MARKETING MANAGEMENT II

BM5302

ASSIGNMENT NO-2

SEC-E
BATCH-2022-2024

Smruti Ranjan Palai-22202278

Sambit Swain-22202265
Debasis Panda-22202243
Mayuresh Dash-22202253
Arya Punyashlok-22202355

Q1. Explain the following Product Launch Pricing Strategies with examples:
a. Price Skimming
b. Market Penetration Pricing

Price Skimming - Price skimming is nothing but a product price strategy in

which a company or firm charges a high price for a product when it launches a
product and the customer have to pay a hefty price initially and overtime it
reduces the price to a more affordable rate as the product gets a little older in
the market and also when more and more competition enters into the market
which results in attracting customers who are more price sensitive.
A price skimming strategy enables a firm to gather as much revenue as
possible initially when the product is new to the market and there is relatively
no or less competition in the market with the similar offerings. and once those
goals are met it can target a new customer group which are price conscious
and also compete with the competitors that have entered into the market.
For an Example Apple iPhone, for example – often
utilize a price skimming strategy during the initial
launch period. Then, after competitors launch rival
products, i.e., the Samsung Galaxy, the price of the
product drops so that the product retains a
competitive advantage

Market Penetration Pricing -

Penetration pricing is a marketing strategy that some firms adopts during the
launch of a new product or service in the market. In this Strategy a firm sets or
launches new product in a really low price in order to attract or target a wider
range of customer during it’s initial offering.  The lower price helps a new
product or service penetrate the market and attract customers away from
competitors. Market penetration pricing relies on the strategy of using low
prices initially to make a wide number of customers aware of a new product.
The intended goal of a price penetration strategy is to entice as much as
customers possible to try the newly launch product and build market share
with the hope of keeping the new customers once prices rise back to normal
levels.
 If I would come up with an example of penetration pricing the
first example that comes to my mind is jio as in recent years it
has emerged as a juggernaut in Indian telecom sector , It
initially during the launch of it’s sim cards had adopted this
strategy as it was offering free sim cards to the Indian
consumer with unlimited 4G internet and slowly as the day
progressed it has increased its pricing.

Q2. What is Price Elasticity? Explain with a quantitative numerical example.

When Price Elasticity is low and when is Price Elasticity high? Explain with
examples.

Price elasticity is nothing but a concept which measures how the consumption
or the demand of a product or service changes as the price of that product or
service changes.
The more elastic a product is it tends to fluctuate as the price fluctuate and
inelastic product tend to have low impact in it’s demand as the price increases
or decreases.
It is mathematically expressed as:
Price Elasticity of Demand = Percentage Change in Quantity Demanded ÷
Percentage Change in Price
If the above calculation gives a result greater than 1 then the product is elastic
in nature i. If it is less than 0 then the product or service is inelastic in nature
and if the it results in 1 then it is unitary.
Economists use price elasticity to understand how supply and demand for a
product change when its price changes.

Goods which are considered not necessary and tend to have more substitutes
have high price elasticity as a customer has always an often of opting or
choosing a substitute product. for an example if I look at a service of spa the it
is highly elastic in nature as it can be omitted by customers as it is considered
as low on necessity scale and consumers of the service could manage without
it .
Similarly product like chicken is also be counted as price elastic as it has
substitutes like fish , mutton and paneer and a consumer who consumes
chicken would not have much problem in sifting to those substitute products in
case of inflation of the price of chicken.
At the other end if I will talk about the products with price inelasticity are
necessary products and there is few or no substitutes of the same. And it is not
the only reason of a product being piece Inelastic other reasons like if the price
of the product is a small part of the buyers income, If the cost of the product is
borne by other party or if the product is something that is being purchased
infrequently it can lead to a product being price inelastic.
For example if I will talk about life saving medicines like insulin , For people
with diabetes who need insulin, the demand is so great that price increases
have very little effect on the quantity demanded. Price decreases also do not
affect the quantity demanded; most of those who need insulin aren't holding
out for a lower price and are already making purchases.

Q3) Explain the following Pricing methods examples:

a. Cost-based Pricing or Input based Pricing
It is a pricing strategy that emphasizes production costs when determining
product selling prices.
Example: Ryanair and Walmart use cost-based pricing as a key pricing strategy
allowing greater competitive advantage through lower prices.
b. Competition-based Pricing or Going Rate Pricing
It is a pricing strategy that adjusts prices in response to changes in rivals'
prices. The product pricing is only tied to competitor prices and is decoupled
from a customer's desire to pay or the worth of the product.
Example: Competitor-based pricing strategy between Pepsi and Coca-Cola.
Both brands compete against each other over pricing, quality and features, and
their prices remain similar
c. Consumer-based Pricing or Perceived Value Pricing
It is the process of determining prices based on how much customers think a
company's products or services are worth. This model's underlying
presumption is that a consumer will pay a particular amount when the value
they receive outweighs the cost.
Example: A customer doesn’t buy a drill to have a drill. They buy a drill to hang
up shelves, mount a TV, or even build a garden bed.

Q4) Explain the following Consumer References with respect to Pricing, along
with examples:
a. Fair Price: A fair price is the price point of a good or service that is fair to
both parties involved in the transaction. This also refers to what consumers
feel the product should cost. Example: A fair price for a new car might be 4-5
Lakhs.
b. Typical Price: Typical price refers to the average price of a good or service. It
is calculated by adding high, low, and closing prices together and then dividing
by three.
Example: Price of stocks in the market
c. Last Price Paid: This refers to the most recent price that the consumer has
paid for a product or service. Example: A consumer bought a laptop for
1,00,000, so the last price paid is 1,00,000.
d. Historical Competitor Price: This refers to setting a price by analysing the
price set by the competitor for a similar product or service.
Example: If a company is newly launching soap in the market and a competitor
in the marketing is selling soap for Rs 30, so the historical competitor price is
Rs 50.
e. Expected Future Price: The price that the consumer expects to pay for a
product or service in the future. The consumer can expect that the price can
either rise or fall in the near future.
Example: Gold rates. A consumer expects the gold rate might increase in the
future, so tend to buy gold, when the price is low.
f. Usual Discounted Price: The price that the consumer pays after discounts or
promotions or coupons have been applied. Example: If the price of a good is Rs
50 and after applying the coupon, the discounted price would be Rs 40.
g. Price Quality Inferences: Many consumers use price as an indicator of
quality. Image pricing is especially effective with ego-sensitive products.
Example: Price and quality
perceptions of cars: Higher-priced cars are perceived to possess high quality.
Higher-quality cars are likewise perceived to be higher priced than they
actually are.
h. Price Endings: Many sellers believe prices should end in an odd number.
Customers see an item priced at Rs.299 as being in the Rs.200 rather than the
Rs.300 range; they tend to process prices “left-to-right” rather than by
rounding. Price encoding in this fashion is important if there is a mental price
break at the higher, rounded price.
i. Upper-Bound Price: The highest price at which the consumer is willing to
purchase a good or service. Example: A consumer might be willing to pay Rs
5000 for a dress, but not Rs 7000. Here the upper-bound price is Rs 5000.
j. Lower-Bound Price: The lowest price at which the consumer is willing to
purchase a good or service. Example: A consumer might be willing to pay Rs
5000 for a dress, but not less than Rs 3000. Here the lower-bound price is Rs
3000.
Q5. Explain the following pricing mechanisms with examples:
a. Rebates
b. Dealer incentives
c. Loyalty cards
d. Freemium pricing
e. Free to fee pricing
f. Auctioning
g. Free

Ans.
a. Rebates are a form of retrospective payment for a product or service
that was purchased or attained by a consumer which reduces the price of the
product/service. It is like a discount but unlike a discount where the reduction
in price is immediate, whereas in rebates the money is returned some time
after the full payment is done.
Eg. Cashback programs in many e-commerce websites are a form of rebate.
b. Dealer incentives are a form of impetus provided to dealers by the
manufacturer in order to encourage them to sell a particular product. This
corporate sales approach typically entails lowering the price a dealer pays to
purchase an item from a manufacturer, which raises the dealer's profit when
the item is sold.
Eg. Car manufacturers give rebates to car dealers when they purchase specific
models from the manufacturer to sell to customers.
c. It is a marketing strategy in which a company identifies the customer as
loyal and gives the customer special discounts, cashbacks, rewards and other
such incentives to them. This can help increase customer loyalty and improve
customer retention.
Eg. Starbucks has a Starbucks Rewards program for its customers who pay for
their orders using their app. They give users special discounts and points for
using the app regularly.
d. Freemium is derived from the words free and premium. In this kind of
pricing, companies offer the customers a service having a free option as well as
having a paid option. Usually the free version of the product has limited
features compared to the paid version or it may have ads or the customer may
be able to access it only a limited number of times. The premium version is
usually devoid of any limits. With the growth of SaaS, this model has become
more popular.
Eg. Cloud storage services such as Google Drive, OneDrive and Dropbox offer
their services using this model.
e. In this model, service providers often offer a service as a free trial to its
consumer for a certain period of time. After users use this service for free for
some time, then in order to use the service in the future they must pay to
access the service.
Eg. Netflix, Amazon Prime Video and other such streaming services often use
this method of pricing in order to encourage people to sign up for their service.
f. This is a process of setting a price of a good or service by offering it up
for bids from the buyers. The bidders then offer bids for the product or service.
The seller then decides to sell to the buyer with the highest price.
Eg. In rural India, cattle are often sold by auction.
g. Free pricing is when a company offers its products or services for free to
its customers and has an alternative source of generating revenue from giving
these services.
Eg. Google offers Gmail, Google Photos etc. for free to its users and makes
money by using customer data to target users with advertisements relating to
their data.

Q6. Explain the following Product-Mix Pricing Methods with examples:

a. Product-line pricing
b. Optional-feature pricing
c. Captive-product pricing
d. Two-part pricing
e. Product-bundling pricing
Ans.
a. It is a pricing strategy used by companies in which they release different
versions of the same product at different price points with each variant having
features respective to their price.
Eg. Hotels have rooms that have increasing facilities and luxuries the more they
increase in price. There are basic rooms with minimum amenities as well as
luxurious suites with multiple rooms, private swimming pools etc.
b. Optional feature pricing is a pricing strategy where the company sells
the main product at a lower price than normal and then sells accessories
(optional products) for that product at a higher price to make up for selling the
original product at low prices.
Eg. Inkjet printers are sold by companies such as HP, Nikon and Canon at cheap
prices. They however sell the ink cartridges for these printers at a very high
cost.
c. Selling one primary product and numerous auxiliary, or captive, items is
known as a captive product pricing approach. Customers must buy captive
products in order to use or benefit from the core products, which means that
the captive products complement the core products.
Eg. Razor blades are an example of this kind of pricing strategy. Usually the
razor comes with a couple of blades but when the bladder becomes dull, the
customer only needs to buy new blades compatible with the razor. This
repeated purchase of blades can lead to a large amount of profit.
d. In two-part pricing usually a product or service has two prices, a fixed
sum and a pay per unit charge.
Eg. In some credit cards, there is a fee that needs to be paid at the time of
availing & a fee that needs to be paid on every transaction.
e. In product bundling strategy in pricing, the company packages two or
more complementary products are packaged and sold together at a price that
is lower than if the customer would have bought the products individually.
Eg. In McDonald’s, there are many combo meals that club together burgers,
fries and a soft drink at prices that are lower than buying those items
individually.

Q7. Explain the following Price Adaptation Methods with examples:

Ans- A. Third-degree Discrimination- Third-degree discrimination, also called
group pricing, occurs when the seller charges different prices in different
markets or charges a different price to different segments of customer.
For example- when an individual wants to book a train ticket, prices for the
same train are different depending on if you are a minor, adult, senior or
employee.
B. Second-degree Discrimination- Second-degree discrimination occurs when a
consumer is charging in a different price depending on how much is consumed
or how many times they purchase.
For example- volume of purchases, time of purchases
C. First-degree Discrimination- First-degree discrimination occurs when the
seller charges the highest price each consumer would be willing to pay for the
product.
For example- personal services like consultancy, customization product

Q8. Explain the following promotional Price Adaptation Methods:

a. Loss-leader Pricing
b. Special Event Pricing
c. Special Customer Pricing
d. Cash Rebates
e. Low-interest Financing
f. Longer Payment Terms
g. Warranties and Service Controls
h. Psychological Discounting

Ans- A. Loss-leader Pricing- This type of marketing strategy mostly used

by the companies or firms who are the beginners in the market to increase
their brand value and existence in the market. In this strategy they sell the
product with cheaper cost than the cost of production which is not profitable
but to attract the customers this strategy has been utilized.
B. Special Event Pricing- In this strategy every seller offer’s discount to
their product which is to be sold in the market during a special occasion or
event and the price of the product is lesser than the ordinary price. This
strategy is applied to attract customer and to increase the sales in the festive
season.
 C. Special Customer Pricing- list is a collection of costs that pertain to a
single customer individually. Alternatively, to a number of distinct clients that
have been designated to this price list.
D. Cash Rebates- Money refunded to customers who buy commodities
from retailers within a specified time; the rebate allows dealers to clear
inventories without cutting list price.
E. Low- interest financing- It is commonly used by automakers, low
interest or even no-interest financing is used to attract customers instead of
cutting prices.
F. Longer payment terms- It is a strategy companies use to delay
payments of invoices. It is usually a bit longer-than-normal period, which can
sometimes exceed 120 days or more. This is mainly done to encourage
customers to purchase with a intent that they will have to pay later
G. Warranties and service controls- are the after-purchase attributes
given by the producers/seller’s side to the customers. Here they give this
attribute at a low cost or free of cost to attract the customers. Sometimes
sellers even extend the warranty period of particular product.
H. Psychological Discounting- Seller attempt to manipulate the buyer's
perception by artificially inflating the cost of the good before offering steep
discounts. You may see an example of psychological discounting in the image
below.

Q9) Explain the following methods of managing Price Increase with examples
a. Delayed Quotation Pricing: A price tactic that tries to get consumers into a
store through false or misleading price advertising and then uses high-pressure
selling to persuade consumers to buy more expensive merchandise.
b. Unbundling: Unbundling is a process by which a company with several
different lines of businesses retains core businesses while selling off, spinning
off, or carving out assets, product lines, divisions, or subsidiaries. In 2001, Cisco
unbundled a division that became Andiamo, but it retained some ownership
because it wanted to be involved in the development of a new product line
that would give it a competitive advantage.
c. Reduction of Discounts: Eliminating Discounts With Value-Selling Buyers
trade money for value. The more value they perceive, the more money they
will spend. An example of a seller who offers a 2% discount on an invoice due
in 30 days if the buyer pays within the first 10 days of receiving the invoice.
d. Increasing the price gradually: A product that is selling well might be a good
candidate for a price raise so you can increase your profits on it. Additionally,
you will want to keep an eye on new products. Example: If you started selling a
new product at a lower price so that it could gain traction, you have to know
when it has actually caught on so that you’ll know when to raise the price.
e. Moving low-visibility prices first: A pricing strategy in which a company
offers a relatively low price to stimulate demand and gain market share.
Everyday Low Pricing
Example: Walmart, The major retailer offers low prices to consumers
throughout the year, instead of offering low prices during sale even .The
company adopted the strategy following its founding, building its reputation
on being the store that offers consumers the lowest prices every day
f. Increasing minimum order size: Minimum Order Quantity (MOQ) is the least
number of product units a seller must purchase from a supplier at one time. If
a seller doesn’t purchase the minimum quantity, the supplier does not sell him
the product. For example- you are an ecommerce seller that sells stationery
items. Your supplier's Minimum Order Quantity (MOQ) for a category of pens
is 100; this means that you can’t purchase less than 100 pens in one go.
g. Product amount reduction: A price reduction can help interest potential
customers who may not have been interested before. However, if you plan on
cutting prices, you need to implement effective price reduction strategy
marketing.
h. Substituting ingredients: Substitute products offer consumers choices when
making purchase decisions by providing equally good alternatives, thus
increasing utility. The benefit of substitute products is that they provide
consumers with variety when choosing goods to satisfy their needs. On the
other hand, companies will incur more costs to develop competitive offerings
and promote them as the best in the market.
i. Reducing features/services: International Business Machines (IBM),
nicknamed "Big Blue," is an American multinational technology company that
had its breakthrough in the 1960s with the IBM System/360– a family of
computers designed to cover the complete range of applications.In the early
1990s, IBM failed to adjust to the personal computer revolution and thus
began its downfall. The company changed its focus back on hardware instead
of software solutions. After several transitions, IBM is one of the most potent
names in enterprise software.
j. Packaging changes: Packaging industry is more than just packaging to
consumers today. Consumers, distributors, retailers and food producers are
looking for fresher, more thoughtful packaging solutions that has minimum
negative impact on the environment. The right kind of packaging will catch the
eye of consumers, and it will also differentiate the product from the potential
business competitors. A strong packaging strategy will also act as a marketing
tool, informing the consumer what the brand is about. For instance, swiggy
introduced extra protective double-layered packaging to the food keeping it
fresh and safe, while Nature’s Basket are switching to single-use paper bags
that can be disposed after use.
k. Creating economy brands: Brand Economics quantifies how much your
Brand contributes to your bottom line. It puts a tangible value on an intangible
asset. Those who do not believe this is possible stick to the safety of lumping
Brand into a company's Goodwill. That might have been good enough once,
but no longer

10. Solve the following numerical questions on Pricing:

a. A shoe store uses a 40% ’mark-up on cost’. Find the cost of a pair of shoes
that sells for $63.
b. XYZ Company is a company that manufactures small gadgets. Its variable
costs are $50 per gadget and its fixed costs equal $1,000. If the company
implements a 30% mark-up rate, how much should each gadget sell for,
assuming 500 gadgets are sold in total for the year?
c. Variable Cost = Rs 10 per unit; Fixed Cost = Rs 3,00,000; Expected Unit Sales
= 50,000 units; Desired ‘mark down on Sales’ or ‘Gross Margin percent’ = 20%.
Calculate Selling Price per unit
d. Variable Cost = Rs 10 per unit; Fixed Cost = Rs 3,00,000; Expected Unit Sales
= 50,000 units. Total Investment = Rs 10,00,000. Desired ‘Return on
Investment’ = 30%. Calculate Selling Price per unit.
Answers:
a. To find the cost of the shoes, we need to use the formula: cost = (selling
price) / (1 + markup percentage)
In this case, the markup percentage is 40%, so we can plug that into the
formula: cost = $63 / (1 + 0.40)
Simplifying this, we get: cost = $63 / 1.40
Which is equal to $45
b. A 30% markup rate means that the price of a product is 30% higher than the
cost of producing it. To calculate the selling price of each gadget, you can use
the following formula:
Selling Price = (1 + markup rate) * Variable Cost So, in this case. Selling Price =
(1 + 0.3) * $50 Selling Price = $65 Therefore, each gadget should sell for $65 to
achieve a 30% markup rate. If the company sells 500 gadgets in total for the
year and has a fixed cost of $1000, the total revenue would be
65*500=$32,500.
c. Desired Gross Margin Percentage = 20% Total Variable Cost = Variable Cost
per unit x Expected Unit Sales = 10 x 50,000 = 5,00,000 Total Cost of Goods
Sold = Total Variable Cost + Fixed Cost = 5,00,000 + 3,00,000 = 8,00,000
Desired Selling Price = Total Cost of Goods Sold / (1 - Desired Gross Margin
Percentage) = 8,00,000 / (1 - 0.2) = 8,00,000 / 0.8 = 10,00,000 Selling Price per
unit = Desired Selling Price / Expected Unit Sales = 10,00,000 / 50,000 = Rs 20
per unit
d. To calculate the selling price per unit, we need to first calculate the total
cost of production. This can be done by adding the fixed costs and the variable
costs for the expected unit sales.
Total cost of production = Fixed Cost + (Variable Cost x Expected Unit Sales) =
3,00,000 + (10 x 50,000) = 3,00,000 + 5,00,000 = 8,00,000
To calculate the desired return on investment, we need to multiply the total
cost of production by the desired return on investment percentage. Desired
return on investment = Total Investment x (Return on Investment / 100) =
10,00,000
x (30 / 100) = 3,00,000
To calculate the selling price per unit, we need to add the total cost of
production and the desired return on investment.
Selling Price per unit = Total cost of production + Desired return on
investment / Expected
Unit Sales = 8,00,000 + 3,00,000 / 50,000 = 11
Therefore, the selling price per unit is Rs 11.

*** THANK YOU ***