even Point = _
__________________________________
Total Fixed Costs
0
10
20 30 40 50 60 70
7

6
5


4
3

2
1
1.5
}
Fixed Cost
Total Cost
Total Revenue
}
Variable Cost
Break-even point
Profit
Limitations
practically, price detrmination is much more complicated
assumes costs can be divided only into two parts
assumes single product which is practically impossible
Merits
helps in deciding whether to stop or continue production
Competition
oriented pricing
the seller uses prices of competing products as a benchmark instead of considering own costs or the customer demand
used when:
market is highly competitive
products are not differentiated significantly
Value-based
pricing
price is set primarily, but not exclusively, on the value, perceived or estimated, to the customer rather than on the cost of the product or historical prices
Product
Cost
Price
Value
Customer
COST BASED PRICING
Product
Cost
Price
Value
Customer
VALUE BASED PRICING
is a pricing strategy in which a marketer sets a relatively high price for a product or service at first, then lowers the price over time
higher initial prices help to recoup the costs of product development
is generally used to fill out the demand in the market
a pricing strategy where the price of a product is initially set low to rapidly reach a wide fraction of the market and initiate word of mouth
the market is elite
quality of goods is sensitive to price
used when:

when there is a threat of strong competition after introduction
possibility of public accepting the good is high
sales volume (in thousand units)
cost & revenue (in Lakhs)
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