Amity Business School

Marketing Management-11
Course Code: BBA 402

Module III
Pricing Considerations and Strategies
Dr. Mini Agrawal
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You will learn to:

Introduction to various objectives of

pricing

Pricing Process

Adapting the price: Concept of

geographical pricing, Promotional pricing,
Discriminatory pricing

Understanding various pricing strategies

and their application.
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Pricing Considerations and

Strategies
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Pricing Considerations and Strategies

What is Pricing?

Price is the amount of money needed to acquire a product. It is the

cost that has to be incurred by the buyer to acquire a product or
service.

Economist defines price as the exchange value of a product or

service, always expressed in money. Price is the amount charged
for the product or service including any warranties or guarantees,
delivery, discounts, services or other items that are part of the
conditions of sale and are not paid for separately.
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Pricing Considerations and Strategies

To the buyer price is a package of expectations and satisfactions.

Thus, price must be equal to the total amount of benefits (physical,
economic, social ecological and psychological benefits). However,
to the seller, price is a source of revenue and a main determinant of
profit.

Pricing is equivalent to the total product offering. This offering

includes a brand name, a package, product benefits, service after
sale, delivery, credit and so on.
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Factors Influencing Pricing

• Product characteristics:, i.e., the product life cycle, the product
perishability, the product substitution and demand variability,
etc.

• Product cost: While making marketing strategy, the decision

makers should attempt to optimize the cost. The cost
optimization helps in determining reasonable price which
provide equitable return on the cost employed vis-à-vis suits the
customers’ buying power. In order to optimize the cost of the
product, the decision-makers should study different types of
cost, viz., fixed cost, variable cost, and incremental cost.
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Factors Influencing Pricing

• Objectives of the firm: The objectives set by the firm also
influence the prices of its products. For example, if the firm
adopts skimming objectives, then the price would generally be
high. On the contrary, if the firm adopts the market penetration
as its objective, the price would normally be low.

• Competitive situation: The magnitude of competition existent

in the market also affects prices. If the marketing manager finds
that the magnitude of competition is high, prices tend to be
normally low. On the contrary, in the situation of low
competition, the prices would be higher due to favourable
market environment.
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Factors Influencing Pricing

• Demand for the product: The fact remains that among the
various factors, the demand for the product concern is found
exceptionally instrumental in guiding the pricing decisions. As
per the law of demand, if there is more demand for the product,
prices will be high and if there is low demand for the product,
prices will be low. However, essential goods like salt are
exception to this law of demand in affecting the price of the
product.
Besides, seasonal nature of demand can also affect pricing
policy by making it possible to alter prices with the high and
low seasons of demand for the product. For example, with high
demand for flowers, fruits, and sweets during Deepawali prices
increase and decrease during post-Deepawali period.
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Factors Influencing Pricing

• Customers’ behaviour: In making pricing decisions, the study of
customers’ behaviour bears significant relevance,, if the marketing
manager has to deal with the industrial consumer, the pricing
decisions would be different. On the other hand, if she has to deal
with the general consumers, the pricing decisions would be
somewhat distinct.

• Government regulations: While deciding pricing policy, the

decision maker does not need to underestimate the Government
regulations imposed from time to time to control the business
activity in the country. Therefore, due weightage should be
assigned to such regulations like Essential Commodities Act,
Monopoly and Restrictive Trade Practices Act, etc.
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Pricing Objectives

Profit Oriented Sales Oriented Status Quo

Maximization of To Penetrate the

Growth in Sales
Profits Market

Counter
Target R.O.I. Market Share
Competition

Meet Competition
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Pricing Objectives
Maximizing the current profits: Many firms try to maximize their
current profits by estimating the Demand and Supply of goods and
services in the market.

Control Cash-flow: A principal pricing objective is to return cash as

much as possible (the funds invested) within a given period.
Investment in research and development, market development,
promotion, etc.,should pay back within a specified period. Capital
expenditure on any project must be recovered within 5 to 10 years.
(in the early phase of the product life-cycle)
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Pricing Objectives
Growth in Sales: A low price can achieve the objective of increase
in sales volume. A low price is not always necessary. Competitive
price, if used wisely, can secure faster increase in sales than any other
marketing weapon.

Market Share: Price is typically one of those factors that carry the
heaviest responsibility for improving or maintaining market share —
a sensitive indicator of customer and trade acceptance.
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Pricing Objectives
To penetrate the market: Many firms enter the market by charging
a very low price for the product. Example: Low-price Chinese toys
have flooded the market.

Counter Competition: Many firms follow a flexible pricing policy

to counter competition. Prices are to be varied depending upon
market condition.

Meet or Follow Competition: Many firms desire the stabilization of

price levels and operating margins as more important than the
maintenance of a certain level of short-run profits. The price leader
maintains stable prices in the industry. Follow the leader.
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Pricing Process

Determini
Choosing ng the
your final price
Analysing
Competit pricing
Estimatin method
g costs – ors’ Costs,
Determini Prices,
ng ensuring
Selecting profits and
the demand Offers
pricing
objective
 Activity Amity Business School

What’s the Right Price?

At what price should
you sell these
product?

• Water Bottle
• Taxi Services
• Gum Boots
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Price Adaptation Strategies

Adapting the price that can bring the most customers

to buy your product can be competitively
advantageous.
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Price Adaptation Strategies

Geographical Pricing

Promotional Pricing

Discriminatory Pricing
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Geographical Pricing
Geographical Pricing is a way of pricing the product depending
upon the location of buyer. Marketer can sell product at different
prices in different locations.

For example, a product being sold in India at ₹100 can be charged

at $2.47 (₹180) in the US. Not only price can differ within
countries, but it can also vary within cities or districts.
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Geographical Pricing
Geographical pricing is affected by the following aspects:
• Transportation or shipping cost
• Consumption levels of the consumers
• Price sensitivity of the consumers
• Presence of competitors
• Exchange rates
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Promotional Pricing
A promotional price adaptation strategy is the approach of reducing
the price of the product on a temporary basis to attract customers to
buy your product.
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Promotional Pricing
The types of promotional price adaptation strategy are as follows:

Loss-leader pricing: This pricing is mainly adapted to get

consumers in the store and increase brand awareness. In this case,
the prices of the products might be even lower than the cost of their
production, but the strategy is such that the lower price of the
product is what bring consumers in the store and they buy in
volume.

https://youtu.be/XduHK6XRxSo
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Promotional Pricing
The types of promotional price adaptation strategy are as follows:

•Special Event Pricing: Remember headlines like “This Diwali

Season, get everything at 50% off” or “Enjoy a candlelight
dinner with your Valentine under just ₹999”. This pricing is
changed or adapted based on any special event to bring
customer traffic.

•Special Customer Pricing: This is based on the type of

customers. Generally, loyal customers are said to gain the
most benefits. For example, a gold card member at
Pantaloons might get larger discounts than a green
cardmember.
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Promotional Pricing
The types of promotional price adaptation strategy are as follows:

•Cash Rebates: This pricing includes giving refunds to

customers who buy from you within a specified time.

•Low-Interest Financing: Here, do not cut the price of

product, but give low-interest financing. An example of this is
smartphone companies providing easy EMIs with a low-
interest rate.

•Warranties and Service Contracts: can increase sales by

giving extended, low cost or free warranties and service
contracts to the customers.
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Promotional Pricing
The types of promotional price adaptation strategy are as follows:

Psychological discounting: play with the customer’s mind,

the price-setters simply feel that certain prices for certain
products are psychologically appealing.
For Example, a little by excessively increasing the price of the
product and then giving heavy discounts.
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Discriminatory Pricing
Price discrimination is a pricing strategy whereby firms sell the
same products or services at different prices in different markets.
The prices can either be more or less, given the ability of the
consumers to pay and their consumption habits and situations.

Customer will be charging the same product or service at different

prices depending upon the consumer segment, channel, form of the
product, location etc.

The price discrimination strategy is most effective in a

monopolistic market, where sellers can determine the prices
without obeying any standard pricing mechanisms, rules, or laws.
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Discriminatory Pricing

The types of discriminatory pricing are

Customer Segment Pricing: The practice of charging different

customer segments, different pricing is called as customer segment
pricing. These can be based on gender, age, income etc. For
example, it is purely a gender-based customer segment pricing,
where discounts are offered only to the ladies.

Product-form Pricing: Pricing based on the different versions or

forms of the product is called product-form pricing. For example, a
100gm bottle of Nescafe Classic coffee is priced at ₹290, but the
same coffee is priced at ₹10 less for a 100mg sachet.
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Discriminatory Pricing
Optional Product Pricing: Companies will attempt to increase the
amount customers spend once they start to buy. Optional ‘extras’
increase the overall price of the product or service. For example,
airlines will charge for optional extras such as guaranteeing a
window seat or reserving a row of seats next to each other, aisle
seats. Again, budget airlines are prime users of this approach when
they charge you extra for additional luggage or extra legroom.
Automobile industry also uses it for accessories fitting.
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Discriminatory Pricing
The types of discriminatory pricing are
.
Image Pricing: Giving different prices based on image differences
is called image pricing. For example, a company selling something
called as moisturizer classic for ₹100, and the same product called
as moisturizer crème for ₹200.

Channel Pricing: Prices might differ across various channels such

as offline or online, retailer or wholesaler. For example, when you
visit a restaurant, a dish would be priced higher than the same dish
ordered on Zomato.
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Discriminatory Pricing
The types of discriminatory pricing are

Time Pricing: Ever observed that the price of roses goes up like
crazy during Valentines, or the concert tickets priced lowered for
those who buy one week just after the launch of the tickets. Here,
prices are dependent on timing, the timing of when you buy the
product.
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Other Pricing strategies and

their Application
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Pricing Strategies
Mark-up pricing: This method is adopted by wholesalers and
retailers in establishing a sale price. When the retailers or
wholesalers fix the selling price, they add a certain percentage to
their cost price. For example, an item that costs Rs. 20 may be sold
for Rs. 25. Here the “mark-up price” is Rs. 5 or 25 per cent.

Premium Pricing: Premium pricing is a mix of ‘What the traffic

will bear’ idea and the ‘value for money’. Marketer has a premium
product, i.e., superior quality/good variety. Thus, he is ready to
adopt premium pricing strategy. Premium pricing can give rich
dividend when buyers are not price conscious and they are willing
to pay higher price if they get a better product and wider choice.
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Pricing Strategies
Skimming Pricing/Skim-the-cream pricing: This method is
followed while launching a totally new product into the market.
Under this policy, a high price is initially fixed to skim the cream of
the market and the price moves downwards step by step until the
right price is reached. The idea is that when the marketer is not sure
about what price he has to charge, it is advantageous to begin with
high initial price and move systematically downwards. It is easier
to start with a high price and. then reduce it, than to start with a low
price and then try to raise it. The skimming price policy will
produce more income in the early stages of a product life cycle
[PLC] only when the top of the market is insensitive to price and
willing to pay what is asked.
Example: In the case of books, this method is followed by having a
high price for the first/deluxe edition and lesser prices for
subsequent editions
 Pricing Strategies Amity Business School
Captive Product Pricing: It is a type of pricing which focuses on
captive products accompanying the core products. For example, the
ink for a printer is a captive product where the core product is the
printer. When employing this strategy companies usually put a
higher price on the captive products resulting in increased revenue
margins, than on the core product. Blades are another example –
while the razor may be cheap, the twin blade or Mach 3 blades are
not. Once you buy specific disposable razor, you must continue to
buy specific types of blades from the same manufacturer as other
blades will not fit the razor.
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Decoy Pricing Strategy:Decoy pricing strategy is a tactic used to

boost the sales of a high profit earning item. The marketers create
another version of the product so that the consumers can compare
the products economically. The new version of the product is priced
just below the highest priced product. This leads to ‘decoy effect’.
Decoy effect leads customers to purchase the expensive product
rather than their primary choice.
The decoy pricing strategy is implemented when the products are
offered in three varieties. The business may want to offer three
options to their customer base with honest intention.
Activity Amity Business School

Apple and Xiomi both

claim to pursue the
customer value route in
pricing. Do you agree?

Organize data on the

pricing strategy of both
companies and
substantiate your views.
 Summary Amity Business School

In this module you learnt that:

Pricing is equivalent to the total product offering. This offering

includes a brand name, a package, product benefits, service after
sale, delivery, credit and so on.
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References
• Kevin Keller(2012)Strategic Brand Management: Global Edition
Pearson
• Kotler Philip Marketing Management, Eleventh Edition,
Pearson. References:
• Kotler Philip and Armstrong Gray, Principles of Marketing,
Eleventh Edition, Pearson Education.
• Ramaswamy VS, Namakumari S, Marketing Management,
Planning Implementation & Control, Third Edition, MacMillan
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Thank You