MARKETING

MIX - PRICE
MONEY
 WHAT IS PRICE?
 In general terms, price is a component
of an exchange or transaction that
takes place between two parties and
refers to what must be given up by
one party (i.e., buyer) in order to
obtain something offered by another
party (i.e., seller).
 At its most basic, a price is the
amount of money that a buyer gives to
a seller in exchange for a good or a
service
 WHY IS PRICE
IMPORTANT?
 The price is one of the components of
Marketing Mix. It is the only element of the
Marketing Mix which generates a turnover for
the organization. It also must support the
other elements of Marketing Mix. After
product, pricing plays a key role in the
marketing mix. The reason for this
importance is that where the rest of the
elements of the marketing mix are cost
generators, price is a source of income and
profits
 It is also one of marketing mix components
that influences the target market the most.
 FACTORS THAT AFFECT
PRICING
 Internal Factors
- Elements that are under the
control of the organization.

 External Factors
-Factors which have a
significant impact on pricing
decisions but are not completely
controllable by the company.
INTERNAL FACTORS
 Cost - Includes both the variable and
fixed costs.
 Company objectives and strategy -
While fixing the prices of the product,
the marketer should consider the
objectives of the firm.
 Credit period offered - Longer the
credit period, higher may be the price,
and shorter the credit period, lower
may be the price of the product.
INTERNAL FACTORS
 Product Life Cycle - For instance,
during the introductory stage the firm
may charge lower price to attract the
customers, and during the growth stage,
a firm may increase the price.
 Image of firm - The price of the product
may also be determined on the basis of
the image of the firm.
 Promotional activity - If the firm incurs
heavy advertising and sales promotion
costs, then the pricing of the product
shall be kept high to recover the cost.
 EXTERNAL
FACTORS
 Competition - If there is high
competition, the prices may be
kept low to effectively face the
competition, and if the competition
is low, the prices may be kept
high.
 Consumer - The consumer factors
that must be considered includes
the price sensitivity of buyer,
purchasing power, and so on.
 EXTERNAL
FACTORS
 Government Control - In certain
products, government may
announce administered prices, and
therefore the marketer has to
consider such regulation while fixing
the prices.
 Economic Condition - At time of
recession, the consumer may have
less money to spend, so the
marketer may reduce the prices.
PRICING STRATEGY
Pricing is one of the major
elements of the marketing
plan.
Pricing decisions derive
from the underlying
objectives and best-suited
strategies.
 30
DIFFERENT
PRICING
STRATEGIES
PRICING STRATEGY
 Penetration Pricing - A low price is set
by the company to build up sales and
market share. Once a position is created,
the prices may be raised.
PRICING STRATEGY
 Skimming Pricing - The initial price is set
high and may slowly be brought down.
PRICING STRATEGY
 Opportunistic Pricing - Sometimes the
value attached to the product maybe higher
much higher than its cost. It sets premium
prices for products/ services in high demand
with short supplies.
PRICING STRATEGY
 Competition Pricing - When trying to go
head to head with competitors offering
similar benefits, a company may decide to:
 price higher to create a higher quality
perception or to target a niche market
 price the same to show more benefits for the
same price
 price lower to try to gain a wider customer
base
PRICING STRATEGY
 Product Line Pricing - Different products in
the same range may be set at different
prices.
PRICING STRATEGY
 Bundle Pricing - A group of products
may be bundled together and sold at a
reduced price.
PRICING STRATEGY
 Psychological Pricing - A company will
make small changes to prices to make a
customer think the item is priced lower than
it is.
PRICING STRATEGY
 Optional Pricing - A company may add
optional extra items within the price to
increase a product’s attractiveness.
PRICING STRATEGY
 Premium Pricing - It is the practice of
setting a price higher than the market
price, in the expectation that customers
will purchase it due to the perception that
it must have unusually high quality or
reputation.
PRICING STRATEGY
 Cost Based Pricing - A company may
determine the exact cost of producing and
selling an objective, add a markup that may
be desirable for profits and price accordingly.
PRICING STRATEGY
 Cost Plus Pricing - A percentage is added
to the costs as a profit margin to determine
final price.
PRICING STRATEGY
 By – product Pricing - A pricing method used in
situations where a saleable by-product results in
the manufacturing process. If the by-product has
little value, and is costly to dispose of, it will
probably not affect the pricing of the main
product; if, on the other hand, the by-product
has significant value, the manufacturer may
derive a competitive advantage by charging a
lower price for its main product.
PRICING STRATEGY
 Captive Product Pricing - It is used
when the value of the main product is
very low, but the value of the
supporting product, which is necessary
for working of main product is high.
PRICING STRATEGY
 Promotional Pricing - It is the sales
promotion technique which involves reducing
the price of a product or services in short
term to attract more customers & increase
the sales volume.
PRICING STRATEGY
 Geographical Pricing - It is
computed according to the
customer's or market's distance or
transportation costs incurred.
PRICING STRATEGY
 Discriminatory Pricing - A pricing strategy
that charges customers different prices for
the same product or service. In pure price
discrimination, the seller charges each
customer the maximum price that he is
willing to pay.
PRICING STRATEGY
 Loss Leader Pricing - A product is sold at
a price below its market cost to stimulate
other sales of more profitable goods or
services. With this sales
promotion/marketing strategy, a "leader" is
used as a related term and can mean any
popular article, i.e., one sold at a normal
price.
PRICING STRATEGY
 Value – based Pricing - It sets prices
primarily, but not exclusively, according to the
perceived or estimated value of a product or
service to the customer rather than according
to the cost of the product or historical prices.
It is the setting of a product or service's price
based on the benefits it provides to
consumers.
PRICING STRATEGY
 Marginal Cost Pricing - The practice of
setting the price of a product at or slightly
above the variable cost to produce it.
PRICING STRATEGY
 Discounts and Allowances Pricing -
These are reductions to the selling
price of goods or services. Typically,
they are used to promote sales,
reduce inventory, and reward or
encourage behaviors that benefit the
issuer of the discount or allowance.
PRICING STRATEGY
 Price segmentation - It is simply charging
different prices to different people for the
same or similar product or service.
PRICING STRATEGY
 Economy pricing - It is widely used in the
retail food business for groceries such as
canned and frozen goods sold under
generic food brands where marketing and
production costs have been kept to a
minimum.
PRICING STRATEGY
 Customer - Based Pricing - A method of
pricing in which the seller decides based on what
the customer can justify paying. Customer-driven
pricing is not simply what the consumer is willing
to pay, but reflects the value of the product or
service from the consumer's perspective.
PRICING STRATEGY
 Destroyer Pricing /Predatory Pricing -
It is the act of setting prices low in an
attempt to eliminate the competition.
Predatory pricing is illegal under anti-trust
laws, as it makes markets more vulnerable
to a monopoly.
PRICING STRATEGY
 Absorption/Full – Cost Pricing - It is a
price-setting method under which you add
together the direct material cost, direct labor
cost, selling and administrative costs, and
overhead costs for a product, and add to it a
markup percentage (to create a profit
margin) to derive the price of the product.
PRICING STRATEGY
 Contribution Pricing - It is a pricing
strategy which maximizes the profit
coming from a product. The price of
the product is kept based on its
contribution to cover the fixed costs it
incurs even if to a minimal level.
PRICING STRATEGY
 Going Rate Pricing - It creates pricing wars
between competitors who offer the same or
similar products/services. No one charges
more to prevent loss of market share. Few
competitors control pricing.
PRICING STRATEGY
 Expansionistic Pricing - Set low prices to
establish mass markets—an exaggerated form
of penetration pricing. May offer temporary
price reductions to increase sales or a lower-
cost version to gain acceptance and then
switch to higher-cost version after purchase.
PRICING STRATEGY
 Sliding Price Strategy - It is a method of
moving prices in relation to demand. This
strategy is combination of skimming and
penetration strategy.
PRICING STRATEGY
 Odd Pricing - It is setting of a price just
below the round number, based on belief that
customers perceive the odd price much lower
than round number price.