Principles of Marketing

Lecture-25

Summaryof

Lecture-24

Factors Affecting Price Decisions

Internal FactorsInternal Factors

PricingDecisionsPricing

Decisions

External FactorsExternal Factors

Target Market

Positioning Objectives

Today’s Topics

Setting Pricing Policy

1. Selecting the pricing objective

2. Determining demand

3. Estimating costs

4.Analyzing competitors’costs, prices, and offers

6. Selecting final price

5.Selecting a pricing method

Pricing Objectives

Profit-Oriented

Sales-Oriented

StatusQuo

Pricing ObjectivesPricing Objectives

PricingObjectives

ProfitOriented

TargetReturn

MaximizeProfits

Pricing ObjectivesPricing Objectives

PricingObjectives

SalesOriented

ProfitOriented

Dollar or UnitSales Growth

Growth in Market Share

TargetReturn

MaximizeProfits

Pricing ObjectivesPricing Objectives

PricingObjectives

SalesOriented

Dollar or UnitSales Growth

ProfitOriented

Status QuoOriented

Growth in Market Share

TargetReturn

MaximizeProfits

MeetingCompetition

NonpriceCompetition

General Pricing Approaches

Cost-based Pricing

Value-based Pricing

Competition-based Pricing

Cost-based pricing

Cost plus pricing–add a standard mark up to cost

Break even pricing

total costs = total revenue

Break-even…forDetermining Target

Return Price and Break-even Volume

Ru

pee

s (i

n t

ho

usa

nd

s)R

up

ees

(in

th

ou

san

ds)12001200

10001000

800800

600600

400400

200200

00

Total costTotal cost

Fixed costFixed cost

TargetTarget profitprofit

Total revenueTotal revenue

1010 2020 3030 4040 5050

Sales volume in units (thousands)Sales volume in units (thousands)

Break-even pointBreak-even point

Break-even Volume =Fixed Cost---------------

Price - Variable Cost

Value-Based Pricing

Uses buyer’s perceptions of value not the seller’s cost as the basis for pricing.

Price is considered along with the other marketing-mix variables before the marketing program is set.

ProductProduct

CostCost

PricePrice

ValueValue

CustomersCustomers

CustomerCustomer

ValueValue

PricePrice

CostCost

ProductProduct

Cost-Based Pricing Value-Based Pricing

Competition-based pricing

Setting PricesSetting Prices

Sealed-BidCompany Sets Prices Based on What They Think Competitors

Will Charge.

Sealed-BidCompany Sets Prices Based on What They Think Competitors

Will Charge.

Going-Rate Company Sets Prices Based on What

Competitors Are Charging.

Going-Rate Company Sets Prices Based on What

Competitors Are Charging.

?

New Product Pricing Strategies

•Market Skimming

•Market Penetration

Market-Skimming Setting a High Price for a New

Product to “Skim” Maximum Revenues from the Target Market.

Results in Fewer, But More Profitable Sales.

I.e. Intel

Use Under These Conditions

–Product’s quality and image must support its higher price.

–Costs can’t be so high that they cancel the advantage of charging more.

–Competitors shouldn’t be able to enter market easily and undercut the high price.

Market Penetration

Setting a Low Price for a New Product in Order to “Penetrate” the Market Quickly and Deeply.

Attract a Large Number of Buyers and Win a Larger Market Share.

I.e. Dell

Use Under These ConditionsMarket must be highly price-sensitive so

a low price produces more market growth.

Production/distribution costs must fall as sales volume increases.

Must keep out competition & maintain its low price position or benefits may only be temporary.

Product Mix Pricing Strategies

Product Line PricingProduct Line PricingProduct Line PricingProduct Line Pricing

Optional-Product PricingOptional-Product PricingOptional-Product PricingOptional-Product Pricing

Captive-Product PricingCaptive-Product PricingCaptive-Product PricingCaptive-Product Pricing

By-Product PricingBy-Product PricingBy-Product PricingBy-Product Pricing

Product-Bundle PricingProduct-Bundle PricingProduct-Bundle PricingProduct-Bundle Pricing

ProductMix

PricingStrategies

ProductMix

PricingStrategies

Product Line PricingProduct Line Pricing

Setting Price Steps Between Product Line Items

i.e. Rs. 299, Rs. 399

Optional-Product Optional-Product PricingPricing

Pricing Optional or Accessory Products

Sold With The Main Product

i.e. Car Options

Captive-Product PricingCaptive-Product Pricing

Pricing Products That Must Be Used With The Main Product

i.e. Razor Blades, Film, Software

By-Product PricingBy-Product Pricing

Pricing low-value By-Products to get rid of them

Product-Bundle PricingProduct-Bundle Pricing

Pricing bundles of products sold together

i.e. Season tickets, Computer makers

Enough for today. . .

Summary

Setting Pricing Policy

General Pricing Approaches

New Product Pricing Strategies

•Market Skimming

•Market Penetration

Product Mix Pricing Strategies

Product Line PricingProduct Line PricingProduct Line PricingProduct Line Pricing

Optional-Product PricingOptional-Product PricingOptional-Product PricingOptional-Product Pricing

Captive-Product PricingCaptive-Product PricingCaptive-Product PricingCaptive-Product Pricing

By-Product PricingBy-Product PricingBy-Product PricingBy-Product Pricing

Product-Bundle PricingProduct-Bundle PricingProduct-Bundle PricingProduct-Bundle Pricing

ProductMix

PricingStrategies

ProductMix

PricingStrategies

Next….

Pricing (cont..)

Principles of Marketing

Lecture-25