MG 2452-EEFAUNIT-IV - PRICING
R.HARIHARANAP/EEE
Price: the exchange value of a good or service
INTRODUCTION
The Importance of Price to Marketers• Manage demand
• Adapt to competitive environment
• Psychology of the consumer
• BOTTOMLINE issues
Profits = Total Revenues - Total Costs
or
Profits =(Price x Quantity Sold) - Total Costs
NATURE OF PRICE
Steps in Setting the Right Price
Results lead to the right price
Fine tune with pricing tacticsFine tune with pricing tactics
Choose a price strategyChoose a price strategy
Estimate demand, costs, and profitsEstimate demand, costs, and profits
Establish pricing objectivesEstablish pricing objectives
Pricing Objectives
Profit Maximization:
Target-Return Objectives:
achieving a specified return on either sales or investment
ProfitabilityProfitability
Pricing Objectives
Sales maximization:
Market-share objectives:for controlling a portion of the market
Profitability
VolumeVolume
Pricing Objectives
Value Pricing
Meeting Competition
Meeting Competition
Profitability
Volume
Pricing Objectives
Prestige Objectives: set at a relatively high level
Meeting Competition
PrestigePrestige
Profitability
Volume
Four Market Structures
Market structure characterized by homogeneous products in which there are so many buyers and sellers that none has a significant influence on price
PureCompetition
PureCompetition
Agricultural products; STRESS Availability
Four Market Structures Market structure involving
a heterogeneous product and product differentiation among competing suppliers, allowing the marketer some degree of control over prices
PureCompetition
MonopolisticCompetition
MonopolisticCompetition
Focus on Retailing; Price
Four Market Structures
Market structure involving relatively few sellers and barriers to new competitors due to high start-up costs
PureCompetition
MonopolisticCompetition
OligopolyOligopoly
sensitive to other’s prices;
PROMOTION is KEY
Four Market Structures
PureCompetition
MonopolisticCompetition
Oligopoly
MonopolyMonopoly
Market structure involving only one seller of a good or service for which no close substitutes exist
Anti-trust legislation has eliminated nearly all monopolies
Government regulated monopolies do exist in certain areas, such as public utilities
Competitive Environment
• Number ofsellers
• Productdifferences
• Importance ofmarket mix
• Large numberof sellers
• Similar products
• Distribution isimportant
• Large numberof sellers
• Unique butsubstitutable
• Pricing isimportant-
• Differentiated • products
• A few largecompetitors
• Similarproducts
• Promotion iskey to achieveperceivedproductdifferences
• Singleproducer
• Unique andunsubstitutable
• Unimportant
BASIS OFCOMPARISON
PURECOMPETITION
MONOPOLISTICCOMPETITION OLIGOPOLY MONOPOLY
Number of sellersMany One
PRICE DETERMINATION IN ECONOMIC THEORY
Demand: schedule of the amounts of a firm’s good or service that consumers purchase at different prices during a specified period
Supply: schedule of the amounts of a good or service that firms will offer for sale at different prices during a specified time period.
Price Discrimination
Price Discrimination
Charging a different price for the same good/service in different markets
Requires each market to be impenetrable
Requires different price elasticity of demand in each marketPrices for rail travel differ for the same
journey at different times of the day
Pricing Objectives
Meet Business
Objectives
Volu
me
Sales
Max
imiz
atio
n
Mar
ket S
hare
Profitability
Profit-Maxim
ization
Target Return G
oals
Other Pricing Objectives Status Quo Image Social & Ethical Considerations
Price Strategies for New Products
PR
ICE
PR
ICE
PR
ICE
Skimming Penetration
Penetration Pricing
Skimming Pricing
Low price establish product in the market
High price/Prestige pricing appeal to early adopters; recover high R&D costs
Lower price over time
Move inventory, stimulate D, extend product life
Marketing Strategy Over the Product Life Cycle
INTRODUCTION GROWTH MATURITY DECLINEMarketing strategy Market development Increase market Defend market Maintain efficiency inemphasis share share exploiting product
Promotion Mount sales Appeal to Emphasize Reinforce loyal Strategy promotion for mass market brand differences, customers; reduce
product awareness benefits & loyalty promotion costs
Place strategy Distribute through Build intensive Enlarge Be selective in selective outlets network of distribution distribution, trim
outlets network unprofitable outlets
Pricing High price/unique Lower price Price at or below Set price to
strategy product / cover over time competition remain profitable production costs or
reduce toLow price/gain liquidatemarket share
Pricing Tactics
Price Lining • Price points: Setting a limited number of prices for certain categories of
products
Psychological Pricing
• Odd-even
Discounting • Quantity discounts• Cash discounts (2/10 net 30)
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