Marketing Management 4

Pricing
Strategy
 Pricing strategy
MEANING AND DEFINITION PRICING
AND PRICING STRATEGY
KEY ASPECTS OF PRICING
STRATEGY
IMPORTANCE OF PRICING STRATEGY
TYPES OF PRICING STRATEGY AND
EXAMPLES
WHAT IS THE MEANING OF PRICING
A PRODUCT?

Pricing Definition

Pricing is a term used to describe the decision-

making process before you value a product or
service.

Your price must communicate how much you care

about your brand, product, and customers to your
potential consumers. It’s one of the first things a
consumer considers when deciding whether or not
to acquire your goods or service. That’s why a
precise estimate is needed.
WHAT IS THE MEANING OF PRICING A PRODUCT?

Pricing Strategy Definition

Pricing strategies are the methods and procedures
companies employ to determine the rates they charge for
their goods and services. Pricing is the amount you
charge for your items; pricing strategy is how you
calculate that number.
Pricing strategy can encompass anything from:
The state of the market
Competitors actions
Account segments
Profit margins
Input costs
The financial capability of the average consumer
Amounts spent on manufacturing and distributing products
Variable costs
 What is the importance of pricing?

A successful pricing strategy helps you strengthen

your position in the market by earning your clients’
confidence and bringing your company closer to
achieving its objectives.

Pricing strategies can be important for various

reasons, but those reasons might differ from
company to company.

Pricing strategies aren’t necessarily about profit

margins, despite common opinion. For example,
you can want to keep the price of an item or
service low to keep your share of the market and
keep competitors out.
 Types of Pricing Strategy

 COST-PLUS PRICING STRATEGY

 COMPETITOR-BASED PRICING STRATEGY
 VALUE –BASED PRICING STRATEGY
 LOSS –LEADER PRICING STRATEGY
 PENETRATION PRICING STRATEGY
 EVERYDAY-LOW PRICING STRATEGY
 ECONOMY PRICING STRATEGY
 PREMIUM PRICING STRATEGY
 SKIMMING PRICING STRATEGY
 HIGH-LOW PRICING STRATEGY
 DYNAMIC PRICING STRATEGY
 Cost-Plus Pricing Strategy

One way to price a product is to add a fixed percentage to the manufacturing costs
for each unit. This pricing technique is known as “cost plus” or “markup pricing.”
As a seller, you would calculate the fixed and variable expenses incurred in making
your goods and then apply the markup percentage to that cost. This approach is
popular since it’s simple to defend and almost always results in a level playing field
for all participants.
How it works:
Calculate total cost: Determine all costs associated with producing or delivering a
product or service, including materials, labor, and overhead.
Determine the markup: Decide on a desired percentage or dollar amount to add to
the total cost as profit.
Calculate the selling price: Add the markup to the total cost.
Formula:
Selling Price = Total Cost + (Total Cost * Markup Percentage)

*
 EXAMPLE OF COST-PLUS PRICING STRATEGY

In “cost-plus pricing,” businesses can charge a higher price for their

goods or services than they pay to create or deliver them. Profit margins
can vary from company to company based on production cost.
For example, a company that sells sunglasses and wants to use the cost-
plus approach to price their product may come up with the following:
Expenses incurred in the manufacture of goods: To get to a total
production cost of $357.00, the corporation adds its $220.10 in material
expenses, $56.15 in labor costs, and $80.75 in allocated overhead.
The price per unit: The next step is to divide the total cost of
manufacturing by the amount of product produced. They made 20 pairs of
sunglasses in this case. $357.00 divided by 20 equals $17.85.
The expense of selling: Using a 30% markup, the sunglasses company
may multiply the unit price by 1 x.30 to come up with $23.21. Based on this
figure, a pair of sunglasses will set you back $23.50.
Thus, $23.50 is the amount of a pair of sunglasses after implementing the
cost-plus pricing strategy.
 Competitor-Based Pricing Strategy
Competitive pricing is the practice of setting your product or service prices based
on the pricing of your competitors in your market or niche rather than on your
company’s costs or desired profit margins. Sometimes this means just raising your
prices, but you also can offer better terms of payment as an alternative.

Competitor-based pricing involves analyzing the prices of competing businesses

and then deciding whether to match, undercut, or slightly exceed those prices.

It's a common strategy used in various industries, especially when products are
relatively undifferentiated or when price is a key factor for consumers.
 COMPETITOR-BASED PRICING STRATEGY
How it works:
1. Identify Competitors:
Determine which businesses are direct competitors offering similar products
or services.
2. Analyze Competitor Pricing:
Research and track the prices of your competitors' products.
3. Choose a Pricing Approach:
Match Prices: Setting prices at the same level as competitors.
Undercut Prices: Lowering prices to attract price-sensitive customers.
Premium Pricing: Setting prices higher than competitors, often signaling
superior quality or unique features.
Dynamic Pricing: Adjusting prices based on real-time competitor price
changes.
4. Consider Other Factors:
While competitor pricing is the primary focus, also consider factors like
production costs, perceived value, and market demand.
 COMPETITOR-BASED PRICING STRATEGY
Here is an example of how to use this formula:
Let's say your competitor is selling a similar product for $100. You can
calculate your competitor-based price as follows:
Competitor-based price = $100 +/- adjustment factor
If you decide to undercut your competitor's price by 5%, your adjustment
factor would be -5%:
Competitor-based price = $100 - 5% x $100 = $95
This means that your price would be $95, which is 5% lower than your
competitor's price.
Alternatively, if you decide to price your product at a premium of 10% above
your competitor's price, your adjustment factor would be +10%:
Competitor-based price = $100 + 10% x $100 = $110
This means that your price would be $110, which is 10% higher than your
competitor's price.
 Value-Based Pricing Strategy

The method of determining your rates, known as value pricing, considers how much your customers
value what you provide and adjusts your prices accordingly. You must employ a marketing mix to
retain sales and deliver more value to your clients in the face of increased competition or a recession
.
Due to the perceived worth of the product or service, buyers flock to this price strategy over the
competition. Customers don’t care how much it costs a corporation to manufacture a product; what
matters is that the client believes they are getting a good deal when they buy it.
 Value-Based Pricing Strategy

Here are some examples:

1. Luxury Goods: Brands like Louis Vuitton, Gucci, and Rolex use value-based pricing. The
perceived value of the brand, the craftsmanship, and the exclusivity drive the high prices, even if
the actual production costs are lower.
2. Software as a Service (SaaS): Companies like Salesforce, Adobe, and HubSpot set their
prices based on the value customers derive from their software, such as increased productivity,
efficiency, or cost savings.
3. High-End Experiences: A fine dining restaurant or a luxury hotel will price their offerings
based on the overall experience, ambiance, and quality of service, rather than just the cost of
ingredients or raw materials.
4. Life-Saving Medications: Pharmaceutical companies often price life-saving drugs at a
premium because of their significant impact on patients' health and well-being.
5. Consulting Services: Consulting firms may offer value-based pricing by charging based on
the projected financial gains or competitive advantages they help their clients achieve.
 Value-Based Pricing Strategy

6. Art: The value of a painting or sculpture is determined by factors like the artist's reputation, the
historical significance of the piece, and the emotional connection it creates for the buyer.
7. Unique or Niche Products: Products with no direct competition can often be priced higher
because they offer a unique solution to a customer's problem.
8. Subscription Services: Companies like Netflix and Spotify offer subscription-based services
where customers pay a flat fee for access to a large library of content, based on the perceived
value of entertainment and convenience.
9. Airlines: Different tiers of airlines offer varying levels of service and amenities, with prices
reflecting the perceived value of those features.
10. Bottled Water at a Concert: In a high-demand situation like a concert, the price of bottled
water can be significantly higher due to the immediate need and limited availability.

In essence, value-based pricing is about understanding what your customers value and aligning
your prices accordingly, even if those prices are higher than what it costs to produce the product
or service.
 Loss Leader Pricing Strategy

Loss leader pricing is a marketing strategy where one or more retail

goods are chosen and sold below cost – at a loss to the retailer – to
entice customers. Loss leads are items offered at deeply discounted
rates to draw customers into the business

Loss leader pricing is a strategy where a company sells a product or

service at a price below its market cost, sometimes even below its
production cost, to attract customers and encourage them to purchase
other, more profitable items. This tactic is often used to increase
overall store traffic, introduce new products, or clear out excess
inventory.
 Example of loss leader pricing strategy
How it works: Examples:
Printers:
Identify a popular product:
• Many companies sell printers at a low price,
• Choose a product that is frequently
sometimes even below cost, to entice customers to
purchased or highly sought after by your buy their expensive ink cartridges.
target audience. Gaming Consoles:
Price it below cost: • Companies like Sony may sell PlayStation consoles
• Mark the chosen product at a price that is at a loss, but compensate for it by selling games,
lower than its production cost or market price. online services, and accessories at higher prices.
Smartphones:
Attract customers:
• Retailers might sell smartphones at a low price to
• This low price will draw customers into your
attract customers, and then profit from the sale of
store or website. phone accessories like cases, chargers, and
Upsell and cross-sell: headphones.
• Once customers are in your store, encourage Everyday Essentials:
them to purchase other, higher-margin items, Groceries: Supermarkets often use loss leader pricing
such as complementary products or items on staple items like milk, bread, or eggs, hoping that
customers will buy other, more profitable items while
with a higher profit margin.
they're in the store.
 Penetration Pricing Strategy
The penetration pricing strategy aims to draw customers by providing products and services at
lower costs than rivals. This tactic can take attention away from competing firms and lead to long-
term contracts by promoting brand recognition and loyalty. However, in the long run, brand
recognition may lead to higher earnings and help small businesses stand out from the crowd.
Key aspects of penetration pricing:
Low initial price:
The core of the strategy involves setting a price lower than competitors to entice customers and
encourage them to try the product.
Rapid market entry:
It's designed to quickly establish a presence in the market, especially when facing established
competitors.
Building a customer base:
The primary goal is to attract a large number of customers, not necessarily to maximize profit
margins initially.
Gradual price increase:
Once the product gains traction, the price is typically increased to a more sustainable level, often
matching or exceeding competitor prices.
 Example of penetration strategy
Businesses use penetration pricing is a pricing strategy that lures customers into trying out a
new product or service by first providing it at a cheaper cost.
Regarding penetration price, Netflix is a textbook case in point. Many customers have
expressed dissatisfaction with Netflix due to rising membership costs or the expiration of their
free trial period.
Nevertheless, despite the occasional complaints, people are satisfied with paying the increased
membership fees in exchange for the never-ending supply of high-quality media content.
When is penetration pricing effective?
New products in competitive markets:
It's particularly useful when launching a new product in a market where several similar products
already exist.
Products with broad appeal:
Penetration pricing works best when the product appeals to a wide range of consumers.
Companies seeking rapid growth:
It can help a company quickly scale its customer base and achieve significant market
penetration.
Everyday Low Pricing Strategy
Retailers use “everyday low pricing” to maintain perpetually
low prices for their items rather than special promotions or
sales.
As a result, the daily low pricing strategy aims to optimize
sales by always giving the lowest prices on the market and
anticipating huge sales volumes.
Example of Everyday Low Pricing Strategy

Everyday low pricing strategy allows firms, brands, and retailers to

provide continuously low-priced items.
As a result of its everyday low-price approach, Walmart Inc. has
become a significant player in the retail industry. Instead of giving low
prices only during sales, the giant store gives inexpensive pricing to
customers all year round.
Following its inception, the company pursued this strategy and
established itself as the retailer that consistently provides customers
with the lowest costs. Despite the low-profit margins, the shop will
profit because of the large amount of merchandise it sells.
This pricing approach helped Walmart establish itself as a well-
known, low-priced corporation. Walmart has over
10,500 stores and clubs in 24 countries under 46 banners.
Economy Pricing Strategy
Economy pricing aims to get the most price-conscious customers to
purchase the product. Because they don’t have to pay for additional
promotion or marketing expenditures, businesses may price their
products according to their manufacturing value.
Example of Economy Pricing Strategy
A pricing strategy such as the
“economy pricing” approach relies on
reduced item prices due to decreased
production costs.
Up & Up diapers, a 124-count pack,
retail for $15.99 at Target under the
Target brand name. A 104-count
package of Pampers costs $27.49.
Using fewer diapers saves you more
than $11.
The Up & Up diapers represent
Target’s economy pricing. Target
doesn’t need to account for this
production expense because it doesn’t
market its diapers. Up and Up is less
expensive than Pampers, which might
influence customers’ purchase
 Market
overview
 STRONG MARKET PRESENCE

Competitive Positioned as a market leader

Leveraging a robust infrastructure
Dedicated team of experts
landscape Outperforming competitors

NEED:

More agility and

adaptability
Stronger competitive
edge
Ability to adapt swiftly
 Growth strategy

• Expand market reach through strategic partnerships

• Enhance product features based on user feedback
• Explore international market opportunities

Expand Enhance Explore

Ensure a tailored Capitalize on emerging

Foster collaborative growth
and user-focused experience global markets
 Traction

PRODUCT LAUNCH

Successful MILESTONE QUARTER

introduction of our
Product launch Q1
product to market
10,000 USER MILESTONE 10,000
Q2
user milestone
Substantial user
base, indicating Strategic partnership Q3

growing demand
STRATEGIC PARTNERSHIP Campaign launch Q4

Expanding market
presence and
 Financials

QUARTER REVENUE ($) EXPENSES ($) NET PROFIT ($)

Q1 $200,000 $150,000 $50,000

Q2 $300,000 $200,000 $100,000

Q3 $400,000 $250,000 $150,000

Q4 $300,000 $200,000 $100,000

 summary
With this product, Adatum Corporation is positioned for
success in the dynamic market. • Strong market
With a focus on innovation, user experience, and strategic
growth, we anticipate reaching new heights in the coming
year.
positioning
Our commitment to user satisfaction underscores every
aspect of our operations • Robust growth
strategy
• Innovative product
development
• Commitment to user
satisfaction
 THANK YOU

Frey Munch
mirjam@[Link]
[Link]