Assigned Topic

Developing and implementing pricing strategies

PRICE

The amount of money charged for a product or service, or sum of the values
that consumers exchange for the benefits of having or using the product or
services. As price gives us the profit so this P is very important for business price
of product should be that which gives maximum benefit to the company and which
gives maximum satisfaction to the customer.

Following factors Pepsi kept in mind while determining the pricing strategy.

Price should be set according to the product demand of public.

Price should be that which gives the company maximum revenue.

Price should not be too low or too high than the price competitor
is charging from their customers otherwise nobody will buy your
product.

Price must be keeping the view of your target market.

The price of Pepsi Cola, despite being market leader is the same as that of
its competitor Coca cola.

Some times, Pepsi places its customers into some psychological pricing
strategies by reducing a high priced bottle and consumers think that they save a lot
of money from this.

DEVELOPING A PRICING STRATEGY

The pricing strategy adopted by a retailer can be

• cost-oriented
• demand oriented
• competition-oriented

In Cost-oriented pricing, a basic mark up is added to the cost of the

merchandise, to arrive at the price. Here, retail price is considered to be function
of the cost and the mark up. Thus,

Retail Price = Cost + mark up

If this formula is rearranged, we get
Cost = Retail Price – Mark up and,
Mark up = Retail Price– Cost.
The difference between the selling price and the cost is considered to be the
mark up and should cover for the operating expenses and the transportation, etc.
Mark up percentages may be calculated on the retail price or on the cost. They
are calculated as under.
Mark up % (at retail) = (Retail Selling Price – Merchandise Cost) / Retail Selling
Price
Mark up % (at cost) = (Retail Selling Price – Merchandise Cost) / merchandise
Cost
When the buyer is aware of the mark up percentages required and of the selling
price, he can also work out the price at which he actually needs to procure the
product. Since it may not be possible to adopt a policy of maintaining a single
mark up for a product category, the concept of a variable mark up policy can be
followed. This allows the buyer to procures goods at varying price, but at the
same time, maintain the margin that need to be earned, as some products may
earn a higher margin as compared to other.
Demand-oriented pricing focuses on the quantities that the customers would buy
at various prices. It largely depends on the perceived value attached to the
product by the customer. Sometimes, a high priced product is perceived to be of
a high quality and a low priced product is perceived to be of a low quality. An
understanding of the target market and the value proposition that they would look
for is the key to demand oriented pricing. When the prices adopted by the
competitors play a key role in determining the price of the product, then
competition-oriented pricing is said to follow. Here, the retailer may price the
product on par with the competition, above the competitor’s price or below that
price

Prices of different bottles

Regular bottle e= rupees 15

Non Returnable/disposable= rupees 30

Liter Bottle=rupees 40

1.5 Liter Bottle= rupees 70

2.25 Liter Bottle= rupees 85

Analysis of the product in Pakistani market

According to a survey conducted by brand award association availability
has been declared as the second best contributing factor in the success of Pepsi and
it simply indicates that effectiveness of its distribution network which ensures its
availability in every far off corner of the country. Affordability has been rated as
the third best option and indicates consumer’s sensitivity to prices of daily
consumption items. Quality has been considered as the lowest rated criterion and it
is unusual. It indicates that counterfeit product is getting prevalent in the market.
There are more than ten COLAS in the market and the popular acceptance of Pepsi
is creating problems in its way of success. Pepsi will have to make a strong drive
to close all illegal manufacturing and packing of cola carbonated drinks which has
become common now-a-days and counterfeit cola replacements can be seen in
every market

PRICING STRATEGIES

Competition-based pricing approach

Pepsi has intense competition with the coca cola the largest soft drink
company world wide. So its pricing cant exceed too much nor decrease to much as
compared to the price of coca cola. If price of the Pepsi exceed too much from the
coke peope will shift to the coca cola and on the other hand if the price of Pepsi
decreases people might get the impression that quality of the Pepsi is also low.

Promotional Pricing Policy

Pepsi has offered promotional prices very frequently. Especially on some

occasion Pepsi reduces its rates. like in Ramazan Pepsi reduces its rate unto 5 rs on
1.5 litter bottle.

Market Penetration Pricing Policy

 Prices in beverage industry are determined by the consumer. In an economy
like that of Pakistan, consumers tend to switch towards a low priced product. Pepsi
objective is to target every consumer of the country so Pepsi has to set its prices at
such a level which no one can offer to its consumers. That is why Pepsi Cola
charges the same prices as are being charged by its competitors. Otherwise,
consumers may go for Coca Cola in case of availability of Pepsi at relatively high
price.

• DISCOUNTS

Pepsi Cola offers various discounts to those retailers who have the
maximum sales of Pepsi products on daily, monthly and on seasonal basis. Same
of the main discounts given to the retailers are as follows:

Quality Discount

Following are discounts offered by Pepsi.

1/10 Discount

I.e. one case of Pepsi is free on buying 10 cases of Pepsi at one time.

2/20 Discount

I.e. two cases of Pepsi are free on buying 20 cases of Pepsi at one time.

Seasonal Discount

Following are discounts offered by Pepsi.

Pepsi also offers seasonal discounts schemes by reducing price in Ramadan

and on Eid. Pepsi also offers trade in allowance for retailers.
3 B – F Discount

I.e. some times, especially in the off-season duration, in order to increase

the sale of Mirinda and Teem, 3-BF discount is given (i.e.) 3 bottles free on
purchasing every case of Teem and Mirinda.

• INCENTIVES

Mainly two types of incentives are given by the Pepsi Cola:

Incentive to Retailers

Pepsi Cola provide various incentives to retailers on the best sales and achieving
the predetermined sales targets. These incentives are in the shape of:

Deep Freezers

Return Tickets

Free Transportation Services.

Incentive to Dealers

The best dealer of the year is awarded with a brand new Suzuki Pickup. The
second best is awarded with Motor Cycle. The third best is awarded with Return
Ticket to Middle East.

• Credit

There is no credit system in the beverage industry. Every single bottle is

sold on the cash basis.

• Special Offers
 Pepsi Cola gives special offers to consumers on special occasions like
Ramadan and Eid days instead of decreasing the price of the products, some
special packs like Pakkora Mix, Chat Massala, or Free Drinks with Liter Bottles
are offered.