7/31/2019 7. Pricing Strategy

1/15

MARKETING STRATEGY

PRICING STRATEGY

Marketer needs to understandRelationship between

a) Target Market

b) Company Objectiveand

c) Pricing decision

7/31/2019 7. Pricing Strategy

2/15

MARKETING STRATEGY

PRICING STRATEGY

Multiple ways of making Profitsa) Lowering customer acquisition

costs

b) Increasing Consumptionc) Reducing Costs

and

d) Changing Consumption Pattern

7/31/2019 7. Pricing Strategy

3/15

MARKETING STRATEGY

PRICING STRATEGY

Two Aspects of Pricing1) Pricing Levels : Overall amount

customer pays

2) Pricing Structure : How a paymentis insisted from customer.

Pricing structure can affect purchase

decision and post purchase behavior

7/31/2019 7. Pricing Strategy

4/15

MARKETING STRATEGY

PRICING STRATEGY

Pricing Structure from CustomersPerspective includes :

1) Basic Price

2) Hidden Cost3) Credit Checks

4) After Sales Service

7/31/2019 7. Pricing Strategy

5/15

MARKETING STRATEGY

PRICING STRATEGY

Various Pricing Strategies :1) Competition based Pricing

2) Skimming

3) Limit Pricing4) Loss Leader

5) Penetration Pricing

6) Discrimination Pricing7) Premium Pricing

8) Psychological Pricing

7/31/2019 7. Pricing Strategy

6/15

MARKETING STRATEGY

PRICING STRATEGY

:

: Buyers price sensitivity fora given product increases the products price relativeto perceived alternatives.

: Buyers are lesssensitive to the price of a known reputable product

: The higher the product-specific investment a buyer must make to switchsuppliers.

: Buyers are less sensitive toprice the more that higher prices signal higher

quality. : Buyers are more price sensitive

when the expense accounts for a large percentageof buyers available income or budget.

7/31/2019 7. Pricing Strategy

7/15

MARKETING STRATEGY

PRICING STRATEGY

: : This is divided into two parts:

Derived demand:

Price proportion cost:

: The smaller the portion of thepurchase price buyers must pay for themselves,the less price sensitive they will be.

: Buyers prefer to pay fair price tothe product and nothing more

: Buyers are more pricesensitive when they perceive the price as a lossrather than a forgone gain.

7/31/2019 7. Pricing Strategy

8/15

MARKETING STRATEGY

PRICING DECISIONS PRICING STRUCTURE

Set Strategic Pricing Objective

Estimate Demand & Price Elasticity of Demand

Determine Costs & Their Relation to Volume

Examine Competitors Prices & Costs

Select a Method of Calculating Price

Set a Level Price

Adapt Price Structure

7/31/2019 7. Pricing Strategy

9/15

MARKETING STRATEGY

PRICING DECISIONS

Cost oriented Pricing - fixed margin

Cost Plus Pricing - contract jobs

Mark up Pricing - through retailers

Target Pricing - as per plant loadDemand oriented Pricing

Costs

Break Even Point

Profit Impact

People

7/31/2019 7. Pricing Strategy

10/15

MARKETING STRATEGY

PRICING DECISIONS

PEOPLE Customer Reactions / Attitudes

Customer Competitor Behaviour withrespect to Price

Competition Retaliation

Distributor Reaction & Policies

Considerations In Pricing

Price Stability Social Responsibility

Seller Reputation

7/31/2019 7. Pricing Strategy

11/15

MARKETING STRATEGY

PRICING DECISIONS

CUSTOMER CONSIDERATIONS IN PRICING

Fair or Just Price

Past Price

Quality Perceptions

MARKETING CONSIDERATIONS IN PRICINGAttracting New Buyers via Market Penetration

Converting Existing Users via Brand Switching

Increasing Purchase Size via Heavier Individual

Usage Retaining Customers via Ensuring Repeat

Purchase

7/31/2019 7. Pricing Strategy

12/15

MARKETING STRATEGY

PRICING DECISIONS

PRICING OBJECTIVESAlthough the superordinate goal of pricing may beto maximise the return for the company, suchprofit does provide the criteria rather than theguidelines for the pricing

Maintain Quality or Service Differentiation

Maximise Sales Growth or Market Penetration

Maximise Current Profits (i.e. Skimming ,Harvesting)

Survival

Social Objectives (i.e. Non-profit organization)

7/31/2019 7. Pricing Strategy

13/15

MARKETING STRATEGY

PRICING DECISIONS BUYERS PERCEPTION AND PREFERENCE

Unique Value Effect

Price Quality Effect

BUYERS AWARENESS OF ALTERNATIVES Substitute Awareness effect

Difficult Comparison Effect

PRICING STRATEGIESImmediate Earnings Steady Earnings Future Earnings

Convert Temporary Price Offers Better Credit Term No Price (sampling)

Increase Bulk Discount Delayed Invoicing Payment as per useAttract Dumping Lower Priced sizes Lower Price to New

Users

Maintain Value-in-Use Pricing Competitive Pricing Tiein Pricing

7/31/2019 7. Pricing Strategy

14/15

MARKETING STRATEGY

PRICING DECISIONS

How to avoid Price War ?

Strategy - 1

Avoid strategies that force competition to respondwith lower prices

Strategy - 2Steer clear off actions that shift a competitor playing

field from benefits to prices

Strategy - 3

Avoid over reaction. Not every competitive pricedeserve a reaction

Strategy - 4

Exploit market niches

7/31/2019 7. Pricing Strategy

15/15

MARKETING STRATEGY

PRICING STRATEGIES

PricingStrategy

NewProducts

Innovation

Me Too

Product

Long PLC

Earn over period

Short PLC

Maximise Profits

Differential Pricing

Penetration Pricing

Pricing

Strategy

Price

RevisionsCost Change

Product Change

Market Change