Pricing

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PRICING
→ → → → → → → Aarthi Manoharan Ajmal Khan R.Kanmani S.Karthikeyan S.Prashanth Sridharan G Vivin Joseph Raj G

Content
   Adapting   Initiating

Setting the price the price and responding to price changes

Price
 Price:   Not   Set   Utility:   Value:  

The monetary medium of exchange.

just a number on a tag. by negotiations between buyers and sellers.

The attribute that makes it capable of want satisfaction The worth in terms of other products

Buyers and Sellers


Buyers



Sellers

Get instant price comparisons from thousands of vendors.  Name their price and have it met.  Get products free.


 Monitor

customer behaviour and tailor offers to individuals.  Give certain customers access to special prices.


Negotiate prices in online auctions and exchanges.

o n o c E y m

d o o G e u l a V

Product Quality

r e p u S e u l a V

h g i H e u l a V

i m m u m ee rr P iP m u e u l ea u lV a V
High

Medium

M u i d e m e u l a V

c r e v O n i g r a h g

Marketing mix strategies on Price - Quality

Low High

o n o c E y m

e s l a F

O p i R f f

Price

Medium

Low

Setting the Price
 A firm

must set the price for the first time when it develops a new product, when it introduces its regular product into a new distribution channel or geographical area, and when it enters bids on new contract work. firm must decide where to position its product on quality and price.

  The


Setting Pricing Policy
1. Selecting the pricing objective 2. Determining demand 3. Estimating costs 4. Analyzing competitors’ costs, prices, and offers 5. Selecting a pricing method 6. Selecting final price

Types of Costs
Costs that don’t Costs that don’t vary with sales or vary with sales or production levels. production levels. Executive Salaries Executive Salaries Rent Rent

Fixed Costs Fixed Costs (Overhead) (Overhead)

Variable Costs Variable Costs
Costs that do vary Costs that do vary directly with the directly with the level of production. level of production. Raw materials Raw materials

Total Costs = Fixed cost + Variable Cost Total Costs = Fixed cost + Variable Cost for a given level of production for a given level of production

PRICING METHODS
Markup  Target  Perceived  Value  Going-Rate  Sealed-Bid

Pricing

Return Pricing Value Pricing

Pricing Pricing Pricing

ADAPTING THE PRICE
 Companies


usually do not set a single price, but rather develop a pricing structure.

 Strategies:
      

Geographical pricing (cash, countertrade, barter) Price discounts and allowances Promotional pricing Differentiated pricing

PROMOTIONAL PRICING
 Loss-leader

pricing Special-event pricing Cash rebates Low-interest financing Longer payment terms Warranties & service contracts Psychological discounting

Psychological pricing
A
32 oz.

$2 .1 9 $1. 99

•Most Attractive? •Better Value? •Psychological reason to price this way?

B
26 oz.

Assume Equal Quality

Differentiated pricing
Customer Segment Product-form Location Time

Initiating price changes
 Organizations


often need to cut or raise prices.

 Initiating
   


price cuts

Low-quality trap Fragile-market share trap Shallow-pockets trap Price-war trap

 Initiating
   

price increase

Delayed quotation pricing Escalator clauses Unbundling Reduction of discounts

Responding to price changes



HOMOGENOUS PRODUCTS  A firm can search for


NON-HOMOGENOUS PRODUCTS

ways to enhance its augmented product.  If the competitor raises its price, other firms might not match it if the increase will not benefit the industry as a whole.  Then the leader will need to roll back the increase.

 A firm

has more latitude  Needs to consider:
 



Why competitor changed the price? Temporary or permanent price change? What will happen to the company’s market share and profits if it does not respond?



Price-reaction program to meet a competitor’s price cut
Has competitor cut his price? Ye s Is the price likely to significantly hurt our sales? N o N o Ye s No Is it likely to be a permanent price cut? Ye s Hold our price at present level; continue to watch competitor’s price How much has his price been cut?

By less than 2% Include a cents-off coupon for the next purchase

By 2-4% Drop price by half of the competitor’s price cut

By more than 4% Drop price to competitor’s price

k an h T

!! u o y

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