Pricing Strategy

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Þr|c|ng Strategy
Cne of Lhe four ma[or elemenLs of Lhe markeLlng mlx ls prlceŦ Þrlclng ls an lmporLanL sLraLeglc lssue
because lL ls relaLed Lo producL poslLlonlngŦ lurLhermoreţ prlclng affecLs oLher markeLlng mlx elemenLs
such as producL feaLuresţ channel declslonsţ and promoLlonŦ

Whlle Lhere ls no slngle reclpe Lo deLermlne prlclngţ Lhe followlng ls a general sequence of sLeps LhaL
mlghL be followed for developlng Lhe prlclng of a new producLť
O uevelop markeLlng sLraLegy Ŵ perform markeLlng analyslsţ segmenLaLlonţ LargeLlngţ and
O Make markeLlng mlx declslons Ŵ deflne Lhe producLţ dlsLrlbuLlonţ and promoLlonal LacLlcsŦ
O LsLlmaLe Lhe demand curve Ŵ undersLand how quanLlLy demanded varles wlLh prlceŦ
O CalculaLe cosL Ŵ lnclude flxed and varlable cosLs assoclaLed wlLh Lhe producLŦ
O undersLand envlronmenLal facLors Ŵ evaluaLe llkely compeLlLor acLlonsţ undersLand legal
consLralnLsţ eLcŦ
O SeL prlclng ob[ecLlves Ŵ for exampleţ proflL maxlmlzaLlonţ revenue maxlmlzaLlonţ or prlce
sLablllzaLlon (sLaLus quo)Ŧ
O ueLermlne prlclng Ŵ uslng lnformaLlon collecLed ln Lhe above sLepsţ selecL a prlclng meLhodţ
develop Lhe prlclng sLrucLureţ and deflne dlscounLsŦ
1hese sLeps are lnLerrelaLed and are noL necessarlly performed ln Lhe above orderŦ noneLhelessţ Lhe
above llsL serves Lo presenL a sLarLlng frameworkŦ

,arket|ng Strategy and the ,arket|ng ,|x
8efore Lhe producL ls developedţ Lhe markeLlng sLraLegy ls formulaLedţ lncludlng LargeL markeL selecLlon
and producL poslLlonlngŦ 1here usually ls a Lradeoff beLween producL quallLy and prlceţ so prlce ls an
lmporLanL varlable ln poslLlonlngŦ
8ecause of lnherenL Lradeoffs beLween markeLlng mlx elemenLsţ prlclng wlll depend on oLher producLţ
dlsLrlbuLlonţ and promoLlon declslonsŦ
Lst|mate the Demand Curve
8ecause Lhere ls a relaLlonshlp beLween prlce and quanLlLy demandedţ lL ls lmporLanL Lo undersLand Lhe
lmpacL of prlclng on sales by esLlmaLlng Lhe demand curve for Lhe producLŦ
lor exlsLlng producLsţ experlmenLs can be performed aL prlces above and below Lhe currenL prlce ln
order Lo deLermlne Lhe prlce elasLlclLy of demandŦ lnelasLlc demand lndlcaLes LhaL prlce lncreases mlghL
be feaslbleŦ
Ca|cu|ate Costs
lf Lhe flrm has declded Lo launch Lhe producLţ Lhere llkely ls aL leasL a baslc undersLandlng of Lhe cosLs
lnvolvedţ oLherwlseţ Lhere mlghL be no proflL Lo be madeŦ 1he unlL cosL of Lhe producL seLs Lhe lower
llmlL of whaL Lhe flrm mlghL chargeţ and deLermlnes Lhe proflL margln aL hlgher prlcesŦ
1he LoLal unlL cosL of a produclng a producL ls composed of Lhe varlable cosL of produclng each
addlLlonal unlL and flxed cosLs LhaL are lncurred regardless of Lhe quanLlLy producedŦ 1he prlclng pollcy
should conslder boLh Lypes of cosLsŦ
Lnv|ronmenta| Iactors
Þrlclng musL Lake lnLo accounL Lhe compeLlLlve and legal envlronmenL ln whlch Lhe company operaLesŦ
lrom a compeLlLlve sLandpolnLţ Lhe flrm musL conslder Lhe lmpllcaLlons of lLs prlclng on Lhe prlclng
declslons of compeLlLorsŦ lor exampleţ seLLlng Lhe prlce Loo low may rlsk a prlce war LhaL may noL be ln
Lhe besL lnLeresL of elLher sldeŦ SeLLlng Lhe prlce Loo hlgh may aLLracL a large number of compeLlLors
who wanL Lo share ln Lhe proflLsŦ
lrom a legal sLandpolnLţ a flrm ls noL free Lo prlce lLs producLs aL any level lL choosesŦ lor exampleţ Lhere
may be prlce conLrols LhaL prohlblL prlclng a producL Loo hlghŦ Þrlclng lL Loo low may be consldered
predaLory prlclng or ƍdumplngƍ ln Lhe case of lnLernaLlonal LradeŦ Cfferlng a dlfferenL prlce for dlfferenL
consumers may vlolaLe laws agalnsL prlce dlscrlmlnaLlonŦ llnallyţ colluslon wlLh compeLlLors Lo flx prlces
aL an agreed level ls lllegal ln many counLrlesŦ

Þr|c|ng Cb[ect|ves
1he flrmƌs prlclng ob[ecLlves musL be ldenLlfled ln order Lo deLermlne Lhe opLlmal prlclngŦ Common
ob[ecLlves lnclude Lhe followlngť
O CurrenL proflL maxlmlzaLlon Ŵ seeks Lo maxlmlze currenL proflLţ Laklng lnLo accounL revenue and
cosLsŦ CurrenL proflL maxlmlzaLlon may noL be Lhe besL ob[ecLlve lf lL resulLs ln lower longŴLerm
O CurrenL revenue maxlmlzaLlon Ŵ seeks Lo maxlmlze currenL revenue wlLh no regard Lo proflL
marglnsŦ 1he underlylng ob[ecLlve ofLen ls Lo maxlmlze longŴLerm proflLs by lncreaslng markeL
share and lowerlng cosLsŦ
O Maxlmlze quanLlLy Ŵ seeks Lo maxlmlze Lhe number of unlLs sold or Lhe number of cusLomers
served ln order Lo decrease longŴLerm cosLs as predlcLed by Lhe experlence curveŦ
O Maxlmlze proflL margln Ŵ aLLempLs Lo maxlmlze Lhe unlL proflL marglnţ recognlzlng LhaL
quanLlLles wlll be lowŦ
O CuallLy leadershlp Ŵ use prlce Lo slgnal hlgh quallLy ln an aLLempL Lo poslLlon Lhe producL as Lhe
quallLy leaderŦ
O ÞarLlal cosL recovery Ŵ an organlzaLlon LhaL has oLher revenue sources may seek only parLlal cosL
O Survlval Ŵ ln slLuaLlons such as markeL decllne and overcapaclLyţ Lhe goal may be Lo selecL a prlce
LhaL wlll cover cosLs and permlL Lhe flrm Lo remaln ln Lhe markeLŦ ln Lhls caseţ survlval may Lake
a prlorlLy over proflLsţ so Lhls ob[ecLlve ls consldered LemporaryŦ
O SLaLus quo Ŵ Lhe flrm may seek prlce sLablllzaLlon ln order Lo avold prlce wars and malnLaln a
moderaLe buL sLable level of proflLŦ

lor new producLsţ Lhe prlclng ob[ecLlve ofLen ls elLher Lo maxlmlze proflL margln or Lo maxlmlze quanLlLy
(markeL share)Ŧ 1o meeL Lhese ob[ecLlvesţ sklm prlclng and peneLraLlon prlclng sLraLegles ofLen are
employedŦ !oel uean dlscussed Lhese prlclng pollcles ln hls classlc P88 arLlcle enLlLledţ Þrlclng Þollcles for
new ÞroducLsŦ

Sk|m pr|c|ng aLLempLs Lo ƍsklm Lhe creamƍ off Lhe Lop of Lhe markeL by seLLlng a hlgh prlce and selllng Lo
Lhose cusLomers who are less prlce senslLlveŦ Sklmmlng ls a sLraLegy used Lo pursue Lhe ob[ecLlve of
proflL margln maxlmlzaLlonŦ
Sklmmlng ls mosL approprlaLe whenť
O uemand ls expecLed Lo be relaLlvely lnelasLlcŤ LhaL lsţ Lhe cusLomers are noL hlghly prlce
O arge cosL savlngs are noL expecLed aL hlgh volumesţ or lL ls dlfflculL Lo predlcL Lhe cosL savlngs
LhaL would be achleved aL hlgh volumeŦ
O 1he company does noL have Lhe resources Lo flnance Lhe large caplLal expendlLures necessary
for hlgh volume producLlon wlLh lnlLlally low proflL marglnsŦ
Þenetrat|on pr|c|ng pursues Lhe ob[ecLlve of quanLlLy maxlmlzaLlon by means of a low prlceŦ lL ls mosL
approprlaLe whenť
O uemand ls expecLed Lo be hlghly elasLlcŤ LhaL lsţ cusLomers are prlce senslLlve and Lhe quanLlLy
demanded wlll lncrease slgnlflcanLly as prlce decllnesŦ
O arge decreases ln cosL are expecLed as cumulaLlve volume lncreasesŦ
O 1he producL ls of Lhe naLure of someLhlng LhaL can galn mass appeal falrly qulcklyŦ
O 1here ls a LhreaL of lmpendlng compeLlLlonŦ
As Lhe producL llfecycle progressesţ Lhere llkely wlll be changes ln Lhe demand curve and cosLsŦ As suchţ
Lhe prlclng pollcy should be reevaluaLed over LlmeŦ

1he prlclng ob[ecLlve depends on many facLors lncludlng producLlon cosLţ exlsLence of economles of
scaleţ barrlers Lo enLryţ producL dlfferenLlaLlonţ raLe of producL dlffuslonţ Lhe flrmƌs resourcesţ and Lhe
producLƌs anLlclpaLed prlce elasLlclLy of demandŦ

SACHET Rs.2/- Rs.2/- -
200gm Rs.23/- Rs.20/- -
500gm Rs.56 Rs.41 Rs.80/-
1kg Rs.109/- - Rs.155/-

Sachet ksŦ2]Ŵ ksŦ2]Ŵ Ŵ
200gm ksŦ26]Ŵ ksŦ26]Ŵ Ŵ
S00gm ksŦSS]Ŵ ksŦSS]Ŵ ksŦ80]Ŵ
1kg ksŦ107]Ŵ ksŦ107]Ŵ ksŦ1SS]Ŵ

Þr|c|ng ,ethods
1o seL Lhe speclflc prlce level LhaL achleves Lhelr prlclng ob[ecLlvesţ managers may make use of several
prlclng meLhodsŦ 1hese meLhods lncludeť
O CosLŴplus prlclng Ŵ seL Lhe prlce aL Lhe producLlon cosL plus a cerLaln proflL marglnŦ
O 1argeL reLurn prlclng Ŵ seL Lhe prlce Lo achleve a LargeL reLurnŴonŴlnvesLmenLŦ
O IalueŴbased prlclng Ŵ base Lhe prlce on Lhe effecLlve value Lo Lhe cusLomer relaLlve Lo
alLernaLlve producLsŦ
O Þsychologlcal prlclng Ŵ base Lhe prlce on facLors such as slgnals of producL quallLyţ popular prlce
polnLsţ and whaL Lhe consumer percelves Lo be falrŦ
ln addlLlon Lo seLLlng Lhe prlce levelţ managers have Lhe opporLunlLy Lo deslgn lnnovaLlve prlclng models
LhaL beLLer meeL Lhe needs of boLh Lhe flrm and lLs cusLomersŦ lor exampleţ sofLware LradlLlonally was
purchased as a producL ln whlch cusLomers made a oneŴLlme paymenL and Lhen owned a perpeLual
llcense Lo Lhe sofLwareŦ Many sofLware suppllers have changed Lhelr prlclng Lo a subscrlpLlon model ln
whlch Lhe cusLomer subscrlbes for a seL perlod of Llmeţ such as one yearŦ AfLerwardsţ Lhe subscrlpLlon
musL be renewed or Lhe sofLware no longer wlll funcLlonŦ 1hls model offers sLablllLy Lo boLh Lhe suppller
and Lhe cusLomer slnce lL reduces Lhe large swlngs ln sofLware lnvesLmenL cyclesŦ

Þr|ce D|scounts
1he normally quoLed prlce Lo end users ls known as Lhe llsL prlceŦ 1hls prlce usually ls dlscounLed for
dlsLrlbuLlon channel members and some end usersŦ 1here are several Lypes of dlscounLsţ as ouLllned
O CuanLlLy dlscounL Ŵ offered Lo cusLomers who purchase ln large quanLlLlesŦ
O CumulaLlve quanLlLy dlscounL Ŵ a dlscounL LhaL lncreases as Lhe cumulaLlve quanLlLy lncreasesŦ
CumulaLlve dlscounLs may be offered Lo resellers who purchase large quanLlLles over Llme buL
who do noL wlsh Lo place large lndlvldual ordersŦ
O Seasonal dlscounL Ŵ based on Lhe Llme LhaL Lhe purchase ls made and deslgned Lo reduce
seasonal varlaLlon ln salesŦ lor exampleţ Lhe Lravel lndusLry offers much lower offŴseason raLesŦ
Such dlscounLs do noL have Lo be based on Llme of Lhe yearŤ Lhey also can be based on day of
Lhe week or Llme of Lhe dayţ such as prlclng offered by long dlsLance and wlreless servlce
O Cash dlscounL Ŵ exLended Lo cusLomers who pay Lhelr blll before a speclfled daLeŦ
O 1rade dlscounL Ŵ a funcLlonal dlscounL offered Lo channel members for performlng Lhelr rolesŦ
lor exampleţ a Lrade dlscounL may be offered Lo a small reLaller who may noL purchase ln
quanLlLy buL noneLheless performs Lhe lmporLanL reLall funcLlonŦ
O ÞromoLlonal dlscounL Ŵ a shorLŴLerm dlscounLed prlce offered Lo sLlmulaLe salesŦ

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