pricing startegy.docx

7/21/2019 pricing startegy.docx

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PRICING STRATEGY

Pricing objectives:

• Current profit maximization

• Current revenue maximization

• ua!it"

• Partia! cost recover" - an organization that has other

revenue sources may seek only partial cost recovery.

• Surviva! - in situations such as market decline and

overcapacity, the goal may be to select a price that willcover costs and permit the firm to remain in the market. Inthis case, survival may take a priority over profits, so this

objective is considered temporary.

• Status #uo - the firm may seek price stabilization in order

to avoid price wars and maintain a moderate but stablelevel of profit

Pricing affects other marketing mi elements such as productfeatures, channel decisions, and promotion. !ne of the fourmajor elements of the marketing mi is price. Pricing is an



important strategic issue because it is related to product positioning.

"he general se#uence of steps that might be followed for

developing the pricing of a new product:

$. $eve!op mar%eting strateg" - perform marketing analysis,segmentation, targeting, and positioning.

%. &a%e mar%eting mix 'ecisions - define the product,distribution, and promotional tactics.

&. Estimate t(e 'eman' curve - understand how #uantitydemanded varies with price.

'. Ca!cu!ate cost - include fied and variable costs associatedwith the product.

(. )n'erstan' environmenta! factors - evaluate likelycompetitor actions, understand legal constraints, etc.

). Set pricing objectives - for eample, profit maimization,revenue maimization, or price stabilization *status #uo+.

. $etermine pricing - using information collected in theabove steps, select a pricing method, develop the pricingstructure, and define discounts.

NE* PR+$)CT,PRICING STRATEGY

S%im pricing- attempts to skim the cream off the top of themarket by setting a high price and selling to those customers



who are less price sensitive. kimming is a strategy used to pursue the objective of profit margin maimization.

Penetration pricing pursues the objective of #uantity

maimization by means of a low price. It is most appropriatewhen:

PR+$)CT,&I. PRICING STRATEGIES

"he strategy for setting the product/s price often has to be

changed when the product is part of a product mi. In this case

the firm looks for a set of prices that maimizes the profit on the

total productmi. Pricing is difficult because the various

products have related demand and cost and face differentdegrees

of competition:

Pro'uct /ine-

etting price steps between product line items.

+ptiona! Pro'uct-

Pricing optional or accessory products.Captive Pro'uct-

Pricing products that must be used with the main product

0",Pro'uct-



Pricing low value by product to get rid of them.

PRICE A$1)ST&ENT STRATEGIES

0 company usually adjusts their basic prices to account for

various customers/ differences and changing situations

23 $iscount 4 A!!o5ance-

63 $iscriminator"- 0djusting prices to allow for differences incustomers, products, and locations

73 Ps"c(o!ogic

1: 2%33 vs. 2&44

83 9a!ue- 0djusting prices to offer the right combination of

#uality and service at a fair price.

:3 Promotiona!-

;3 Geograp(ica!- 0djusting prices to account for geographic

location of customer.

pricing startegy.docx

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