Pricing is not that easy!!!

2. CONTENTS
Price
Pricing Objective
Pricing Decision
Factors Affecting Pricing
Decisions
Determining Demand
Methods Of Pricing
Pricing Strategies

3. Price
Price is the sum of all the values
that consumers exchange for the
benefits of having or using the
product or service.
“Rent, tuition, fees, fares, tools,
rates, premiums, honoraria, bribes,
dues, bids, assessments, retainers,
salaries, wages, commissions,
taxes…”
Why is it dangerous?

4. PRICING OBJECTIVES
~PROFIT OBJECTIVE
PROFIT MAXIMIZATION
TARGET RETURN
~SALES OBJECTIVE
GROWTH IN SALES
GROWTH IN MKT SHARE
SURVIVAL-MINIMUM SALES
~COMPETITION OBJECTIVE
TO MEET OR PREVENT COMPETITION
TO DESTROY COMPETITION
~DEVELOPMENT OBJECTIVE
-EXPANDING EXISTING MARKETS (NON-
USERS TO USERS)
-PRODUCT DEVELOPMENT

5. SELECTING THE PRICE
OBJECTIVE
Survival
Maximum Current Profit
Maximum Current Revenue
Maximum Sales Growth
Maximum Market Skimming
Product-Quality Leadership

6. Internal Factors Affecting
Pricing Decisions:
Marketing Objectives
Survival
Low Prices to Cover Variable Costs and
Some Fixed Costs to Stay in Business.
Current Profit Maximization
Choose the Price that Produces the
Marketing Maximum Current Profit, Etc.
Objectives Market Share Leadership
Low as Possible Prices to Become
the Market Share Leader.
Product Quality Leadership
High Prices to Cover Higher
Performance Quality and R & D.

7. Types of Cost Factors that
Affect Pricing Decisions
Fixed Costs Variable Costs
(Overhead)
Costs that don’t Costs that do vary
vary with sales or directly with sales or
production levels. production levels.
Executive Salaries, Rent Commissions, Raw materials
Total Costs
Sum of the Fixed and Variable Costs for a Given
Level of Production

8. DETERMINING DEMAND
1. Unique value effect. Buyers are less
price-sensitive when the product is
more unique.
2. Substitute awareness effect.
Buyers are less price-sensitive when
they are less aware of substitutes.
3. Difficult comparison effect. Buyers
are less price-sensitive when they
cannot easily compare the quality of
substitutes.

9. 6. Shared cost effect. Buyers are
less price-sensitive when part of
the cost is borne by another party.
7. Sunk investment effect. Buyers
are less price-sensitive when the
product is used in conjunction with
assets previously bought.
8. Price-quality effect. Buyers
are less price-sensitive when the
product is assumed to have more

10. METHODS OF PRICING
Cost Plus Pricing:
This method is prevalent in urban
markets, but it suits the rural market
more, because a company has to incur the
cost of the product, distribution
expenses, and also add a small profit
margin.
Value Pricing:
It means assigning a low price tag for a
product and providing the benefits of
low-cost mass production to the

11. Cost-Based Pricing
Certainty About
Costs
Simplest
Pricing
Ethical
Method
Factors
Pricing is Situational
Simplified Cost-Plus Pricing
Unexpected
is an Approach
That Adds a
Price Competition Standard Markup
to the Cost of the
Attitudes Ignores Current
Is Minimized Demand &
Product
of Competition
Others
Much Fairer to
Buyers & Sellers

12. 1)Variable cost pricing:
 Marginal or incremental cost of producing goods charged
 Sell products abroad at lower net prices than the domestic
market
 Used when a Co. has high fixed cost and unused production
2) Full cost Pricing:
 Total fixed cost + variable cost
 High variable cost relative to fixed cost
 Price= Total cost +profit

13. Competition-Based Pricing
Setting Prices
Going-Rate
Company Sets Prices Based on What
Competitors Are Charging.
? Sealed-Bid
Company Sets Prices Based on
? What They Think Competitors
Will Charge.

14. Pricing Strategies
Companies face many problems
in setting their prices.
 Standard pricing methods such as
uniform pricing, standard markup
of costs everywhere, or charging
what the market will bear ignores
cost differentials and local
market conditions.
11/3/2012 International MKTG 14
Pricing Strategy

15. Pricing Strategies
Premium pricing
 Uses a high price, but gives a good product/service
exchange e.g. Honda, The Ritz Hotel
Penetration pricing
 offers low price to gain market share - then increases price
 e.g. Vodafone- to attract new corporate clients
Economy pricing
 placed at ‘no frills’, low price
 e.g. Soups, spaghetti, Perk - ‘economy’ brands

16.  Price skimming
 where prices are high - usually during introduction
 e.g new albums or films on release
 ultimately prices will reduce to the ‘parity’
 Psychological pricing
 to get a customer to respond on an emotional, rather
than rational basis
 .e.g 99p not £1.01 ‘price point perspective
 Product line pricing
 rationale of a product range
 Detergents
 Pricing variations
 ‘off-peak’ pricing, early booking discounts, etc
 e.g Maruti offers a ‘cash back’ incentive for Wagon R

17.  Optional product-pricing
 e.g. optional extras - BMW famously under-
equipped
 Captive product pricing
 products that complement others
 e.g Gillette razors (low price) and blades (high
price)
 Product-bundle pricing
 sellers combine several products at the same
price
 e.g software, books, CDs.
 Promotional pricing
 e.g. toothpaste, soups, etc

18. THANK YOU!!!