Pricing Strategies

(Lecture Slide 7)

By
Dr Md Tamhid Ul Islam
What is price?

❑ The amount of money charged for a

product or service, or the sum of the
values that customers exchange for the
benefits of having or using the product
or service. There can be different pricing
strategies, such as:
❑ Customer value-based pricing
❑ Cost-based pricing
❑ Competition-based pricing

Md Tamhid Ul Islam 2
Pricing Strategies

Customer value– Cost-based pricing: Competition-based

based pricing: Setting prices based on the costs pricing:
Setting price based on of producing, distributing, and Setting prices based on
buyers’ perceptions of selling the product plus a fair competitors’ strategies,
value rather than on rate of return for effort and risk. prices, costs, and
the seller’s cost. There are two types of costs: market offerings.

Fixed costs: Cost that do not vary with

production or sales level

Variable costs: Costs that directly

vary with level of production

Md Tamhid Ul Islam 3
New Product Pricing

❑ Market Skimming Pricing

• Setting a high price for a new product
from the segments willing to pay the
high price.
• Results in fewer, but more profitable
sales.
• Example: Dell UP3218K Monitor,
which was launched at a price of $4,999
in 2017.
Dell UP3218K Monitor

Md Tamhid Ul Islam 4
New Product Pricing - Market Skimming Pricing

❑ Use under these conditions:

• Product’s quality and image must
support its higher price.
• Costs of producing a smaller volume
can’t be so high that they cancel the
advantage of charging more.
• Competitors shouldn’t be able to enter
market easily and undercut the high
price.

Md Tamhid Ul Islam 5
New Product Pricing

❑ Market Penetration Pricing

• Setting a low price for a new product in
order to “penetrate” the market quickly
and deeply.
• Attract a large number of buyers and win
a larger market share.
• Example: PRAN group used this
strategy during the Cola flavor launch
with a taka 8 per 200 ml bottle, whereas
others were charging taka 10.

Md Tamhid Ul Islam 6
New Product Pricing - Market Penetration Pricing

❑ Use under these conditions:

• Market must be highly price-sensitive so
that a low price produces more market
growth.
• Production/ distribution costs must fall
as sales volume increases.
• Must keep out competition & maintain
its low-price position or benefits may
only be temporary.

Md Tamhid Ul Islam 7
Product Mix Pricing Strategies

Strategy Description
Product Line Setting price steps between line items
Pricing
Optional Product Pricing optional or accessory products
Pricing
Captive Product Pricing products that must be used
Pricing with the main product
By-Product Pricing Pricing low value by-products to get
rid of them
Product Bundle Pricing bundles of products sold
Pricing together

Md Tamhid Ul Islam 8
Product Line Pricing

❑ Involves setting price steps between

various products in a product line or
a product category based on:
• Cost differences between products
• Customer evaluations of different
features
• competitors’ prices

❑ Examples: RealMe charges differently

for their different models of cellular
mobile sets. Grameenphone charges
different prices for different categories
of SIM.

Md Tamhid Ul Islam 9
Optional Product Pricing

❑ Pricing optional or accessory products

sold with the main product
❑ Decide which to offer with base price and
which to provide as option
❑ Example: IBN Sina diagnostic lab charges
an additional 50 taka and conveyance fee
for providing home service for blood
tests, blood pressure checks, etc.

Md Tamhid Ul Islam 10
Captive-Product Pricing

❑ Strategy for setting the pricing of products

that must be used with the main product.
❑ Producers often have the base item
marked low, but the supplies marked high
❑ The essence is to capture the customer
❑ Example: Gillette Mach3 razor and
blades.

Md Tamhid Ul Islam 11
By-Product Pricing

❑ Pricing low-value by-products to get rid of

them and make the main product’s price more
competitive.
❑ Applicable when
• By products have little or no value
• Are expensive to store and dispose
• Companies should settle for a price that
covers the cost
❑ Example a mustard oil selling company can
sell their by-product (e.g., mustard bran) as
cattle or fish feed. It allows them to charge
each bottle of mustard oil a little less and
have competitive advantage against the
competitors.

Md Tamhid Ul Islam 12
Product-Bundling

❑ Combining several products and offering the

bundle at a reduced price.
❑ Save money by purchasing multiple products
at a reduced price.
❑ Example: Johnson & Johnson Company
bundles several baby care products and
selling them at a reduced price that may costs
more when sold individually. Price of
Johnson & Johnson baby care bundle is less
than the individual products

Md Tamhid Ul Islam 13
Price-Adjustment Strategies
Strategy
Discount & Allowance Pricing
Segmented Pricing
Psychological Pricing
Promotional Pricing
Geographic Pricing
Dynamic Pricing
International Pricing
Md Tamhid Ul Islam
Description
Reducing prices to reward customer responses
Adjusting prices to allow for differences in
segments
Adjusting prices for psychological effect
Temporally reduce prices for short run sales
Adjust for geographic location
Adjusting prices to continuously meet the needs
of individual customers & situations
Adjusting prices for international markets
14
Discount and Allowance Pricing

❑ Lowering the price to attract customers for a certain period of time.

❑ Cash Discount: Reduced price. 5% ❑ Functional Discount: Manufacturers give

discount on every medicine purchase in
Lazz Pharma are examples of cash
incentives.
❑ Quantity Discount: Lower price for a bulk
quantity purchase. In Meena Bazar, if one
buys 5 or 10 kgs of rice, they are given a
BDT. 5 discount
discount to certain trade channel members,
who perform certain tasks, such as storing and
selling. Pepsi Company gives two bottles of
extra drink to the retailers with a purchase of
each case containing 24 bottles.
❑ Seasonal Discount: Lower price when bought
out of season. GarmeenPhone gives a discount
on call rates on different national holidays like
Victory day or Independence Day etc.

Md Tamhid Ul Islam 15
Discount and Allowance Pricing

Cash Discount Seasonal Discount

Md Tamhid Ul Islam 16
Segmented Pricing

❑ Selling a product or service at two or more prices, where the difference is not based
on differences in costs.
❑ Customer Segmented Pricing: Different charges
from different customers for the same products or
services. For example, Bangladesh National
Museum charges students and valued citizens a
reduced entry fee.
❑ Product Form Pricing: Price difference is not due
to varying costs rather because of varying versions
of the product/service. For example,
Grameenphone charges less call rate per minute for
their GP Regular services than the Easy Pre-paid
services
❑ Location Pricing: Charging different price for
different locations. For example, in most cinema
halls, the price of a ticket for front seats and back
seats varies.
❑ Time pricing: The company charges different
prices for using the product and services in different
periods. For example, Star Cineplex at Bashundhara
City charges fewer fees on the ticket from Sunday
to Wednesday than Friday and Thursday.

Md Tamhid Ul Islam 17
Segmented Pricing

Product Form Pricing Time pricing

Md Tamhid Ul Islam 18
Psychological Pricing

Psychological Pricing
Considers consumer psychology while setting the price rather than
simply the economics of pricing.

Fractional Pricing/Odd Pricing: A price tag of BDT. 399.99 give the

customer the impression of paying less than 400 BDT. Consumer’s
perception of a high-priced product bearing high quality output is also
a psychological state of mind.

Reference Pricing: Prices that buyers perceive when they see a

product. Such perception creates from past experience or brand
loyalty. Coca Cola or Pepsi. Each small bottle is priced at BDT. 10.
For a new entrant in the market, consumers will automatically perceive
the price to be the same.

Md Tamhid Ul Islam 19
Psychological Pricing

Image Pricing

Many consumers use price as an indicator of quality. Image pricing is

especially effective with ego-sensitive products such as perfumes,
expensive cars, and designer clothing. A $100 bottle of perfume might
contain $10 worth of scent, but gift-givers pay $100 to communicate
their high regard for the recipient.

Price and quality perceptions of cars interact. Higher-priced cars are

perceived to possess high quality. Higher-quality cars are likewise
perceived to be higher priced than they actually are. When information
about true quality is available, price becomes a less significant
indicator of quality. When this information is not available, price acts
as a signal of quality.

Md Tamhid Ul Islam 20
Promotional Pricing

❑ Companies temporarily price their products below list

price to create urgency and excitement.

❑ If used too frequently, the brand loses the novelty and

also, no one would buy them at regular price anymore.

❑ However, since it’s the easiest thing to do, to increase

short run sales, it is quite addictive.

❑ Standard Chartered Bank offers their credit cards at a

reduced yearly payment scheme (BDT. 700 instead of
BDT. 1500)

Md Tamhid Ul Islam 21
Geographical Pricing

❑ Geographical pricing is often used to describe the varying prices in different parts of the world
Basing-point pricing
FOB-origin pricing
Pricing in which the seller designates
Pricing in which goods are placed
some city as a basing point and charges
free on board a carrier; the customer
all customers the freight cost from that
pays the freight from the factory to
city to the customer.
the destination.
Zone pricing
Pricing in which the company sets up
two or more zones. All customers
within a zone pay the same total price
Uniform-delivered pricing
Pricing in which the company charges Freight-absorption pricing
the same price plus freight to all Pricing in which the seller absorbs all or
customers, regardless of their location part of the freight charges in order to get
the desired business.

Md Tamhid Ul Islam 22
Dynamic Pricing

❑ Adjust prices continuously to meet the characteristics and needs of

customers.

❑ Particularly effective for internet marketing.

❑ Opposite of maintaining fixed price policies.

Md Tamhid Ul Islam 23
International Pricing

❑ Companies that market their products internationally must decide

what prices to charge in different countries.
❑ The price that a company should charge in a specific country
depends on many factors: economic conditions, competitive
situations, laws and regulations, and the nature of the wholesaling
and retailing system.

Md Tamhid Ul Islam 24
Price Changes

❑ Initiating Price cuts

• Excess capacity (if you can produce more)
• Falling demand
• Dominate market through lower costs

❑ Initiating Price Increases

• Over-demand
• Must be supported by communication
• Use low visibility price moves
• However, whenever possible, company should
look for other alternatives without raising prices

Md Tamhid Ul Islam 25
Thanks

Md Tamhid Ul Islam 26