Developing pricing stratergy

Group 10
Price
The amount of money charged for a product, or the
sum of the values that consumers exchange for the
benefits of having/using the product or service.
For the consumer, it is the total of values he/she gives
up in exchange for the benefits of having or using the
product.
Price is the only element of the marketing mix that
produces revenue for the seller.
All other elements represent costs.
Considerations in Setting Price
Consumers pricing psychology
Reference groups
Price-quality inferences
Price ques
Steps in Setting Price
1. Select the price objective
2. Determine demand
3. Estimate costs
4. Analyze competitor price mix
5. Select pricing method
6. Select final price
Step 1: Selecting the Pricing Objective
Survival
Maximum current profit
Maximum market share
Maximum market skimming
Product-quality leadership
Other objectives
Step 2: Determining Demand
Price sensitivity
Estimate demand curves
Price elasticity of demand
Estimating demand curves
Statistical analysis
Price experiments
surveys
Price elasticity of demand
 Factors Leading to Less Price Sensitivity
The product is more distinctive
Buyers are less aware of substitutes
Buyers cannot easily compare the quality of substitutes
The expenditure is a smaller part of buyer’s total income
The expenditure is small compared to the total cost of the
end product
Part of the cost is paid by another party
The product is used with previously purchased assets
The product is assumed to have high quality and prestige
Buyers cannot store the product
Step 3: Estimating Costs
Types of costs
Accumulated production
Activity-based cost accounting
Target costing
Cost Terms and Production
Fixed costs
Variable costs
Total costs
Average cost
Cost at different levels of production
Cost Per Unit at Different Levels of
Production
Cost Per Unit as a Function of Production
Experience
Step 5: Selecting a Pricing Method
Markup pricing
Target-return pricing
Perceived-value pricing
Value pricing
Going-rate pricing
Auction-type pricing
Markup pricing:
e.g. VC/unit: $10; FC: $300,000; Expected unit sales
50,000,
The unit cost = $10 + ($ 300,000/50,000) = $ 16,
Then markup price = $16/(1-0.2) = $20
Target Return pricing
Setting a selling price above the breakeven point, so that a
desired level of profit can be achieved.
T-R price = UC+(desired return*invested capital)/US
Breakeven chart
 Perceived-value pricing: setting premium price for
excellent services, luxurious products etc.
 Value pricing: setting price with “everyday low pricing”
at the retail level .
 Going-Rate pricing: the firm might charge more or
less than the competitors.
 Auction-Type pricing:
 English auctions
 Dutch auctions
 Sealed-bid auctions
Step 6: Selecting the Final Price
Impact of other marketing activities
Company pricing policies
Gain-and-risk sharing pricing
Impact of price on other parties
 Initiating to Price Changes

Companies face situations where they need to cut

or raise price
Initiating Price Cuts: as a drive to dominate the
market through lower cost and excess plant
capacity.
A price-cutting strategy involves possible traps:
a. Low quality trap
b. A low price buys market share but not market
loyalty
c. Shallow pocket trap
Initiating Price Increases:
The major circumstance provoking price increases
is cost inflation.
 A price-increase strategy involves different
impact on buyers:
a. Delayed quotation pricing
b. Unbundling
c. Reduction of discounts
Responding to price changes
Customers reaction:
customers often question the motivation behind price
changes.
Brand Leader Responses to Competitive Price
Cuts
 Maintain price
 Maintain price and add value
 Reduce price
 Increase price and improve quality
 Launch a low-price fighter line
Price-Reaction Program for Meeting a Competitor’s Price Cut