Unit-5

PRICING DECISION
AND
STRATEGIES
 Price is the amount of money charged
for a product or service. It is the total
value that customers exchange for the
benefit of having or using products or
services.
 Of all the elements in the 4p’s only
price is the only elements which
generates revenue. Rest all are costs.
 Profit maximization
 ROI
 To ensure specified market share
 Make entry into new markets
 Maintain price leadership
 Improve cash flow
 Internal factors
◦ Marketing objectives
◦ Marketing mix strategy
◦ Costs
◦ Org. considerations

 External factors
◦ The market and demand
◦ Competition
◦ Other environmental factors
 Types of Costs
Fixed Costs Variable Costs
(Overhead)
Costs that don’t Costs that do vary
vary with sales or directly with the
production levels. level of production.

Executive Salaries Raw materials

Rent

Total Costs
Sum of the Fixed and Variable Costs for a Given
Level of Production
 Setting Pricing Policy
1. Selecting the pricing
objective

2. Determining demand

3. Estimating costs

4. Analyzing competitors’
costs, prices, and offers

5. Selecting a pricing
method

6. Selecting final price

1. Cost-based pricing
2. Demand-based pricing
3. Competition-oriented pricing
4. Value pricing
5. Product line pricing
6. Tender pricing
7. Affordability-based pricing
8. Differentiated pricing
9. Psychological pricing
1. Cash sale price
2. Credit sale price
3. Installment sale price
4. Ex-factory price
5. Ex-warehouse price
6. Delivered at customer’s doors anywhere price
7. Free on Board (FOB) price
8. Free on Rail (FOR ) price
9. CIF price
 Price
High Medium Low

High Premium High Super

Value Value Value
Product Quality

Medium
Med Overcharging
Value
Good-Value

False
Rip-Off Economy
Low Economy
 The Three C’s Model
for Price Setting

Low Price Costs Competitors’ Customers’ High Price

prices and assessment
prices of of unique
No possible substitutes product No possible
profit at features demand at
this price this price
 Value Example:
 Utility: The attribute Caterpillar
that makes it Tractor is $100,000
capable of want vs. Market $90,000
satisfaction $90,000 if equal
 Value: The worth in 7,000 extra durable
terms of other 6,000 reliability
products 5,000 service
 Price: The monetary 2,000 warranty
medium of $110,000 in benefits
exchange. - $10,000 discount!
 Loss-leader pricing
 Special-event pricing
 Cash rebates
 Low-interest financing
 Longer payment terms
 Warranties & service contracts
 Psychological discounting
 Psychological Pricing

 Most Attractive?
A $2.19  Better Value?
32 oz.
 Psychological
reason to price this
way?
B $1.99
26 oz.

Assume Equal Quality

 New Product Pricing –
Skimming Pricing
Penetration Pricing
 Price Discrimination
 Price Bundling
Customer Segment

Product-form

Location

Time