pricing
DESCRIPTION
TRANSCRIPT
UNIT 4
PRICE MIX
ROLE AND IMPORTANCE OF PRICING
The only element that generates revenue
Price and sales volume together decide the revenue of any
business.
Major determinant of a buyer’s choice.
In the last few decades, non price factors become quite
important
Still it remains an important factor in determining sales and
profitability.
CHANGING PRICING ENVIRONMENT
‘We want LG to be an aspirational brand’
Source- http://www.thehindubusinessline.in/catalyst/2007/11/22/stories/2007112250010100.htm
Repositioning of LG Electronics“Value for money” “Aspirational”
FACTORS INFLUENCING PRICING
Internal Factors
External Factors
INTERNAL FACTORS
Corporate and marketing objectives of the firm
The image sought by the firm though pricing
The characteristics of the product
The stage of the product in its life cycle
Use patterns and turnaround rate of the
product
INTERNAL FACTORS
Costs of manufacturing and marketing
Extent of distinctiveness of the product and extent
of differentiation practiced
Other elements of marketing mix and their
interaction with pricing
Composition of the product line of the firm
EXTERNAL FACTORS
Market characteristics
Price elasticity of demand of the product in
particular
Buying behaviour of the customers of the product
Bargaining power of major customers
Bargaining power of major suppliers
EXTERNAL FACTORS
Competitors’ pricing strategies
Government controls/regulation on pricing
Other relevant legal aspects
Societal views
Understanding reached, if any, with competitors/
price cartels
PRICING OBJECTIVES
Profit maximization in the short term
Profit optimization in the long term
A minimum return on investment
A minimum return on sales turnover
Achieving a particular sales volume
PRICING OBJECTIVES
Achieving a particular market share
Deeper penetration of the market
Entering new markets
Target profit on the entire product line,
irrespective of profit level of individual product
PRICING OBJECTIVES
Keeping competition out, or keeping it under
check
Keeping parity with competition
Fast turnaround and early cash recovery
Stabilizing the prices and margins in the
market
PRICING OBJECTIVES
Providing the commodity/service at prices
affordable by the weaker sections
Providing the commodities/services at prices
that will stimulate economic development
Pricing Methods/Pricing Strategies
COST-BASED PRICING
DEMAND BASED PRICING
COMPETITION ORIENTED PRICING
PRODUCT LINE-ORIENTED PRICING
TENDER PRICING
AFFORDABILITY-BASED PRICING
DIFFERENTIATED PRICING
GEOGRAPHIC PRICING
COST BASED PRICING
Mark-up pricing (Cost plus
pricing)
Absorption Cost pricing
Target return pricing
Marginal cost pricing
DEMAND BASED PRICING
What traffic can bear’
pricing
Skimming pricing
Penetration Pricing
Value Pricing
COMPETITION ORIENTED PRICING
Premium pricing
Discount pricing
Parity/Going Rate pricing
PRODUCT LINE-ORIENTED
PRICING
TENDER PRICING
AFFORDABILITY-BASED
PRICING
DIFFERENTIATED PRICING
GEOGRAPHIC PRICING
Point of origin policy
Freight-absorption policy
Uniform Delivered policy
Zonal-Delivered price policy
Base point price policy
RESPONDING TO COMPETITORS
Through
Price and
Non-price variables
PRICE VARIABLES
Cost reduction using new technology or by
using cheaply available raw material
Two alternatives based competitive market
conditions – reduce the market price of
product or raise the market price
PRICE VARIABLES
Lowering price – too low price leads to
loss, same policy can be adopted by rival
producers/ competitors
Raising price – Reduce market demand
considerably
NON-PRICE VARIABLES
Not concerned with price
Product modification, effective
advertising and sales promotion
measures
Priority to non price variables for facing
competition and capturing market
NON-PRICE VARIABLES
Product differentiation –
Registered trade mark, copy right, patents right,
Change in appearance of the product i.e. colour,
packaging, etc.,
Provision of supplementary services
NON-PRICE VARIABLES
Selling costs –
Expenditure incurred on advertising, sales promotion,
discounts,
Incentive measures to sales force and so on.
Persuade customers to prefer firm’s products as against
the products of competitors
PRODUCT LIFE CYCLE & PRICING DECISIONS
Introduction stage
Rapid skimming strategy – High price and heavy
promotional expenses
Slow skimming strategy – High price and low
promotional expenses
Rapid penetrations strategy – Low price and heavy
promotional expenses
Slow penetration strategy – Low price and low
promotional expenses
PRODUCT LIFE CYCLE & PRICING DECISIONS
Growth Stage
Penetration pricing as increase in sales volume and
competition
Maturity stage
Pricing based on what consumers can bear and best
competitor’s offerings
Extended warranties, lowering of price
Declining stage
Low pricing