INTRODUCTION
TO MARKETING
PRICE STRATEGY
LECTURE: 7
DATE: 30.03.2020
PRICE
WHAT IS PRICE ?
The amount of money expected, required, or given in payment for something.
WHAT IS PRICING STRATEGY ?
A business can use a variety of pricing strategies when selling a product or service.
The Price can be set to maximize profitability for each unit sold or from the market
overall.
It can be used to defend an existing market from new entrants, to increase market share
within a market or to enter a new market.
Businesses may benefit from lowering or raising prices, depending on the needs and
behaviors of customers and clients in the particular market.
Finding the right pricing strategy is an important element in running a successful business.
PRICING STRATEGY OBJECTIVES
■ Long Run Profits ■ Discourage Competitors From cutting
Price
■ Short Run Profits
■ Social, Ethical & Ideological
■ Increase Sales Volume Objectives
■ Company Growth ■ Discourage New Entrants
■ Survival
■ Match Competitors Price
■ Create Interest & Excitement about
the Product
Factors Affecting Price
costs and supply and
expenses demand
technological
trends
$ consumer
perceptions
government competition
regulations
Costs and Expenses
Fixed costs and expenses, such as rent, utilities, and insurance premiums, affect
price.
Fixed costs and expenses that are not subject to change depending on the
number of units sold
Variable costs and expenses, such as the cost of goods or services, sales
commissions, delivery charges, and advertising, also affect price.
Variable costs and expenses that are subject to change depending on the number
of units sold
Costs and Expenses
If you are selling goods, their costs are affected by the pricing
structure in the channel of distribution.
Each channel member has to make a profit to make handling the
goods worthwhile. Their cost and profit together is your cost.
Supply and Demand
The law of supply and demand also affects price.
When the demand for a product is high and supply is low, you
can command a high price.
When the demand for a product is low and supply is high, you
must set lower prices.
Consumer Perception
The price of your products helps create your image in the
minds of customers.
If your prices are too low, customers may consider your
products inferior.
If your prices are too high, you may turn some customers
away.
Competition
Competition can affect pricing when the target market is
price conscious because competitors’ pricing may determine
your pricing.
Businesses can charge higher prices than competitors if they
offer added value, such as personal attention, credit, and
warranties.
Government Regulations
Be fair to customers and familiarize yourself with federal and
state laws that address pricing, including:
price gouging
price fixing
resale price maintenance
unit pricing
bait-and switch advertising
Government Regulations
A company that engages in price gouging an
price gouging or price fixing illegal practice in
is violating federal and state which competing
companies agree,
laws. formally or informally,
to restrict prices within
a specified range
price fixing pricing
above the market
when no other retailer
is available
Government Regulations
resale price maintenance
Resale price maintenance is price fixing imposed by a
illegal. manufacturer on wholesale
or retail resellers of its
products to deter
price-based competition
Unit pricing is required by
unit pricing the pricing
law.
of goods on the basis of
cost per unit of measure,
such as a pound or an
ounce, in addition to the
price per item
Government Regulations
Unethical practices, such as bait and switch a
bait and switch, are not only deceptive method of
illegal but also unfair to selling in which a
customers. customer, attracted to a
store by a sale-priced
item, is told either that
the advertised item is
unavailable or that it is
inferior to a higher-
priced item that is
available
Technological Trends
The Internet and technological trends affect price strategy.
Adapting to technological changes can give an entrepreneur a
competitive edge; not adapting can cause some businesses to
become obsolete.
Technological Trends
Before setting prices, consider the following objectives:
obtaining a target return on investment
obtaining market share
social and ethical concerns
meeting the competition’s prices and establishing
an image
survival
sometimes maintaining the status quo
Pricing Strategy Decisions
Consider your target market as you make these
pricing strategy decisions:
Set a price based on
Select a basic Determine your
the stage of the
approach to pricing. pricing policy.
product life cycle.
Setting a Basic Price
There are three basic approaches to pricing
cost-based demand-based competition-based
pricing pricing pricing
Pricing Policies
■ Establishing a pricing policy frees you from making the
same pricing decisions over and over again and lets
employees and customers know what to expect.
■ A flexible-price policy is one in which customers pay
different prices for the same type or amount of
merchandise.
■ A one-price policy is one in which all customers are
charged the same price for all the goods and services
offered for sale.
Product Life Cycle Pricing
All products move through the four-stage life cycle:
1 Introduction
2 Growth
3 Maturity
4 Decline
PRICING STRATEGIES
■ Differential pricing strategies
■ Competitive pricing strategies
■ Product-line pricing strategies
■ Psychological and image pricing strategies
■ Distribution-based pricing strategies
Differential pricing
strategies
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Differential Pricing Strategies
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Types:
■ Variable Pricing
■ Second-Market Discounting
■ Skimming
■ Periodic discounting
■ Random discounting
Price Skimming
Pricing high, usually at the beginning of a
product’s life
a firm charges a high initial price and then gradually lowers the price to attract more
price-sensitive customers.
Examples:
personal computers
CDs
electronics
Competitive Pricing Strategies
Types:
■ Meeting competition
■ Undercutting competition
Price leadership
Follow the leader
Penetration pricing
Predatory pricing
Traditional
Inflationary
Penetration Pricing
Low introductory price to establish product
quickly in market
When to use:
Economies of scale
Threat of strong competition
Product-Line Pricing Strategies
■ is oriented on separating goods into
cost categories in order to create
Captive pricing various quality and feature levels in
the minds of consumers.
This strategy is typically adopted
where you wish to market to different
Leader and Bait pricing customer types or wish to anchor
your products
Price lining
$45.99$39.99$24.99$19.99
Price-bundling & Multi-unit
Pricing Technique
psychological pricing
Once you have introduced your new a pricing technique, most
product through penetration pricing often used by retail
or price skimming, you need to businesses, that is based
on the belief that
adjust your prices so they are more
customers’ perceptions of
attractive to customers by using a product are strongly
psychological pricing. influenced by price; it
includes prestige pricing,
odd/even pricing, price
lining, promotional pricing,
multiple-unit pricing, and
bundle pricing
Psychological Pricing Techniques
prestige odd/even
pricing pricing
bundle Psychological
price
pricing Pricing lining
Techniques
multiple-unit promotional
pricing pricing
Pricing Technique
A business may use prestige pricing to foster a high-end image.
prestige pricing a pricing technique in which higher-than-average prices
are used to suggest status and prestige to the customer
Pricing Technique
When a business uses odd/even pricing, customers may think they are
getting a bargain.
odd/even pricing a pricing technique in which odd-numbered prices are
used to suggest bargains, such as $19.99
Pricing Technique
A store that sells all its jeans at $20, $40, and $60 is using price lining.
price lining a pricing technique in which items in a certain quality
category are priced the same
Pricing Technique
A new restaurant that offers “1950s prices for three days only” is
using promotional pricing, a temporary pricing technique.
promotional pricing a pricing technique in which lower prices are
offered for a limited period of time to stimulate sales
Pricing Technique
When a store sells three pairs of socks for $10, it is using multiple-unit pricing.
multiple-unit pricing a pricing technique in which items are priced in multiples, such as
3 items for 99 cents
Pricing Technique
Businesses that sell computer hardware often use bundle pricing to sell software that may
not have sold otherwise.
bundle pricing a pricing technique in which several complementary products are sold at
a single price, which is lower than the price would be if each item was purchased
separately
Pricing Technique
Discount pricing is used by all types of businesses to encourage customers to buy.
discount pricing a pricing technique that offers customers reductions from the regular
price; some reductions are basic percentage-off discounts and others are specialized
discounts
Distribution-Based Pricing
■ F.O.B
X
■ Delivered
X – Zone
– Uniform
■ Basing-point
Distribution-Based Pricing
PRICE CALCULATION
■ FOB PRICE = USD 1500 M/T
■ QUANTITY : 20 M/T
■ FREIGHT = USD 1500 WHOLE CONTAINER PRICE
■ FREIGHT / QUANTITY = USD 1500 / 20 = USD 300 M/T
■ PRICE CALCULATION PER METRIC TON = USD 1500 + USD 300 = 1800 M/T
■ WHOLE SALE PRICE = USD 1800 * 20 M/T = USD 36000
■ TOTAL INVOICE PRICE = USD 36000
Price Adjustments
■ Cash discounts
■ Trade discounts
■ Quantity discounts
■ Seasonal discounts
■ Chain discounts
■ Promotional allowances
THANKS FOR LISTENING
