Principles of

Marketing

Lecture-25
Summary
of
Lecture-24
 Factors
Affecting Price
Decisions
 Internal
Internal Factors
Factors

Positioning Pricing
Pricing Target
Objectives Market
Decisions
Decisions

External
External Factors
Factors
Today’s Topics
 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

Pricing Objectives
 Profit- Sales-
Oriented Oriented

Status
Quo
 Pricing
Pricing Objectives
Objectives

Target
Return
Profit
Oriented Maximize
Profits

Pricing
Objectives
Pricing
Pricing Objectives
Objectives

Target
Return
Profit
Oriented Maximize
Profits

Dollar or Unit
Sales Growth
Pricing Sales
Objectives Oriented Growth in
Market Share
Pricing
Pricing Objectives
Objectives

Target
Return
Profit
Oriented Maximize
Profits

Dollar or Unit
Sales Growth
Pricing Sales
Objectives Oriented Growth in
Market Share

Meeting
Status Quo Competition
Oriented
Nonprice
Competition
General Pricing
Approaches
Cost-based Pricing

Value-based Pricing

Competition-based Pricing
Cost-based
pricing
 Cost plus pricing
–add a standard
mark up to cost
Break even pricing
total costs = total
revenue
 Break-even…for
Determining Target
Return Price and Break-
even Volume
 Total revenue
1200
1200 Target profit
Rupees (in thousands)

1000 Total cost

Break-even point
800

600
400
Fixed cost
200

0
10 20 30 40 50
Sales volume in units (thousands)
 Fixed Cost
Break-even Volume = ---------------
Price - Variable Cost
Value-Based Pricing
Uses buyer’s perceptions of value
not the seller’s cost as the basis
for pricing.
Price is considered along with the
other marketing-mix variables
before the marketing program is
set.
Cost-Based Pricing Value-Based Pricing

Product
Product Customer
Customer

Cost
Cost Value
Value

Price
Price Price
Price

Value
Value Cost
Cost

Customers
Customers Product
Product
Competition-based
pricing
 Setting
Setting Prices
Prices

Going-Rate
Going-Rate
Company
Company Sets
Sets Prices
Prices Based
Based on
on What
What
Competitors
Competitors Are
Are Charging.
Charging.

Sealed-Bid
Sealed-Bid
? Company
Company Sets
What
Sets Prices
What They
Prices Based
They Think
Based on
Think Competitors
on
Competitors
Will
Will Charge.
Charge.
New Product Pricing
Strategies
• Market Skimming
• Market Penetration
 Market-Skimming
Setting a High Price for a New
Product to “Skim” Maximum
Revenues from the Target Market.
Results in Fewer, But More
Profitable Sales.
I.e. Intel
Use Under These Conditions
– Product’s quality and image must
support its higher price.
– Costs 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.
Market Penetration
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.

I.e. Dell
 Use Under These Conditions
Market must be highly price-sensitive so 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.
Product Mix Pricing
Strategies
 Product
Product Line
Line Pricing
Pricing

Optional-Product
Optional-Product Pricing
Pricing
Product
Product
Mix
Mix Captive-Product
Captive-Product Pricing
Pricing
Pricing
Pricing
Strategies
Strategies

By-Product
By-Product Pricing
Pricing

Product-Bundle
Product-Bundle Pricing
Pricing
Product Line Pricing
Setting Price Steps
Between Product Line
Items
i.e. Rs. 299, Rs. 399
 Optional-Product
Pricing
Pricing Optional or
Accessory Products
Sold With The Main Product
i.e. Car Options
Captive-Product Pricing
Pricing Products That Must Be
Used With The Main Product
i.e. Razor Blades, Film,
Software
By-Product Pricing
Pricing low-value By-
Products to get rid of
them
Product-Bundle Pricing
Pricing bundles of products
sold together
i.e. Season tickets,
Computer makers
Enough for
today. . .
Summary
 Setting
Pricing Policy
General Pricing
Approaches
New Product Pricing
Strategies
• Market Skimming
• Market Penetration
Product Mix Pricing
Strategies
 Product
Product Line
Line Pricing
Pricing

Optional-Product
Optional-Product Pricing
Pricing
Product
Product
Mix
Mix Captive-Product
Captive-Product Pricing
Pricing
Pricing
Pricing
Strategies
Strategies

By-Product
By-Product Pricing
Pricing

Product-Bundle
Product-Bundle Pricing
Pricing
Next….
Pricing (cont..)
Principles of
Marketing

Lecture-25