how should a company set prices initially for products and services?
TRANSCRIPT
How should a company set prices initially for products and services?
By,
Anurag Kar
B.Tech. Student
Department of E and ECE
IIT Kharagpur
Based on Chapter 3: Developing Pricing
Strategies and Programs
Of
Marketing Management: A South Asian
Perspective
By Kotler, Keller, Koshy and Jha
Firms must set a price
when they develop a new product.
There are
for firms to follow
in setting up their pricing policy.
Selecting the Pricing Objective
There are
5
MAJOR OBJECTIVES
5 M a j o r
O b j e c t i v e s
SURVIVAL
Maximum
Profit
Maximum
Market ShareMaximum
Market Skimming
Product Quality
Leadership
1. Partial Cost Recovery (universities)
2. Full Cose Recovery (non-profit hospitals)
3. Fill Maximum Seats (non-profit theatres)
Other Obje ct i v es
Determining Demand
Demand Curves
Demand Curves show the
market’s probable purchase
quantity at different prices.
Price Sensitivity is how quickly
the demand decreases with an
increase in price.
Ideally companies want low price
sensitivity.
Price Elast i c i ty
is how responsive
the demand is to a change
in price.
In both the graphs, the price reduction is $5 but…
Graph (a) has an increased demand of 5 units.
Graph (b) has an increased demand of 100 units.
W a y s t o E s t i m a t e
D e m a n d C u r v e s
Surveys
Price
ExperimentsStatistical
Analysis
Estimating Costs
T y p e s o f C o s t s
Overhead
Costs
Costs that do not vary
with production levels.
T y p e s o f C o s t s Variable
Costs
Costs that vary
directly with
production levels.
T y p e s o f C o s t s
Total
Costs
Sum of the fixed and
variable costs.
T y p e s o f C o s t sAverage
Costs
Cost per unit at a
particular level of
production.
T y p e s o f C o s t s
Overhead
Costs
Variable
Costs
Total
Costs
Average
Costs
A c c u m u l a t e d P r o d u c t i o n
is the phenomenon of decreasing
cost per unit with increasing
production experience.
As the accumulated production (and hence
production experience) increases, the cost
per unit decreases.
Analysing Competitors’ Costs, Prices and Offers
A c c u m u l a t e d P r o d u c t i o nFirms have to take competitors’…
A c c u m u l a t e d P r o d u c t i o nFirms have to take competitors’…
Prices
CostsPossible
Price Reactions
A c c u m u l a t e d P r o d u c t i o nFirms have to take competitors’…
Prices
CostsPossible
Price Reactions
Into account
And formulate
their pricing policies
accordingly…
Selecting a Pricing Method
T y p e s o f P r i c i n g M e t h o d s
Target Return
PricingPerceived Value
PricingMarkup
Pricing
Going Rate
Pricing
Value PricingAuction Pricing
M a r k u p P r i c i n g
A standard markup is added to the
product’s cost and the price is decided.
Most elementary form of pricing.
T a r g e t R e t u r n P r i c i n g
The firm determines the price
that yields it’s target rate of
return on investment.
P e r c e i v e d V a l u e P r i c i n g
Prices based on
customers’ perceived
value of the product.
Perceived value depends upon
buyer’s image of performance of
the product, the channel
deliverables, the warranty quality,
customer support, supplier’s
reputation, trustworthiness and
esteem.
V a l u e P r i c i n g
Winning loyal customers by
charging a fairly low price for a
high quality offering.
G o i n g R a t e P r i c i n g
Prices based on competitors’
prices.
A u c t i o n T y p e P r i c i n g
3 Types
English Auctions
(ascending bids)Dutch Auctions
(descending bids)
Sealed bid
Auctions
Selecting the Final Price
Impact of other
Marketing Activities
Company Pricing
Policies
Gain and Risk
Sharing Policies
Impact of Price on
other parties
Before setting the final
price
Certain additional factors
have to be considered.
The Company is now ready to set
its prices!
Recap
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Based on “Marketing Management: A South Asian Perspective”
By Kohler, Kelter, Koshy and Jha
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