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PRICING METHODS AND STRATEGIES

CONTENTS
Pricing Methods Pricing strategies Implementation Conclusion

A Framework for Developing and Applying a Pricing Strategy


Objectives

Pricing methods

Pricing Strategy

Implementation of Pricing Strategy

Price Adjustments

METHODS IN PRICING
Cost-based pricing Demand- based pricing Competition-based pricing Value-based pricing

Cost-based Pricing
Setting of price based on total cost per unit O Methods:I R Cost plus pricing +Profit goals Target pricing Marginal cost pricing (Merchandise, service, and Break-even pricing
overhead costs)

Cost plus pricing computed by adding a certain percentage of profit to cost of the product per unit. Target pricing Cost is added with predetermined target rate of return on capital Marginal cost pricing Price is determined on the bases of variable cost Break even pricing Uses break even analysis by determining number of unit sold to generate revenue to cover total cost

Demand based pricing Demand is basic factor Consumer responses to various price points analyzed to arrive at highest acceptable price Methods Differential pricing Premium pricing Neutral pricing

Differential pricing Same product is sold at different prices to different customer in different places at different prices Premium pricing product or brand should be positioned at the top of the market and must offer greater value on qualitative terms than similar brand Neutral price offering extra value or benefits with brand cost or price remaining competitive

Competition based pricing


Fixing prices mainly on the basis of prices fixed by competitors Product prices are fixed not on cost or demand but on basis of competitors price Methods Going rate pricing Conventional pricing Seal bid pricing

Going rate pricing charging price according to what competitors are charging Conventional pricing Price get fixed because they have prevailed over a long period of time Sealed bid pricing Price is fived based on how the competitor price their product

Value Based Pricing


Price is based on value to customers Examples include status products/exclusive products Methods Perceived-value pricing Value for money pricing
The Ferrari FXX with a price tag of $1.7million was so exclusive that you had to be invited to buy one.

Perceivedvalue pricing Concern with setting the price on the basis of value perceived by the buyer of the product rather than seller cost Value for money pricing Price is based on the value which the customer gets from product they buy.

Pricing Strategies
Developing a pricing strategy is a continuous marketing process and is undertaken when:

A new product is introduced. An existing product is revised. The competitive environment changes. A product moves through its life cycle. A competitor initiates a price change. Costs rise or fall dramatically. The firms prices come under government scrutiny.

Steps in pricing strategies


Selecting target markets Studying consumer behavior Identifying competition Assigning price a role in marketing mix Relating cost and demand Determining strategic prices

Pricing strategies
Market-Skimming Pricing: Setting a high initial price for a new product. Works if product is new, distinctive and desired Early in Product Life Cycle, when demand inelastic To attract the consumers of high income group Market-Penetration Pricing: Setting a low initial price for a new product. Works if large market, elastic demand Economies of large scale production are possible To discourage new competition

Skimming Vs Penetration
Skimming Sufficient buyers needed with inelastic demand Economies of scale not important to costs Barriers to entry (patent) Short PLC Short term profit maximization

Penetration
Buyers need with elastic demand

Economies of scale help reduce costs, profits Discourage competition with low cost, small margins Expected long PLC Increasing market share and sales volume

Implementing Pricing Strategies

Customary/Variable pricing One price/Flexible pricing Odd pricing

Price quality association

Implementation
Leader pricing prestige pricing Price lining Price bundling Geographic pricing

Conclusion
It analyzes sales-based, profit-based, pricing methods, and describes the role of a broad price policy. It examines and applies the approaches to a pricing strategy. It discusses several specific decisions that must be made in implementing a pricing strategy. an overall frame work of how price can be adjusted to meet the needs of the market

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