Pricing Policy in Marketing

Ramanjeet Kaur ( 9030241025)

Ravi Chevli ( 9030241026)
Rohit Ranganathan ( 9030241027)

Copyright © 2001 by McGraw-Hill Ryerson Limited

Agenda

– Price competition and value pricing

– Pricing strategies for market entry

– Price discounts and allowances

– Geographic pricing strategies

– Special strategies

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 Pricing
• Pricing is one of the most important elements of the
marketing mix, as it is the only mix, which generates a
turnover for the organisation.

• Pricing is difficult and must reflect supply and demand

relationship. Pricing a product too high or too low could
mean a loss of sales for the organisation. (e.g. Honda Civic
Hybrid)

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 Pricing Factors

• Pricing should take into account the following

factors:
 Fixed and variable costs.

 Competition

 Company objectives

 Proposed positioning strategies.

 Target group and willingness to pay.

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Pricing Strategy

• How does a company decide what price to charge for its

products and services?

• Some firms have to decide what to charge different customers

and in different situations (e.g. car dealer)

• They must decide whether discounts are to be offered, to whom,

when, and for what reason (e.g. frequent flyer)

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Price vs. Non-price Competition

• In price competition, a seller regularly offers products priced as low as

possible and accompanied by a minimum of services.(e.g. TATA Nano)
– With value pricing, firms strive for more benefits at lower costs to
consumer. (Metro Cash-n-Carry)
• In non-price competition, a seller has stable prices and stresses other
aspects of marketing (e.g. Mercedes Benz)
– With relationship pricing, customers have incentives to be loyal - get
price incentive if you do more business with one firm. (Future Group
Loyalty Card)

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 Non-price Competition
• Some firms feel price is the main competitive tool; customers always
want low prices (e.g. Big Bazaar)

• Other firms are looking for ways to add value, thereby being able to
avoid low prices (Apple)

• Sometimes prices have to be changed in response to competitive

actions (e.g. Low Cost Airlines)

• Many firms would prefer to engage in non-price competition by building

brand equity and relationships with customers (e.g. Kingfisher)

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 Relationship Pricing

• Uses price as a method to build long-term relationships with

the best customers (IT Companies)

• Focuses on giving better deals to better customers (Jet

Privilege Program)

• Goal is to price relative to the value of the customer to the

firm, while building loyalty and stimulating repeat buying

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The Price Determination Process

• In pricing, an organization first must decide on its pricing

goal.
• The next step is to set the base price for a product.
• The final step involves designing pricing strategies that
are compatible with the rest of the marketing mix.
• Many strategic questions must be answered:
– Will our company compete on the basis of price or
other factors?
– What kind of discount schedule (if any) should be
adopted?

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 The Process: An Illustration
SELECT PRICING OBJECTIVE

SELECT METHOD OF DETERMINING THE BASE PRICE:

Cost-plus Price based on Price set in

pricing both demand relation to
and costs market alone

DESIGN APPROPRIATE STRATEGIES:

Price vs. non-price Freight payments Leader pricing
competition One price vs. flexible Everyday low vs.
Skimming vs. penetration price Psychological high-low pricing
Discounts and allowances pricing Resale price
maintenance
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 Market Entry Pricing Strategies

• Market-Skimming Pricing:
Pricing Setting a high initial price for a new
product.
– Works if product is new, distinctive and desired
– Early in Product Life Cycle, when demand inelastic
– Protected by entry barriers, e.g. patents
(e.g. Mitsubishi Pajero)

• Market-Penetration Pricing: Setting a low initial price for a new

product.
– Works if large market, elastic demand
– Economies of scale are possible
– Fierce competition
(e.g. TATA DOCOMO)

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 Discounts and Allowances

• Quantity discount: The more you buy, the cheaper it

becomes. (Megamart)

• Trade discounts: Reductions from list for functions

performed - storage, promotion.

• Cash discount: A deduction granted to buyers for

paying their bills within a specified period of time, (after
first deducting trade and quantity discounts from the
base price) (MSEDL)

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Other Discounts and Allowances

• Seasonal Discounts (e.g. Shoppers Stop Season Sale)

• Promotional Discounts (e.g. launch of a new product /

service) (Aircel launch in Mumbai)

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 The Competition Act

• Predatory pricing: Selling at unreasonably low prices to

lessen competition.(Local Broadband provider)
• Price discrimination: The use of different prices for
different customers.
– It is illegal if a price advantage is granted to one, but not
another, where both compete and the articles are similar.
(Car Dealers)

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Geographic Pricing Strategies
• Point-of-Production pricing: Price quoted at factory -
buyer pays transportation. (factory outlets)

• Uniform delivered pricing: Same delivered price

quoted to all; works if transportation costs small.
(Maggi)

• Zone-delivered pricing: Set same price within

several zones, e.g. Bread

• Freight-absorption pricing: Seller absorbs transport

cost to penetrate market. (Sangam Direct)
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Psychology of Pricing
• The psychology of pricing suggests that price will
convey a message about the product or service being
sold
– leader pricing
– bait pricing
– prestige pricing

• Price lining involves setting prices at a small number of

fixed levels within a retail store

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Questionable Pricing Practices

• Resale price maintenance involves a supplier

requiring that intermediaries sell a product at a
certain price.

• Some firms reduce prices, possibly even below

cost, to attract customers; this form of “loss-
leader” pricing is not illegal unless it persists for a
long time with the goal of eliminating competition
(predatory pricing)

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