Pricing:

Approaches and
Strategies

Session 6
 Price
o The amount of money charged for a product, or
the sum of the values that consumers exchange
for the benefits of having/using the product or
service.
o Price and the Marketing Mix
Only element to produce revenues
Most flexible element
Can be changed quickly

o Price as a tool of Competition

o Common Pricing Mistakes
Factors to Consider in Setting Price

Internal Factors o Market positioning influences

pricing strategy

o Marketing objectives o Other pricing objectives:

o Marketing mix strategies Survival
o Costs Current profit maximization
o Organizational Market share leadership
considerations Product quality leadership
Factors to Consider in Setting Price (contd.)
Internal Factors
o Marketing objectives
o Marketing mix strategies
o Costs
o Organizational
considerations
o Pricing must be carefully
coordinated with the other
marketing mix elements
o Target costing is often used to
support product positioning
strategies based on price
o Non-price positioning can also
be used
Factors to Consider in Setting Price (contd.)

o Types of costs:
Variable
Internal Factors Fixed
Total costs
o Marketing objectives
o How costs vary at different
o Marketing mix strategies production levels will
o Costs influence price setting
o Organizational
o Experience (learning) curve
considerations
effects on price
o For services, its very Difficult
to trace costs
Factors to Consider in Setting Price (contd.)
Internal Factors
o Marketing objectives
o Marketing mix strategies
o Costs
o Organizational
considerations
o Who sets the price?
In Small companies:
CEO or top management
In Large companies:
Divisional or product line
managers
o Price negotiation is common
in industrial settings
Factors to Consider in Setting Price (contd.)

External o Types of markets

Factors Pure competition
Monopolistic competition
o Nature of market and Oligopolistic competition
demand Pure monopoly
o Competitors costs,
o Consumer perceptions of
prices, and offers price and value
o Other environmental
elements o Price-demand relationship
Demand curve
Price elasticity of demand
Factors to Consider in Setting Price (contd.)

External o Consider competitors

Factors costs, prices, and possible
reactions when developing
o Nature of market and a pricing strategy
demand
o Pricing strategy influences
o Competitors costs, the nature of competition
prices, and offers Low-price low-margin
o Other environmental strategies inhibit competition
elements High-price high-margin
strategies attract competition
Factors to Consider in Setting Price (contd.)

External
o Economic conditions
Factors Affect production costs
Affect buyer perceptions of
price and value
o Nature of market and
demand o Government may restrict or
limit pricing options
o Competitors costs,
o Social considerations may
prices, and offers be taken into account
o Other environmental
elements
 General Pricing Approaches
1. Cost-Based Pricing: a) Cost-Plus Pricing
Adding a standard markup to cost
Ignores demand and competition
Popular pricing technique because:
It simplifies the pricing process
Price competition may be minimized
It is perceived as more fair to both buyers and sellers

Example
Variable costs: Tk. 20 Fixed costs: Tk. 500,000
Expected sales: 100,000 units Desired Sales Markup: 20%

Variable Cost + Fixed Costs/Unit Sales = Unit Cost

Tk. 20 + Tk. 500,000/100,000 = Tk. 25 per unit

Unit Cost/(1 Desired Return on Sales) = Markup Price

Tk. 25 / (1 - .20) = Tk. 31.25
 General Pricing Approaches (contd.)
b) Break-Even Analysis & Target Profit Pricing
o Break-even charts show total cost and total revenues at different
levels of unit volume.
o The intersection of the total revenue and total cost curves is the
break-even point.
o Companies wishing to make a profit must exceed the break-even unit
volume.
Revenues
1000 Target Profit Tk. 200,000
Thousands Taka

800 Total Costs

Break-even
600 point

400
Fixed Costs
200

0 10 20 30 40 Quantity To Be Sold To
Sales Volume in Thousands of Units Meet Target Profit
 General Pricing Approaches (contd.)
2. Value-Based Pricing
o Uses buyers perceptions of value rather than
sellers costs to set price.

o Measuring perceived value can be difficult.

o Consumer attitudes toward price and quality

have shifted during the last decade.
Introduction of less expensive versions of
established brands has become common.
 General Pricing Approaches (contd.)
3. Competition-Based Pricing
Also called going-rate pricing
May price at the
same level,
above, or
below the competition
 Other Pricing Approaches
o Market-Skimming Pricing
Setting a high price for a new product to skim
maximum revenues layer by layer from segments
willing to pay the high price.
o Market-Penetration Pricing
Setting a low price for a new product in order to
attract a large number of buyers and a large market
share.
o Relationship Pricing
Different price for Different class of customers
depending on relationship and the potentiality of
cross-selling or future business.
 Price Discrimination
o Customer Discrimination
for students only
o Place Discrimination
service at ATM versus at counters
Rural/urban
o Time Discrimination
peak -hours/ off-peak-hours
Season/off-season
o Area Discrimination
Agri/industry/small-industry
Price Changes
o Initiating Price Cuts is Desirable When a Firm
Has excess capacity
Faces falling market share due to price competition
Desires to be a market share leader

o Price Increases are Desirable

If a firm can increase profit, faces cost inflation, or faces
greater demand than can be supplied.

o Alternatives to Increasing Price

Reducing product size, using less expensive materials,
unbundling the product.
 Price Changes (contd.)
o Buyer reactions to price changes must be considered.
o Competitors are more likely to react to price changes
under certain conditions.
Number of firms is small
Product is uniform
Buyers are well informed

o Respond to Price Changes only if:

Market share/ profits will be negatively affected if nothing is
changed.
Effective action can be taken:
Reducing price
Raising perceived quality
Improving quality and increasing price
Launching low-price fighting brand
 Pricing for Bank Products
o In Banking, price is just one of the 4-Ps in the marketing mix
Not a dominant factor,
nor it is a tool of competition, and
the branch managers have the least say in setting so
o The banking system does not even price all its services as
some are offered free to customers
some lines are more price-sensitive than others
Low/ non-profit lines is more than offset by higher profits on
other lines
o A market-oriented banker in competition with other banks
should have two-main objectives to set price:
1.to attract as many customers as possible to the selected
segments
2.Under most profitable conditions
o Customers are not necessarily homogenous in terms of pricing,
thus the large banks with huge investments can offer more
favorable terms than a small bank.
 Price is NOT a Dominant Factor
For example in case of a Housing loan, potential
customer might be eager to know:
how much can be borrowed?
what is the repayment period?
how long it will take to get the sanction?
what formalities would be required to be completed?
what are the terms & conditions, and whether s/he is in a
position to meet them?

The PRICE question will come to the force only when

the customer would like to know the amount of monthly
installment required to be paid that. The branch
manager will think about it while concluding the deal.
 Price is NOT based on Costs
Pricing of bank services is not necessarily based on the
cost of the service offered for the difficulty in viewing the
variety of factors needed to be considered.
Perhaps the most important factors that need to be
considered are:
value of the service to the customer (needs mkt research)
broad/ narrow appeal the service will have (which segments
does it relate to)
chance of cost-reduction with volume of use/new technologies
the pricing of similar services by the competitors
extent to which the bank seek to dominate the market
requirement of capital to make the services performance
possible (include capital cost)
 Price is NOT a Tool of Competition
o There is only limited scope of price competition
in the field of interest rates.

o In most countries, banking industry is a

oligopolistic market, thus any price cut is
matched by the competitors while any price
increase will not.
o A little price competition occurs in some areas
like bank-charges on current accounts, but it
only produces short-term advantages.
 Control of Government
o Most important prices in banking system is related
to interest rates

o And basic interest rates are controlled by govt.

o There could be only a limited variations possible by

banks, but remember its a oligopolistic industry!

o https://www.bb.org.bd/fnansys/interestlending.php
 Term Working Capital to
Loan to Term Industry
large & Loan to Large & Small
Banks Agriculture
medium small Medium Industry
scale Industry Scale Announced
industry Industry
interest
rate chart
AGRANI 8.00 14.50 13.00 15.00 15.00 of the
0.00 0.00 0.00 0.00 0.00
scheduled
banks
BASIC 11.00 14.00-14.50 13.00-14.00 14.25-14.75 14.00-14.25 (lending
0.00 0.00 0.00 0.00 0.00 rate)

BDBL 10.00 13.00-14.00 14.00 14.00 0.00 January

0.00 0.00 0.00 0.00 0.00 2016

JANATA 4.00-10.00 13.00-14.50 13.00-14.00 14.00-14.50 14.00-14.50

(% per
RUPALI 4.00-11.00 14.00 14.00 15.00 15.00 annum)
SONALI 4.00-10.00 14.00 14.00 14.00-14.50 14.00-14.50

0.00 0.00 0.00 0.00 0.00

 Price variables
Price for a banker comes in the following forms:
1. Interest Rates: Bangladesh bank sets the rate for
Lending and a range for Deposits while in note it is
specified that Banks are not allowed to differentiate
deposit rates to different customers for the same
amount of deposits at the same maturity period.
2. Transaction Cost: Service charges on various
services extended to customers like charges in
current accounts, safe custody accounts etc. fall in
this category. Though banks can charge individually
they are affected by the oligopolistic structure.
3. Processing Fees: A branch marketer will find this as
a fresh area of income.
 Methods of Pricing
Banks do NOT view price as a marketing tool for
1. Bank pricing is frequently subject to Govt.
regulations
2. Banking industry is an oligopoly, banks expect
to gain no additional sales by cutting prices,
but expect to lose a substantial volume of sales
for any price increase.
3. banking products are, generally, non-standard,
thus price is also non-standard. As it is difficult
to communicate to the customers it can not be
used as a marketing tool.
Price as an Effective Tool
To a branch manager price is only:

o a means of recovering costs and

generating profits.

o and can also be used to change

attitudes and the behavior thus to
achieve sustainable competitive position
in the market
.
 Price as an Effective Tool (contd.)
The manager can try to increase the number of
current & saving accounts in banks and have
considerable volume and increased market share in
the command area.
These are low-priced products and will increase
service costs, but
o bank will have a broader customer-base
o can cross-sell its other products to them
o this will offset costs of the service and will increase
earnings
o bank will eventually increase banks efficiency and
thus will gain economies of scale in its operations