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    Marketing Management.: Pricing Considerations & Strategies

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    Mrigna Gupta
    The document discusses pricing considerations and strategies for marketing management. It covers what price is, factors to consider when setting prices such as costs and market conditions, and general pricing approaches including cost-based pricing, value-based pricing, and competition-based pricing. It also outlines pricing strategies for new and established products, including skimming, penetration, maintaining price, reducing price, and increasing price. Finally, it discusses price flexibility strategies like charging one price.

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    Marketing Management.: Pricing Considerations & Strategies

    Uploaded by

    Mrigna Gupta
    33 views26 pages
    The document discusses pricing considerations and strategies for marketing management. It covers what price is, factors to consider when setting prices such as costs and market conditions, and general pricing approaches including cost-based pricing, value-based pricing, and competition-based pricing. It also outlines pricing strategies for new and established products, including skimming, penetration, maintaining price, reducing price, and increasing price. Finally, it discusses price flexibility strategies like charging one price.

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    MARKETING MANAGEMENT

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    The document discusses pricing considerations and strategies for marketing management. It covers what price is, factors to consider when setting prices such as costs and market conditions, and general pricing approaches including cost-based pricing, value-based pricing, and competition-based pricing. It also outlines pricing strategies for new and established products, including skimming, penetration, maintaining price, reducing price, and increasing price. Finally, it discusses price flexibility strategies like charging one price.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    33 views26 pages

    Marketing Management.: Pricing Considerations & Strategies

    Uploaded by

    Mrigna Gupta
    The document discusses pricing considerations and strategies for marketing management. It covers what price is, factors to consider when setting prices such as costs and market conditions, and general pricing approaches including cost-based pricing, value-based pricing, and competition-based pricing. It also outlines pricing strategies for new and established products, including skimming, penetration, maintaining price, reducing price, and increasing price. Finally, it discusses price flexibility strategies like charging one price.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 26

    MARKETING

    MANAGEMENT.

    PRICING CONSIDERATIONS &


    STRATEGIES.
    WHAT IS A PRICE?
     It is said that cost is a fact and price is a policy.
     Price is the amount of money charged for a product
    or service.
     Price is the sum of all the values that consumers give
    up in order to gain the benefits of having or using a
    product or service.
     Historically price has been the major factor affecting
    buyer choice.
     In recent decades, non price factors have gained
    increasing importance. However price still remains
    one of the most important elements determining a
    firms market share and profitability.
    PRICE …
     Is the only element in the marketing mix that
    produces revenue; all other elements represent
    costs.
     One of the most flexible marketing mix elements.
     Unlike product features and channel
    commitments, prices can be changed quickly.
     Pricing is one major problem faced by many
    marketing executives .
     Many companies do not handle pricing well.
     Too cost oriented rather than customer value
    oriented.
    FACTORS TO CONSIDER WHEN
    SETTING PRICES.
    INTERNAL FACTORS:
     MARKETING OBJECTIVES.
     MARKETING MIX STRATEGIES.
     COST.
     ORGANIZATIONAL
    CONSIDERATIONS.
    MARKETING OBJECTIVES:
    Market positioning influences pricing
    strategy
     Other pricing objectives:

     Survival.
     Current profit maximization.
     Market share leadership.
     Product quality leadership.
    MARKETING MIX
    STRATEGIES:
     Pricing must be carefully coordinated with
    the other marketing mix elements.
     Target costing is often used to support
    product positioning strategies based on
    price.
     Non-price positioning can also be used.
    COST:
     Types of costs:
     Variable.
     Fixed.
     Total costs.
     How costs vary at different production
    levels will influence price setting.
     Experience (learning) curve affects price.
    ORGANIZATIONAL CONSIDERATION:

     Who sets the price?


     Small companies: CEO or top
    management.
     Large companies: Divisional or product
    line managers.
     Price negotiation is common in
    industrial settings where pricing
    departments may be created.
    EXTERNAL FACTORS:
     NATURE OF MARKET AND
    DEMAND.
     COMPETITOR’S, COST, PRICES,
    AND OFFERS.
     OTHER ENVIRONMENTAL
    ELEMENTS.
    NATURE OF MARKET AND DEMAND:

     Types of markets:
     Pure competition.
     Monopolistic competition.
     Oligopolistic competition.
     Pure monopoly.
     Consumer perceptions of price and value.
     Price-demand relationship:
     Demand curve.
     Price elasticity of demand.
    COMPETITOR’S, COST, PRICES, AND
    OFFERS:
     Consider competitors’ costs, prices, and
    possible reactions.
     Pricing strategy influences the nature of
    competition:
     Low-price low-margin strategies inhibit
    competition.
     High-price high-margin strategies attract
    competition.
     Benchmarking costs against the competition is
    recommended.
    OTHER ENVIRONMENTAL
    ELEMENTS:

     Economic conditions:
     Affect production costs.
     Affect buyer perceptions of price and value.
     Reseller reactions to prices must be considered.
     Government may restrict or limit pricing
    options.
     Social considerations may be taken into
    account.
    GENERAL PRICING APPROACHES:
     COST-BASED PRICING: COST-PLUS
    PRICING:
     Adding a standard markup to cost.
     Ignores demand and competition.
     Popular pricing technique because:
     It simplifies the pricing process.
     Price competition may be minimized.
     It is perceived as more fair to both
    buyers and sellers.
    GENERAL PRICING APPROACHES:
    COST-BASED PRICING EXAMPLE:

    - Variable costs: $20 - Fixed costs: $ 500,000


    - Expected sales: 100,000 units - Desired Sales Markup:
    20%

    Variable Cost + Fixed Costs/Unit Sales = Unit Cost


    $20 + $500,000/100,000 = $25 per unit

    Unit Cost/(1 – Desired Return on Sales) = Markup Price


    $25 / (1 - .20) = $31.25
    GENERAL PRICING APPROACHES:
     COST-BASED PRICING: BREAK-EVEN
    ANALYSIS AND TARGET PROFIT PRICING:
     Break-even charts show total cost and total
    revenues at different levels of unit volume.
     The intersection of the total revenue and
    total cost curves is the break-even point.
     Companies wishing to make a profit must
    exceed the break-even unit volume.
    GENERAL PRICING APPROACHES:
     VALUE-BASED PRICING:
     Uses buyers’ perceptions of value rather than
    seller’s costs to set price.
     Measuring perceived value can be difficult.
     Consumer attitudes toward price and quality
    have shifted during the last decade.
     Value pricing at the retail level:
     Everyday low pricing (EDLP) vs. high-low
    pricing.
    GENERAL PRICING APPROACHES:
     COMPETITION-BASED PRICING:
     Also called going-rate pricing.
     May price at the same level, above, or
    below the competition.
     Bidding for jobs is another variation of
    competition-based pricing:
     Sealed bid pricing.
    PRICING STRATEGIES:
     NEW PRODUCTS: SKIMMING STRATEGY:

    DEFINITION: Setting a relatively high price during the


    initial stage of a product’s life.

    OBJECTIVES:
    (a)To serve customers who are not price conscious
    while the market is at the upper end of the demand
    curve and competition has not yet entered the market.
    (b) To recover a significant portion of promotional and
    research and development costs through a high margin.
     NEW PRODUCTS: SKIMMING STRATEGY:

    REQUIREMENTS: Use of marketing mix variables, especially


    design and communication efforts. 
    Heavy promotional expenditure to introduce product, educate
    consumers, and induce early buying. 
    Relatively inelastic demand at the upper end of the demand
    curve. 
    Lack of direct competition and substitutes.

    EXPECTED RESULTS: 
    (a) Market segmented by price-conscious and not so price
    conscious customers. 
    (b) High margin on sales that will cover promotion and
    research and development costs.
    Opportunity for the firm to lower its price and sell to the mass
    market before competition enters.
     NEW PRODUCTS: PENETRATION STRATEGY:

    DEFINITION: Setting a relatively low price during the initial


    stages of a product’s life.

    OBJECTIVES: To discourage competition from entering the


    market by quickly taking a large market share and by gaining
    a cost advantage through realizing economies of scale.

    REQUIREMENTS: Use of marketing mix variables, especially


    design and communication efforts. 
    Product must appeal to a market large enough to support the
    cost advantage.
    Demand must be highly elastic in order for the firm to guard
    its cost advantage.
     EXPECTED RESULTS: 
    High sales volume and large market share. 
    Low margin on sales. 
    Lower unit costs relative to competition due to
    economies of scale.
     ESTABLISHED PRODUCTS: MAINTAIN THE PRICE:

    DEFINITION: To maintain position in the marketplace (i.e., market


    share, profitability, etc) 

    Objectives: Maintain Status Quo.

    REQUIREMENTS: 
    Firm’s served market is not significantly affected by changes in the
    environment. 
    Uncertainty exists concerning the need for or result of a price
    change. 
    Firm’s public image could be enhanced by responding to
    government requests or public opinion to maintain price. 

    EXPECTED RESULTS:
    (a)Status quo for the firm’s market position. 
    (b) Enhancement of the firm’s public image.
     ESTABLISHED PRODUCTS: REDUCE THE PRICE:

    OBJECTIVES:
    To act defensively and cut price to meet the competition. 
    To act offensively and attempt to beat the competition. 
    To respond to a customer need created by a change in the
    environment.

    REQUIREMENTS:
    Firm must be financially and competitively strong to fight in a price
    war if that becomes necessary. 
    Must have a good understanding of the demand function of its
    product.

    EXPECTED RESULTS:
    Lower profit margins (assuming costs are held constant).
    Higher market share might be expected, but this will depend upon the
    price change relative to competitive prices and upon price elasticity.
     ESTABLISHED PRODUCTS: INCREASING THE PRICE:

    OBJECTIVES:
    To maintain profitability during an inflationary period. 
    To take advantage of product differences, real or perceived. 
    To segment the current served market.

    REQUIREMENTS: 
    Relatively low price elasticity but relatively high elasticity with respect
    to some other factor such as quality or distribution. 
    Reinforcement from other ingredients of the marketing mix; for
    example, if a firm decides to increase price and differentiate its product
    by quality, then promotion and distribution must address product
    quality.

    EXPECTED RESULTS:
    Higher sales margin. 
    Segmented market (price conscious, quality conscious, etc.).
    Possibly higher unit sales, if differentiation is effective
     PRICE FLEXIBILITY STRATEGY: ONE PRICE:

    DEFINITION: Charging the same price to all customers under


    similar conditions and for the same quantities.

    OBJECTIVES: 
    To simplify pricing decisions. 
    To maintain goodwill among customers.

    REQUIREMENTS:
    Detailed analysis of the firm’s position and cost structure as
    compared with the rest of the industry. 
    Information concerning the cost variability of offering the
    same price to everyone. 
    Knowledge of the economies of scale available to the firm.
    Information on competitive prices; information on the price
    that customers are ready to pay.
     EXPECTED RESULTS:
    Decreased administrative and selling
    costs. 
    Constant profit margins.
    Favourable and fair image among
    customers. 
    Stable market.

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