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Pricing Policy in Marketing

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Pricing is one of the most important elements of the marketing mix, as it is the only mix, which generates a turnover for the organization.

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Pricing Policy in Marketing

  1. 1. Pricing Policy in Marketing Presented by: Rohit Ranganathan Copyright © 200 1 by McGraw-Hill Ryerson Limited
  2. 2. Agenda <ul><ul><li>Price competition and value pricing </li></ul></ul><ul><ul><li>Pricing strategies for market entry </li></ul></ul><ul><ul><li>Price discounts and allowances </li></ul></ul><ul><ul><li>Geographic pricing strategies </li></ul></ul><ul><ul><li>Special strategies </li></ul></ul>
  3. 3. Pricing <ul><li>Pricing is one of the most important elements of the marketing mix, as it is the only mix, which generates a turnover for the organisation. </li></ul><ul><li>Pricing is difficult and must reflect supply and demand relationship. Pricing a product too high or too low could mean a loss of sales for the organisation. (e.g. Honda Civic Hybrid) </li></ul>
  4. 4. Pricing Factors <ul><li>Pricing should take into account the following factors: </li></ul><ul><ul><ul><li>Fixed and variable costs. </li></ul></ul></ul><ul><ul><ul><li>Competition </li></ul></ul></ul><ul><ul><ul><li>Company objectives </li></ul></ul></ul><ul><ul><ul><li>Proposed positioning strategies. </li></ul></ul></ul><ul><ul><ul><li>Target group and willingness to pay. </li></ul></ul></ul>
  5. 5. Pricing Strategy <ul><li>How does a company decide what price to charge for its products and services? </li></ul><ul><li>Some firms have to decide what to charge different customers and in different situations (e.g. car dealer) </li></ul><ul><li>They must decide whether discounts are to be offered, to whom, when, and for what reason (e.g. frequent flyer) </li></ul>
  6. 6. Price vs. Non-price Competition <ul><li>In price competition, a seller regularly offers products priced as low as possible and accompanied by a minimum of services.(e.g. TATA Nano) </li></ul><ul><ul><li>With value pricing, firms strive for more benefits at lower costs to consumer. (Metro Cash-n-Carry) </li></ul></ul><ul><li>In non-price competition, a seller has stable prices and stresses other aspects of marketing (e.g. Mercedes Benz) </li></ul><ul><ul><li>With relationship pricing, customers have incentives to be loyal - get price incentive if you do more business with one firm. (Future Group Loyalty Card) </li></ul></ul>
  7. 7. Non-price Competition <ul><li>Some firms feel price is the main competitive tool; customers always want low prices (e.g. Big Bazaar) </li></ul><ul><li>Other firms are looking for ways to add value , thereby being able to avoid low prices (Apple) </li></ul><ul><li>Sometimes prices have to be changed in response to competitive actions (e.g. Low Cost Airlines) </li></ul><ul><li>Many firms would prefer to engage in non-price competition by building brand equity and relationships with customers (e.g. Kingfisher) </li></ul>
  8. 8. Relationship Pricing <ul><li>Uses price as a method to build long-term relationships with the best customers (IT Companies) </li></ul><ul><li>Focuses on giving better deals to better customers (Jet Privilege Program) </li></ul><ul><li>Goal is to price relative to the value of the customer to the firm, while building loyalty and stimulating repeat buying </li></ul>
  9. 9. The Price Determination Process <ul><li>In pricing, an organization first must decide on its pricing goal. </li></ul><ul><li>The next step is to set the base price for a product. </li></ul><ul><li>The final step involves designing pricing strategies that are compatible with the rest of the marketing mix. </li></ul><ul><li>Many strategic questions must be answered: </li></ul><ul><ul><li>Will our company compete on the basis of price or other factors? </li></ul></ul><ul><ul><li>What kind of discount schedule (if any) should be adopted? </li></ul></ul>
  10. 10. SELECT PRICING OBJECTIVE SELECT METHOD OF DETERMINING THE BASE PRICE: Cost-plus pricing Price based on both demand and costs Price set in relation to market alone DESIGN APPROPRIATE STRATEGIES : Price vs. non-price competition Skimming vs. penetration Discounts and allowances Freight payments One price vs. flexible price Psychological pricing Leader pricing Everyday low vs. high-low pricing Resale price maintenance The Process: An Illustration
  11. 11. Market Entry Pricing Strategies <ul><li>Market-Skimming Pricing : Setting a high initial price for a new product. </li></ul><ul><ul><li>Works if product is new, distinctive and desired </li></ul></ul><ul><ul><li>Early in Product Life Cycle, when demand inelastic </li></ul></ul><ul><ul><li>Protected by entry barriers, e.g. patents </li></ul></ul><ul><ul><li>(e.g. Mitsubishi Pajero) </li></ul></ul><ul><li>Market-Penetration Pricing: Setting a low initial price for a new product. </li></ul><ul><ul><li>Works if large market, elastic demand </li></ul></ul><ul><ul><li>Economies of scale are possible </li></ul></ul><ul><ul><li>Fierce competition </li></ul></ul><ul><ul><li>(e.g. TATA DOCOMO) </li></ul></ul>
  12. 12. Discounts and Allowances <ul><li>Quantity discount: The more you buy, the cheaper it becomes. (Megamart) </li></ul><ul><li>Trade discounts : Reductions from list for functions performed - storage, promotion. </li></ul><ul><li>Cash discount : A deduction granted to buyers for paying their bills within a specified period of time , ( after first deducting trade and quantity discounts from the base price ) (MSEDL) </li></ul>
  13. 13. Other Discounts and Allowances <ul><li>Seasonal Discounts (e.g. Shoppers Stop Season Sale) </li></ul><ul><li>Promotional Discounts (e.g. launch of a new product / service) (Aircel launch in Mumbai) </li></ul>
  14. 14. The Competition Act <ul><li>Predatory pricing: Selling at unreasonably low prices to lessen competition.(Local Broadband provider) </li></ul><ul><li>Price discrimination : The use of different prices for different customers. </li></ul><ul><ul><li>It is illegal if a price advantage is granted to one, but not another, where both compete and the articles are similar. </li></ul></ul><ul><ul><li>(Car Dealers) </li></ul></ul>
  15. 15. Geographic Pricing Strategies <ul><li>Point-of-Production pricing: Price quoted at factory - buyer pays transportation. (factory outlets) </li></ul><ul><li>Uniform delivered pricing: Same delivered price quoted to all; works if transportation costs small. (Maggi) </li></ul><ul><li>Zone-delivered pricing: Set same price within several zones, e.g. Bread </li></ul><ul><li>Freight-absorption pricing: Seller absorbs transport cost to penetrate market. (Sangam Direct) </li></ul>
  16. 16. Psychology of Pricing <ul><li>The psychology of pricing suggests that price will convey a message about the product or service being sold </li></ul><ul><ul><li>leader pricing </li></ul></ul><ul><ul><li>bait pricing </li></ul></ul><ul><ul><li>prestige pricing </li></ul></ul><ul><li>Price lining involves setting prices at a small number of fixed levels within a retail store </li></ul>
  17. 17. Questionable Pricing Practices <ul><li>Resale price maintenance involves a supplier requiring that intermediaries sell a product at a certain price. </li></ul><ul><li>Some firms reduce prices, possibly even below cost, to attract customers; this form of “loss-leader” pricing is not illegal unless it persists for a long time with the goal of eliminating competition (predatory pricing) </li></ul>
  18. 18. THANK YOU

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