Assignment No: 03

“Assignment No: 03”
Submitted to:
Sir Yasir Zaman
Submitted By:
Zain Ali
(17812120-002)
Program:
BBA 6TH CA
Subject:
Marketing Management
Topic:
Developing pricing strategies and programs
Summary (Developing pricing strategies and programs):
Marketing mix for companies comprises of 4 Ps Product, Price, Place and Promotion. Price is
directly related to bottom-line of any business. Profitability of product is required for future
operation of the company. Price strategy should communicate to the customer the value company
is providing.
There is in-numerable price related challenges in the market for companies. Furthermore, with
the advent of internet customer awareness for pricing information has improved. Sites like
Priceline and eBay are encouraging customer to name their price for products as well as services.
1. Achieving Marketing Objectives:
If a firm has clear objectives it is easier for it to set its price to achieve those objectives.
Establish marketing objectives:
Survival: if firm is plagued with over-capacity, intense competition, or changing consumer

wants. Prices are lowered to ensure inventory turnover but price must cover variable costs &
fixed costs. This is only a short-run objective
Maximum current profit: price is set to maximize current profit, cash flow, or ROI. Problem is
that this method depends on demand & cost functions which are hard to estimate. Long-run
performance may be neglected with this method.
Maximum current revenue: firm tries to maximize revenue, this requires estimating demand.
Maximum sales growth (market penetration pricing): low price is set assuming that market is
price sensitive. Goal is high sales volume. Method works well if production & distribution costs
fall with increased production & low price discourages competition.
Maximum market skimming: firms sets a high price to “skim” the market. Method works
when there is high demand, unit costs are not too high for small volumes of production, the
initial high price does not attract competitors, & the high price communicates a superior product
image.
Product-Quality leadership: firm prices the product higher than competitors due to quality built
into product
2. Determine Demand: estimate probable quantify that will be sold at each price &
determine price elasticity of your good.
3. Estimating Costs:
Price must cover variable & fixed costs & as production increases costs may decrease.
The firm gains experience, obtains raw materials at lower prices, etc., so costs should be
estimated at different production levels. Firms must also analyze activity-based cost
accounting (ABC) instead of standard cost accounting. ABC takes into account the costs
of serving different retailers as the needs of differ from retailer to retailer. Also the firm
may attempt Target Costing (TG). TG is when a firm estimates a new product’s desired
functions & determines the price that it could be sold at. From this price the desired profit
margin is calculated. Now the firm knows how much it can spend on production whether
it be engineering, design, or sales but the costs now have a target range. The goal is to get
the costs into the target range.
4. Analyzing Competitor’s costs, prices, & offers: The firm should benchmark its price
against competitors, learn about the quality of competitors offering, & learn about
competitor’s costs.
5. Selecting a pricing method:
 Markup pricing: a 20% markup
 Target return pricing: this is based on ROI
 Perceived-value pricing: Buyer’s perception of the product is key, not cost so what is the
product worth to consumer sets the price.
 Value pricing: more for less philosophy
 Going rate pricing; charge what everyone else is
 Sealed bid pricing: companies bid prices to get a job
6. Select final price: the firm must consider the following when selecting its final price.
 Psychological pricing such as a $100 dollar bottle of perfume sells better than a $10
bottle. Also $299 is considered in the $200 range not the $300.
 Advertising & brand quality must be examined
 Price must be acceptable to distributors, dealers, salesforce, competitors, suppliers, & the
government.
Pricing Considerations:
After price is set consider the following:
i. Geographical pricing: set price in different regions, countries, etc. Also how will
company get paid; barter, buyback arrangement, compensation of cash & products, or an
offset (company receives cash but agrees to spend majority of the money in that country
in a stated time period).
ii. Price discounts & allowances: Quantify, seasonal, trade discounts
iii. Promotional pricing: cash rebates, special event pricing, low interest financing
iv. Discriminatory pricing: different prices for different customer segments (senior
citizens, students); different product forms: trial size; image pricing; location: tickets for
different seating at a concert; time: costs less to call on Sunday
v. Product Mix pricing:
 Product line pricing: autos come in stripped down models or with options
 Captive-product pricing: razor blades, inkjet cartridges
 Two part pricing: Phone Company charges monthly service fee plus long distance
charges
 By-product pricing: Zoo’s sell manure, so with additional revenue price may be lower
vi. Product bundling: auto makers offer a bundle of options at a lower price than if each
option was purchased separately.
If a firm is considering a price cut/increase it must consider the reactions from competitors,
suppliers, customers, the govt. etc. Companies must also monitor competitor price changes. In
the case of rising costs a company must decide whether to increase price or reduce amount sold.

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“Assignment No: 03”

Sir Yasir Zaman

1. Achieving Marketing Objectives:

Establish marketing objectives:

Survival: if firm is plagued with over-capacity, intense competition, or changing consumer

After price is set consider the following:

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