PRICING POLICIES

PRICING
PRICE
It 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). 

For Seller
The quantity of money received by the firm or seller for its
products.

For Buyer
Monetary sacrifice ; hence his perception of the value of the
product
 HOW & WHY ?

Price = Quantity of money received by the seller

Quantity of goods or services received by the buyer

IMPORTANCE
 One of the 4 Ps of the Marketing Mix.

 The only revenue generating element amongst the 4ps.

 Regulator of demand

 Success of Product

 Success of Organization
 PRICE = VALUE ?
VALUE
The perception of benefits received for what
someone must give up.

Value = Perceived benefits received

               Perceived price paid
 PRICING OBJECTIVES
 Survival

 Current Profit Maximization

Estimate the demand and cost with alternative prices and choose
the price which gives max current profit .

 Maximum market skimming

Company set high prices. EX-SONY HDTV
 Partial Cost Recovery.
Eg- Non profit theaters

 Maximum market share

Higher sales volume will lead to lower unit cost and
high long run .
Eg- TEXAS INSTRUMENT

 Product Quality Leadership.

Eg- coffee day, BMW cars
 STEPS IN PRICING
 Develop Marketing Strategy.
 Make Marketing Mix Decisions.
 Estimate Demand Curve.
 Calculate Cost.
 Understand Environmental Factors.
 Set Price Objectives.
 Determine Pricing.
 PRICING POLICIES
 COST BASED

 DEMAND BASED

 COMPETITION BASED

 EXTERNALLY DETERMINED PRICIES

 COST BASED PRICING
Price = Cost of Production + Margin of
Profit

P = (AVC + FC) / (1 - MK%)

Where:
P = Price
AVC = Average Variable Cost
FC= Fixed costs
MK% = Percentage mark-up
 MARK UP

MARK UP = EARNINGS / STANDARD COST

 DEMAND BASED PRICING
 CHARGE, WHAT THE BUYER CAN BEAR

 TEST MARKETING

 FORECASTING
 CHARGE, WHAT THE BUYER CAN
BEAR
 Charges what the buyer
can or may be made to
pay the maximum
depending on demand
intensity and skill of
seller.

 Varies from buyer to

buyer.

 By trial and error at

different prices
management arrives at an
acceptable price.
 TEST-MARKETING
 Test-market different prices in
different market segments.

 Develop demand schedule

indicating demand as reflected
in volume/revenue at different
prices.

 Select the price which ensures

maximum profit.
 FORECASTING
 Forecast price on the
basis of historical
demand data available
in the records.

 Demand schedules so
prepared may indicate
the price the company
may charge.
 COMPETETION BASED
PRICING
 Pricing based on what competitors are charging for the
similar products.
 Collect data about
–the prices competitors are charging and
–the specific products/services they are providing.
 The firm might charge the same, more, or less than
major competitors.
 Ex: Pepsi-Coke(same price)
-Smaller brands often price just below the national
brand.
-If the product has something extra may be able to
price above the competition.
Extramile diesel more than ordinary.
 EXTERNALLY DETERMINED
PRICES
 Government agency-Bureau of Costs and Prices.

 Product which constitute an essential component of

the consumers consumption basket or which are
inputs of considerable significance to the national
economy.

 Ex: prices of drugs, steel and fertilizers

BASIC PRICING STRATEGIES

 ECONOMY

 PENETRATION

 SKIMMING

 PREMIUM
PRICE-QUALITY
RELATIONSHIP
 ECONOMIC PRICING
 Price - Low
 Quality - Not Very Good
 Marketing & Production Cost - Low
 Profit Margin - Low
PRICE SKIMMING
ANATOMY
INITIALLY LATER
 Price – HIGH (In Limit)  Price- Reduced

 Competition –  Competition – Increases

MONOPOLISTIC  Profit Margin - Falls
 Profit Margin - High
PENETRATION
ANATOMY
INITIALLY AFTER GAINING
 Price - As LOW as MARKET
possible.  Price – INCREASED.

 Aim - To CAPTURE  Aim – To maximize Profits.

MARKET.
 Profit Margin - LOW.
 PREMIUM PRICING
 High Price
 Unique Product
 Sustainable Substantial Competitive
Advantage
PROMOTION FOR PRICE
 CAPTIVE PRICING
 Products have Complements
 Less Price for Product
 Premium Price for Complement
PRODUCT BUNDLE PRICING.
Combine several products in the same package.
 PSYCHOLOGICAL PRICING
 Price designed to have a positive psychological
impact
 PROMOTIONAL PRICING.
 Pricing to promote a product
 GEOGRAPHICAL PRICING
Variations in price in different parts of Country.
 PRODUCT LINE PRICING
New Products in Product Line with High Price.
OPTIONAL PRODUCT PRICING
 High price is charged when some additional value
is given. Window seat, car wash with waxing
example
VALUE PRICING