Pricing

Price is all around us. You pay rent for your apartment, tuition for your education, and a fee to your dentist or physician. The airline, railways,taxi and bus companies charge you a fare;the local utilities call their price a rate; and the local bank charges you interest for the money you borrow. You have to pay a toll when you drive on the bridge and the insurance company charges you a premium. The guest lecturer is paid an honorarium and the government official takes a bribe to pass a file which was his job anyway. Your lawyer asks for a retainer and you are paid a salary, while the salesman has to make do with a commission and the worker is paid wages.

Price = Cost + Profit

Price brings in the revenuesThis is the only element in the marketing mix that brings in the revenues. All the rest are costsPrice communicates the value positioning of the product.

Pricing policySelecting the pricing objectiveDetermining demandEstimating costsAnalysing competitors costs, prices, offersSelecting a pricing methodSelecting the final price

The pricing objectiveSurvivalMaximum current profitMaximum market share penetration pricingMaximum market skimmingProduct quality leadership

Determining DemandPrice sensitivityPrice elasticity of demand

What influences price sensitivity?Shared costSunk investmentPrice qualityInventory effectUnique value effectSubstitute awarenessDifficult comparisionEnd benefitTotal expenditure

What is price elasticity?This determines the changes in demand with unit change in priceIf there is little or no change in demand, it is said to be price inelastic.If there is significant change in demand, then it is said to be price elastic.

Demand is likely to be less elastic whenThere are few or no substitutesBuyers readily do not notice the higher priceBuyers are slow to change their buying habitsBuyers think that the higher prices are justified

Price Quality StrategiesPricequality

Estimating costsFixed costsVariable costsLearning curveActivity based costingTarget costing

Pricing methodsMarkup pricingTarget return pricingPerceived value pricingValue pricingGoing rate pricingSealed bid pricing

Psychological pricingIt is used to lessen the impact of the actual pricing in the consumers mindIt is used as a surrogate to indicate the product quality or esteem

New methods of PricingGroup PricingGain and Risk sharing pricing

Geographical PricingDifferent pricing at different locationsCould be in terms of barter, countertrade and foreign currency

Discounts and AllowancesEarly paymentOff seasonBulk purchaseRetail discountCash discountTrade in allowance

Promotional PricingLoss leader pricingSpecial event pricingCash rebateLow interest financingLonger payment termsWarranties and service contractsPsychological discounting

Discriminatory PricingCustomer segmentProduct formImage pricingLocation pricingTime pricing

PreconditionsMarket must be segmentableThe lower price segment should not be able to resell the product to the higher price segmentThe competitors must not be able to undersell the firm in the higher price segmentShould not breed customer resentment and illwillPrice discrimination should not be illegal

Product Mix PricingProduct line pricing Optional feature pricingCaptive product pricingTwo part pricingByproduct pricingProduct bundling pricing

Initiating Price cutsExcess plant capacityCompetitionAggressive pricing

Initiating price increasesWhen demand exceeds supplyWhen costs go upGovt. policiesReduce/remove discounts and rebates

Indirect price increasesShrinking pack size for same priceSubstituting less expensive raw materialsReducing product featuresRemoving product servicesUsing less expensive packaging materialReducing the no.of packs and sizes offeredCreating new economy brands

Reaction to price changesCustomer reactionCompetitor reaction

Responding to competitor price changesMaintain priceMaintain price and add valueReduce priceIncrease price and qualityLaunch a low price fighter