26805875 Pricing Strategy

8/8/2019 26805875 Pricing Strategy

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Marketing ManagementMarketing Management

PricingPricing

StrategyStrategy

Minal Agarwal R. No. 3Aditya 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


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Contents

Adapting the price

Selecting pricing objective

Introduction

Inititating and responding to price changes

Steps in Pricing

Determining DemandEstimating Costs

Analyzing competitors costs, prices and offers

Selecting a pricing method

Selecting the final price


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Introduction

Price

It is themonetaryvalue of aproduct

Pricing

Strategy

Pricing

Astrategicallycorrect valueattached to aproduct/servic

ecorrespondin

g to what itdelivers


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Price Quality Segments

Price QualitySegments

High Medium Low

High 1. PremiumStrategy

2. HighValue

Strategy

3. SuperValue

Strategy

Medium 4.Overcharging

Strategy

5. MediumValue

Strategy

6. GoodValue

Strategy

Low 7. Rip offStrategy

8. FalseeconomyStrategy

9. EconomyStrategy

PRICE

PROD

UCT

QUALIT

Y


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High Medium Low


2. HighValue

Strategy

3. SuperValue

Strategy


Strategy

5. MediumValue

Strategy

6. GoodValue

Strategy



9. EconomyStrategy

PRICE

PROD

UCT

QUALIT

Y


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High Medium Low


2. HighValue

Strategy

3. SuperValue

Strategy


Strategy

5. MediumValue

Strategy

6. GoodValue

Strategy



9. EconomyStrategy

PRICE

PROD

UCT

QUALIT

Y


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High Medium Low


2. HighValue

Strategy

3. SuperValue

Strategy


Strategy

5. MediumValue

Strategy

6. GoodValue

Strategy



9. EconomyStrategy

PRICE

PROD

UCT

QUALIT

Y


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VALUE RECIVED

PRICE

PAID Price = Value

Missed Opportunity

Unharvested Value

Low Medium High

Low

Medium

High


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Step 1

Pricing Objectives


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Profit Maximization

Market Share Maximization

Maximize Quantity

Selecting

Pricing

Objectives

Status Quo

Survival

Quality Leadership

Partial Cost Recovery

Pricing Objectives


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Step 2

Determining Demand


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Price elasticity of demand

10095

Quantity Demanded

Price

in

Rs

.

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Quantity Demanded

Price

inR

s.

5

10

5

10

Inelastic Demanded Elastic Demanded


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Step 3

Estimating Cost


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Types of CostsTypes of Costs

FixedFixed

VariablVariabl

ee

TotalTotal

AverageAverage

Estimating Cost


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Cost Per Unit at Different Levels ofProduction


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Accumulated Production

Experience curve (Learning curve)


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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


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Step 4

AnalyzingCompetitors Costs,Prices, and Offers


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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 lessthan competitors

Monitor competitors reactions


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Selecting a Pricing Method

Markup Pricing

Target-Return Pricing

Perceived-Value Pricing

Value Pricing

Going Rate Pricing

Sealed-Bid Pricing

Pricingmethod

s


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Markup Pricing

Elementary method - add standardmarkup to product cost

Most popular pricing

methode.g. Resellers / Retailers


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Target Return Pricing

Determine the price that wouldyield its target rate of Return onInvestment (ROI)

Break-even Volume

e.g. MHADA


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Break-Even Chart for Determining Target-Return Price and Break-Even Volume

Break-even volume = fixed cost / (price variable cost)

Target-Return Pricing


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Perceived-Value Pricing

Use of Marketing Elements Advtg& Salese.g. Luxury Brands

Buyers perception of value notsellers cost


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Value Pricing

Everyday low pricing

(EDLP)High-low pricing

Low price for a high-qualityoffering

e.g. Supermarkets


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Sealed Bid Pricing

Pricing based on expectations howcompetitors will price rather thanon costs or demande.g. Bids forGovernment Project


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Selecting the Final Price

SelectingSelecting

the Finalthe Final

PricePrice

AA

DD

BB

CC

EEIMPACT OF PRICEON OTHERPARTIES

PSYCHOLOGICAL

PRICING

GAIN & RISKSHARINGPRICING

COMPANYPRICING POLICY

INFLUENCE OFOTHER MARKETING

MIX ELEMENTS


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Adapting the Price


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Geographical Pricing

Geographical

Pricing

Counter-trade

Barter

CompensationDeal

Buyback arrangement

Offset


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OffsetOffset

Buyback arrangement

Compensation Deal

Barter

Counter-trade

Geographical Pricing


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Discriminatory


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DiscriminatoryPricing

Customer-Customer-

segmentsegment

pricingpricing

Product-Product-

form pricingform pricingImageImage

pricingpricingChannelChannel

pricingpricing

irst-degree price discrimination

Third-degree price discriminationAs in the following cases:

Second-degree price discriminati

TimeTime

pricingpricing

LocationLocation

pricingpricing

Discriminatory Pricing


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Discriminatory Pricing(continued)

Competitors - not undersell firm

Cost of segmenting and

policing

Not breed customer resentment

No resell of product

F

Not be illegal

Segmentable &different intensities ofdemand


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Product-LinePricing

Product-mix Pricing

(six situations involving product-mix

pricing)

Optional-FeaturePricing

Main product +Optionalproducts,Features,Services

Captive-ProductPricing

Product +Ancillary /Captive,products

Product-mix Pricing


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Product-Bundling Pricing

Purebundling &Mixedbundling

Product mix Pricing(continued)

Two-Part

Pricing

Fixed fee +Variableusage fee

By-ProductPricing


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Initiating andResponding to Price

Changes


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Initiating Price Cuts


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Initiating Price Cuts

1

Low qualitytrap:Consumers willassume qualityis low

2

Fragile-market-share

trap: Initialgains tomarket sharebut no loyalty

3Shallow-pocketstrap:

Higher pricedcompetitorscut price andstay longer

Traps due to price cutting

Initiating Price Increases


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Initiating Price Increases

Over-Over-

demanddemand

BB

EE

CC

DD

AACost inflation &AnticipatoryPricing

Delayed Quotation Pricing

EscalatorClauses

Reduction ofDiscounts

Unbundling

Initiating Price Changes


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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 economybrands

R ti t i h


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Reactions to price changes

Customers

Reactions

Competitors

Reactions

Responding to competitors price


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p g p pchanges

If competitors lower price forhomogenous products

Tryaugmentin

g theproduct

If itdoesnt

work or ifit is not

likely towork, thenmeet theprice cut

head-on


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When a Market Leader is Being Attacked on


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When a Market Leader is Being Attacked onPrice

OptionsOptions

AvailableAvailable

AA

DD

BB

CC

EELaunch alow-pricefighterline

ManagePrice

Maintainprice andadd value

Increaseprice &improvequality

Reduce Price

Price-Reaction Program for meeting a


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g gcompetitors price cut


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Ref. Marketing by Kotler

26805875 Pricing Strategy

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