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SYNONYMS FOR PRICE

PRICING STRATEGIES
Dr. Vandana Tandon Khanna
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Rent Tuition Fee Fare Rate Toll Premium Honorarium

Special assessment Bribe Dues Salary Commission Wage Tax

TATA MOTORS DEVELOPED NANO NANO ITS SMALL CAR WITH A TARGET PRICE

PRICING DECISIONS
Corporate objective Demand Government policy Competitor reactions Costs Barriers in industry
Technology Exit barrier

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FACTORS INTERVENING PRICE POLICIES

Consumer situation
Utility orientation Satisfaction Comparative advantages over substitutes Behavioral dimensions

FACTORS INTERVENING PRICE POLICIES

Market competition
Product position Position of substitutes Position of competing products Price leader New entries/drop outs

Cost rationale
Cost of production Volume of sales BreakBreak-even Overhead cost Marketing cost contingencies

Market structure and promotion

Marketing channels Spatial distribution Advertising Sales plane TradeTrade-offs Possibilities
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FACTORS INTERVENING PRICE POLICIES

General environment
Slack season Peak season Social acceptance

SETTING PRICING POLICY

Select the pricing objective Determine demand Estimate costs Analyze competitor price mix Select pricing method Select the final price

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STEP 1 SELECTING THE PRICING :OBJECTIVE

Survival Maximum current profit Maximum market share Maximum market skimming Product-quality leadership

STEP 2: DETERMINING DEMAND

Price Sensitivity Estimating Demand Curves Price Elasticity of Demand

ESTIMATING DEMAND CURVES

Price Optimization to boost sales and Profits
Type of Retailer Electronic Before The retailer sold four tiers of 27-inch televisions, with Toshiba as the priciest, then Philips, Sharp, and Sansui After The retailer increased the price of Sansui and slightly lowered the price of Sharp, and demand rose for Sharp TV set.

INELASTIC & ELASTIC DEMAND

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TYPES OF COSTS STEP 3: ESTIMATING COSTS

Types of Costs Accumulated Production Activity-Based Cost Accounting Target Costing
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Fixed Costs (Overhead)

Costs that dont vary with sales or production levels. Executive Salaries Rent

Variable Costs
Costs that do vary directly with the level of production. Raw materials

Total Costs
Sum of the Fixed and Variable Costs for a Given Level of Production

THE THREE CS MODEL FOR PRICE SETTING

GILLETTE COMMANDS A PRICE PREMIUM

Low Price No possible profit at this price

Costs

Competitors prices and prices of substitutes

Customers assessment of unique product features

High Price No possible demand at this price

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STEP 5: SELECTING A PRICING METHOD

Markup Pricing Target-Return Pricing Perceived Value Pricing Value Pricing Going-Rate Pricing Sealed-Bid/Auction-Type Pricing

AUCTIONAUCTION-TYPE PRICING

English auctions Dutch auctions Sealed-bid auctions

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STEP 6: SELECTING THE FINAL PRICE

Impact of other marketing activities Company pricing policies Gain-and-risk sharing pricing Impact of price on other parties

CONSUMER PERCEPTIONS VS. REALITY FOR PRODUCTS & SERVICES

Overvalued Brands Shopper Stop Globus Undervalued Brands Fashion street Linking road

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STEPS INVOLVED IN PRICING PROCEDURE

Identify the target customer segments and draw up their profiles Decide market position and price image Determine extent of price elasticity of demand Consider life-cycle stage of the product Analyze competitors prices Analyze other environmental factors Choose pricing method to be adopted Select final price Review pricing methods as well as procedure periodically

COMMON PRICING MISTAKES

Determine costs and take traditional industry margins Failure to revise price to capitalize on market changes Setting price independently of the rest of the marketing mix Failure to vary price by product item, market segment, distribution channels, and purchase occasion

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CONSUMER PSYCHOLOGY AND PRICING

Reference Prices Price-quality inferences Price endings Price cues

POSSIBLE CONSUMER REFERENCE PRICES

Fair price Typical price Last price paid Upper-bound price Lower-bound price Competitor prices Expected future price Usual discounted price

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ADAPTING THE PRICE

Geographical Pricing
Barter Compensation deal Buyback arrangement Offset

Price Discounts and Allowances

Cash Discount Quantity Discount Functional Discount Seasonal Discount Allowance

SPECIAL FESTIVAL PRICING BY COCACOCA-COLA ON THE OCCASION OF RAMZAN IN PAKISTAN

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ADAPTING THE PRICE

Promotional Pricing
LossLoss-leader pricing Special-event pricing SpecialCash rebates LowLow-interest financing Longer payment terms Warranties & service contracts Psychological discounting

ADAPTING THE PRICE

Differentiated Pricing
CustomerCustomer-segment Pricing Product-form Pricing ProductImage Pricing Channel Pricing Location Pricing Time Pricing

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ADAPTING THE PRICE

Product-mix Pricing

PRICE DISCRIMINATION
Market segments show different intensities of demand Consumers in lower-price segments can not resell to higher-price segments Competitors can not undersell the firm in higher-price segments Cost of segmenting and policing the market does not exceed extra revenue

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PRICE - QUALITY STRATEGIES

Product Quality

THE WAY YOU SET PRICES DOESNT JUST INFLUENCE DEMAND. IT ALSO GUIDES THE WAY BUYERS USE YOUR PRODUCT OR SERVICE AND THAT CAN HAVE A LASTING IMPACT ON CUSTOMER RELATIONSHIPS.

Price
High Value

High High
Premium Value

Medium

Low
Super Value

Med

Overcharging

Medium Value

Good-Value

Rip-Off

Low
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False Economy

Economy

CONDITIONS UNDER WHICH CONSUMERS ARE LESS PRICE SENSITIVE

Product is more distinctive Buyers are less aware of substitutes Buyers cannot easily compare quality of substitutes The expenditure is a lower part of buyers total income The expenditure is small compared to the total cost

CONDITIONS UNDER WHICH CONSUMERS ARE LESS PRICE SENSITIVE

Part of the cost is borne by another party The product is used with assets previously bought The product is assumed to have more quality, prestige, or exclusiveness Buyers cannot store the product

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CONDITIONS UNDER WHICH CONSUMERS ARE LESS PRICE SENSITIVE

There are few or no substitutes Buyers do not readily notice the higher price Buyers are slow to change their buying habits and search for lower prices Buyers think higher prices are justified

ROLEX PRICEPRICE-QUALITY RELATIONSHIP

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PRICE CUES
Left to right pricing (Rs.299 v/s Rs.300) Odd number discount perceptions Even number value perceptions Ending prices with 0 or 5 Sale written next to price

WHEN TO USE PRICE CUES

Customers purchase item infrequently Customers are new Product designs vary over time Prices vary seasonally Quality or sizes vary across stores

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PRICEPRICE-REACTION PROGRAM FOR MEETING A COMPETITORS PRICE CUT

Has competitor cut his price? Yes No No No Hold our price at present level; continue to watch competitors price

PRICING FOR RURAL MARKETS

A large proportion have a low and seasonal income Several approaches adopted by retailers and companies to address this Rural retailers often extend credit Retailers also break the bulk and sell in loose form, in small quantities Companies use a similar strategy by introducing low-unit packing or LUP Companies also develop low-priced products with a target price for rural markets Companies might offer refill packs or recyclable and reusable packs
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Is the price How much has Is it likely to be likely to permanent Yes his price been significantly Yes aprice cut? cut? hurt our sales? By less than 2% Include a cents-off coupon for the next purchase 12/20/2012 By 2-4% Drop price by half of the competitors price cut By more than 4% Drop price to competitors price

TEN WAYS TO INCREASE PRICES WITHOUT INCREASING PRICE WINKLER

Revise the discount structure Change the minimum order size Charge for delivery and special services Invoice for repairs on serviced equipment Charge for engineering, installation

TEN WAYS TO INCREASE PRICES WITHOUT INCREASING PRICE WINKLER

Charge for overtime on rushed orders Collect interest on overdue accounts Produce less of the lower margin models in the line Write penalty clauses into contracts Change the physical characteristics of the product

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