Pricing Decisions
Module V
What is Price?
Price is :
- the one element of the marketing mix that produces
revenue
- the amount paid for some goods or services
Concept 1:
6 Steps in Setting the Price
Selecting the Determining Estimating
pricing objective demand costs
Price
objective Demand Costs
Selecting pricing Analyze competitors costs, prices,
Selecting the
method and offers
final price
Final Pricing
price method Competitors
Concept 1:
1. Selecting the pricing objective
Selecting the
pricing objective
Price
objective
Survival (B/E) Maximize profit
Maximize
market share
Product
leadership Maximize market
skimming
Concept 1:
2. Determining Demand
Selecting the Determining
pricing objective demand
Price
objective Demand
Surveys
Demand
elasticity
Statistical
analysis Price
experiments
Concept 1:
3. Estimating costs
Selecting the Determining Estimating
pricing objective demand costs
Price
objective Demand Costs
Learning
curve Fixed and
Variable
Cost per unit
of production
Concept 1:
4. Analyze competitors costs, prices and offers
Selecting the Determining Estimating
pricing objective demand costs
Price
objective Demand Costs
Analyze competitors costs, prices,
and offers
Competitors
Evaluate the
competitors
price and
product value
Concept 1:
5. Selecting price method
Selecting the Determining Estimating
pricing objective demand costs
Price
objective Demand Costs
Selecting pricing Analyze competitors costs, prices,
method and offers
Pricing
method Competitors
Price
Perceived markup
value
Value
pricing
Target
Going-rate ROI
pricing
Auction-type Break-even
pricing point
Concept 1:
6. Selecting final price
Selecting the Determining Estimating
pricing objective demand costs
Price
objective Demand Costs
Selecting pricing Analyze competitors costs, prices,
Selecting the
method and offers
final price
Final Pricing
price method Competitors
Gain & risk
sharing High
advertising
Pricing policies
Price fixing
Concept 1:
6 Steps in Setting the Price
Selecting the Determining Estimating
pricing objective demand costs
Price
objective Demand Costs
Surveys Learning
Demand curve
Survival (B/E) Maximize profit elasticity Fixed and
Variable
Maximize
market share Cost per unit
Statistical of production
analysis Price
Product experiments
leadership Maximize market
skimming
Selecting pricing Analyze competitors costs, prices,
Selecting the
method and offers
final price
Final Pricing
price method Competitors
Price
Perceived markup
value
Evaluate the
Gain & risk competitors
sharing Value
High pricing price and
advertising product value
Target
Going-rate ROI
pricing
Pricing policies Auction-type Break-even
Price fixing pricing point
Pricing Strategy Objectives
Long Run Profits
Short Run Profits
Increase Sales Volume
Company Growth
Match Competitors Price
Create Interest & Excitement about the Product
Discourage Competitors From cutting Price
Social, Ethical & Ideological Objectives
Discourage New Entrants
Survival
Decisions in Pricing Strategy
Fixed & Variable Cost
Competition
Company Objectives
Proposed Positioning Strategies
Target Group & Willingness to Pay
External Market Demand
Internal Factors; Product Cost & Objectives of Company
Factors Affecting Pricing
Pricing Strategies
Marketing Skimming Penetration Pricing
Value Pricing Cost Plus Pricing
Loss Leader Contribution Pricing
Psychological Pricing Target Pricing
Going Rate (Price Marginal Cost Pricing
Leadership) Absorption Cost Pricing
Tender Pricing Destroyer Pricing
Price Discrimination Influence of Elasticity
Market Skimming Pricing
High Price low volume
Skim the Profit from the Market
Suitable for the products that have
short life cycle or Which will face
competition at some point in future.
Examples; Play Station, Digital
Technology & DVD etc.
Value Pricing
Based on consumer Perception.
Price charged according to the
Customers Perception.
Price set by the company as per the
perceived value.
Example; Status Products/ Exclusive
Products.
Psychological Pricing
Used to play on consumer
perceptions
Classic example - 9.99 instead of
10.99!
Links with value pricing high
value goods priced according to
what consumers THINK should be
the price
Tender Pricing
Many contracts awarded on a
tender basis
Firm (or firms) submit their price
for carrying out the work
Purchaser then chooses which
represents best value
Mostly done in secret
Price Discrimination Pricing
Charging a different price for the
same good/service in different
markets
Requires each market to be
impenetrable
Requires different price elasticity of
demand in each market
Prices for rail travel differ for the
same journey at different times of
the day
Penetration Pricing
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
Cost Plus Pricing
Cost-plus pricing is a pricing
strategy that is used to maximize
the rates of return of companies.
Cost-plus pricing is also known as
mark-up pricing where cost +
mark-up = selling price.
In practice, most firms use either
value-based pricing or cost-plus
pricing.
Promotional Pricing
Special-event pricing
Loss-leader Pricing
Low-interest financing
Packaging and Labeling
Why It's Important
While branding gives a specific brand
personality, packaging puts a face on a
product. Effective packaging creates a good
impression, helps to sell the product,
and communicates benefits to customers.
29
Packaging
Designing and producing the
container or wrapper for a product
Product
protection
Gain acceptance
from middlemen
Persuade
consumer
to buy
Packaging
The package = physical container or wrapping for a product
It is an integral part of product planning and promotion
10% of the retail price is spent on developing, designing,
and producing just the package
Companies sometimes change packaging to update their image
and reach a new market
Functions of Packaging
1. Promoting and Selling the Product
2. Defining Product Identity
3. Providing Information
4. Expressing Customer Needs
5. Ensure Safe Use
6. Protecting the Product
The Keys to Product Packaging
1. Promoting and Selling the Product
Attractive, colorful, and
visually appealing packages
have promotional value
A well designed package is a
powerful selling device
because it helps the product
stand out from its
competitors
1. Promoting and Selling the Product
Mixed Bundling
packaging different
products or services
together
Usually the bundle price
is cheaper than buying
them individually
Price Bundling two or
more similar products
are placed on sale for
one package price
2. Defining Product Identity
Packaging is sometimes used to
promote an image such as
prestige, convenience, or status
Can be a crucial part of the
marketing strategy, particularly
in advertising
3. Providing Information
Gives customer useful
information on:
directions for using the
product
its contents
product guarantees
nutritional value
potential hazards
4. Expressing Customer Needs
When designing packages, companies analyze customer
lifestyles and create packaging that meets their needs
for size and convenience
Packages often come in various sizes
Family size
Single serving
5. Ensure Safe Use
Proper packaging helps to eliminate
potential injuries or misuse of a product
Formerly glass containers are now
plastic
Childproof caps
Tamper resistant packages
Blisterpacks packages with preformed
plastic molds surrounding individual
items arranged on a backing
6. Protecting the Product
Must protect during shipping, storage, and display
Prevent or discourage from tampering
Prevent shoplifting
Protect against breakage and spoilage
Air To Spare
Do you ever get frustrated when you buy
something and the package if filled with more
air than product?
Air To Spare
Packaging TRENDS
Aseptic Packaging technology that keeps
foods fresh without refrigeration for
extended periods
Usually used to package food products
canning
bottling
Packaging TRENDS
Environmental Packaging
recycled material, less
plastic, and safer for the
environment
Sun Chips Ditching New Bag
Packaging TRENDS
Cause Packaging promote social and
political causes
May be totally unrelated to the product
labeling
Label an identification tag, wrapper,
seal, or imprinted message that is
attached to a product or its package
Main function is to inform customers
about a products contents and give
directions for use
Protects businesses from legal liability if
someone if injured while using the
product
Three Kinds of Labels
1. Brand Label gives brand name and
trademark or logo
2. Descriptive Label give information about
product use, construction, care,
performance, and other features
3. Grade Label states the quality of a product
Criticisms of Packaging
Depletes natural resources
Health hazards
Disposal of used packages
Deceptive
Expensive