Module 1

Pricing
Strategies
Intended Page 1

Learning
Outcome
• In this lesson, students will be.

Analyze the importance of the basic

principles about the traditional marketing

mix focusing on PRICE necessary to plan,

formulate, and implement appropriate

strategies to secure competitive advantage

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Introduction

These lessons focus on the

Introduction of Pricing Strategy
and its components involve on
how customer view the Value and
Price of Certain product they are
vying to purchase.
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Activating Prior
Knowledge
A common strategy for beginning small businesses is
creating a bargain pricing impression by pricing their
product lower than their competitors. Although this may
boost initial sales, low price usually equates to low quality
and this may not be what customers to see in your product. In
this Video below you will be learning the function of Pricing
in the Marketing Mix.
Youtube: https://www.youtube.com/watch?v=2tzd7XivFqk
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The
Philosophy
of Price

Activating Prior
Knowledge
Pricing a product or a service is a
tougher act than it seems. As
consumers, we come into contact
with ready set prices on a daily
basis, but seldom consider the
process that was carried out to
arrive at them. The pair of shoes
that you bought for $39.99 was
priced as such to not only cover the
cost of the material inputs and the
human labor required to make
them, but there were very likely
some other considerations as well.
Page 5
The process through which managers
and decision makers in a business
arrive at the price of their product is
called its ‘Pricing Strategy’. Such
strategies have to be employed
because every business entity is faced
with several constraints in their
attempt to maximize their profits.
These constraints include competitor’s
prices, industry conditions, company’s
relative power in the market, income
level of customers, perception of the
product etc.
 Whether a customer is the
ultimate user of the finished
product or a business that

Th e
purchases components of the
finished product, the
customer seeks to satisfy a Custo
need through the purchase of mer ’s
a particular product. The View
customer uses several criteria of Pric
to decide how much she is e
willing to spend in order to
satisfy that need. Her
preference is to pay as little as
possible.
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Example:
In order to increase
value, the business can If you buy a Louis Vuitton bag for $600, in return for
either increase the this high price you perceive that you are getting a
perceived benefits or beautifully designed,well-made bag that will last for
decades—in other words, the value is high enough for
reduce the perceived you that it can offset the cost. On the other hand, when
costs. Both are you buy a parking pass to park in a campus lot, you are
important aspects of buying the convenience of a parking place close to your
price. classes. Both of these purchases provide value at some
cost.

The perceived benefits are directly related
to the price-value equation; some of the
possible benefits are status, convenience,
the deal, brand, quality, choice, and so
forth. Some of these benefits tend to go
hand in hand.
For instance, a Mercedes Benz E750 is a
very high-status brand name, and buyers
expect superb quality to be part of the
value equation (which makes it worth the
$100,000 price tag). In other cases, there
are tradeoffs between benefits. Someone
living in an isolated mountain community
might prefer to pay a lot more for groceries
at a local store than drive sixty miles to the
nearest Safeway. That person is willing to
sacrifice the benefit of choice for the
benefit of greater convenience.
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When we talk about increasing perceived
benefits, we refer to this as increasing
the “value added.” Identifying and
increasing the value-added elements of a
product are an important marketing
strategy.
For example, Rent the Runway is providing
dresses for special occasions. The price for
the dress is reduced because the customer
must give it back, but there are many value-
added elements that keep the price relatively
high, such as the broad selection of current
styles and the option of trying a second size
at no additional cost. In a very competitive
marketplace, the value-added elements
become increasingly important, as
marketers use them to differentiate the
product from other similar offerings.
In these Video Below : This Explain how Apple Price Page 7.5
their Product Why is Apple so expensive? | CNBC
Explains -

Youtube Link:

https://
www.youtube.com/
watch?
v=t6VYByDYg7c&t=11
5s
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Penetration Pricing
Strategy
In penetration pricing strategy, the
new product is introduced at a low
price in the market so that it
penetrates the market as quickly as
Hence, thoughthe profit
possible. The company adds a
marginfor the company is
nominal markup to its cost of
production while setting the price low, it can generate
of the product. The low price of the profitsthrough greater Penetration pricing also
product compels a large number of number of sales. Because of discourages new entrants in the
customers to buy the product, thus greater sales, the company is market. When competitors are
generating high sales for the unableto create and distribute
able to decrease its costs,
company.
which allows companies to the product at such low
further decrease their price. margins, they stay away from
the market, which allows the
company to increase its brand
recognition.
Penetration pricing strategy is effective Page 9

when certain conditions are present in

the market.
Firstly, the market should be highly
sensitive to price, which means that when
a low-priced product is available in the
market, customers shift to that product.
Hence, low price would bring about
market growth and draw a significant
number of customers.

Secondly, with an increase in sales

volumes, the company should be able to
decrease its production and distribution
costs, i.e. there should be economies of
scale. Finally, the low pricesshould be
effective at driving out competition from
themarket.
Skimming Pricing Page 10

Strategy
In this strategy, a high price is initially
charged for the product, with the intention of
skimming the “cream” from the market.

The company sets a high introductory price for

their products so that they gain maximum
profits in a short time by targeting those
customers that are ready to pay a high markup
for the products. The company sells a lesser
number of products in the beginning, but the
profit margin is high. With the passage of time,
the price is gradually decreased so as to attract
the next segmentof the market, i.e.,those
customers who are willingto adopt the high-
priced product at a reduced price.
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To adopt a skimming price strategy, there are
certain conditions that have to be fulfilled.
● Firstly, the product
should be one that is
unique and introduces
features for the first time
in the market. Such
product has no • Secondly, the company
substitute in the market,
and customers pay the should be able to sustain
high price because of the its distinctiveness, i.e., • Finally, there should be a
uniqueness of the category of customers in the
product should not be
product. market who give value to the
copied easily by
unique product and wish to
competitors. be the first ones to buy it;
hence, they pay a surplus or
premium to acquire it.
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Thank you for

listening!