Chapter 10

Market planning: pricing

• Evaluate pricing strategies
• Pricing constraints and sensitivity
• Consider pricing strategy to reinforce marketing
plan
• Set the price
• price
• Only P of marketing mix that bring money
• Profit = revenue (unite sold*price/unit) – cost

• Pricing process ( the 4 step process)

1. Determine the relevant price range
2. Evaluate the price constraints and sensitivity
3. Select a strategy
4. Se the price
• Determining the price range
• Bottom of the range is set by cost- BEP
• Ceiling is set by the competition and position in the market
• Market price- somewhere between the floor and the ceiling
• Here the costumers are willing to pay and the seller is willing to sale the product/service
• Marketer have to had market research(price, features of competing product, POD of the
product and strength of USP)

• Factors that influence pricing • Factors influenced by pricing

• Cost of goods • Sales volume
• Demand for products/services • Seles revenue
• Competition • Market share
• Market pricing • Competitive advantages
• Customer perception • Company image
• Margin standards • profitability
• Pricing constraints
• Take away your flexibility regarding pricing decisions
• Comes from competitors and the government
• Many industry there are little chances to charge higher price like the product
lacks POD (farming)
• You need take the cost advantage
• Industry like real state the pricing is a matter of negotiation
• Government regulates price in some industries like cellphone, airlines,
medicines etc.
• Price sensitivity
• Most of the market customer demand is sensitive to the price- price elasticity
• Understanding the price elasticity helps the entrepreneurs to get an
opportunity set the price profitably
• Market research helps to find price points effective for their porducts
• Consider pricing strategies
Lower pricing position strategies
Penetration pricing
• Lower price to get higher sales volume
• food, supplies, household items
Predator pricing
• Deliberate price-cut to prevent new
entry into the market
• Offers free gifts, bundling of products
that new competitors can not meet
• Software package, cellphone, special
provider service plans
Expansionistic pricing
• Set lower price to establish mass market
• Exaggerated version of penetration
pricing.
• Offer temporary price reduction and low
cost version
• Magazine and newspaper, software,
subscription based services etc.
Higher pricing position strategies
Image, value, quality pricing
• Customers see brand as a status symbol
• High price per unit with limited sales
volume
• Limited editions, luxury perfume,
flagship technologies etc.
Opportunistic pricing
 Product with high demand with short
supply
 Fresh garden products, pharmaceuticals
Market skimming pricing
• Premium price at the early stage for the
product with high demand
• Get maximum profit at the earlier stage
as the POD omit soon
• Flagship technology
Parity pricing position strategies
Going rate pricing
• Create pricing wares
• Hew competitors control the pricing
• No one charge higher price to prevent
loss of market share
• Gasoline, airfare
Keystone target pricing
• Set price to maintain a specific profit
level
• Use mark-up pricing
• Departmental stores, clothing etc.
Contribution/marginal pricing
• Set price to cover variable cost and a
portion of fixed cost
• Follow industry standard for cost and
profit
• Seminars, airfare, catering
• Setting the price
• While setting the price the effective points are as follow
• Cost of the product
• Uniqueness and specialty of the product
• Competitors pricing
• Personal goal of the entrepreneur
• Marketing strategies
• Location
• The amount customer willing to pay
• Break-even point
E x ercis1 -setin g p ricefo rg o o d s
Questions
A. What is your cost per unit
B. How many unit is estimated to sell
C. What is the total product cost
D. What is the estimated yearly
operating expenses
E. How much salary you need to make
F. Pre-Tax amount of profit
G. Tax liability
H. How much annual revenue will you
need to generate
I. What is the per unit whole sale price
for your product?
J. What is the retail price of your
product per unit?
Formula Enter amount
Enter the cost
Enter the amount
(A)Cost/unit X (B)units sold
Estimated monthly operating expense x
12
Salary per year
[(C)total product cost+(D)yearly
operating expense+ salary/year]* % of
profit
(E)Salay/year* % payroll tax+(F)*30%
(C) total product cost+ (D) yearly
operating expense+ (E) salary/year+ (F)
desired profit+ (G) tax liability
(H) Annual revenue /(B) estimated
number of unit sold
(I) Wholesale price/unit+(I* % of the
retail profit)
• Pricing policy
• Motivate large orders with volume pricing
• Avoid pricing conflict
• Bundle product and service
• Offer tiered pricing
• Bid a fix price
• Disguise price cut
• Offer creative pricing
• Push high margin product
• Consider the terms
• Use price list to win order
• Use discounted pricing