ch 08 pricing strategy

8/7/2019 Ch 08 Pricing Strategy

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Chapter 8


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Chapter Objectives

y Internal factors for pricingy External influences determining the prices for rural

marketsy Pricing strategies based on understanding of rural

income and occupation patterns, optional productand captive product pricing

y Market entry strategies based on pricing

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PRICE

y Price represents the market value of a product orservice

y Customers see it as a value which should be paid toacquire the item

y Companies see it as a point where they cover costsand make a reasonable surplus

y Governments may see it as a welfare measure support price or ration price

y Understanding of internal and external factors tobe considered in the process of decision making

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Internal Influences

y Cost rural markets require huge efforts and costsy Multiple intermediaries are required in rural for effective

distributiony Customers and retailers require credit in ruraly Cost control through use of promotion at haats, mandis

and melas and limiting mass mediay Companies will have to devise some innovative

distribution and communication strategies tocontrol costs

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PRICING OBJECTIVESOBJECTIVE TYPES

Profit Profit maximizationReturn onInvestment

Sales Sales increaseMarket share

Competition Meet or prevent competition

Development Deeper penetration of existing markets

Enteri

ngn

ew markets

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External Influencesy Impact of price on demandy Effect of branding and the different stages of

product life cycley

Key external issues in pricing are:y Customersy Suppliersy Competitiony Legal environment

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Customersy Need to understand price sensitivity of target

customers in ruraly Low and seasonal incomey

Pricing and mode of payment is decided by thisy Marketers would have to look at self managed

installment schemesy Lower prices should not be achieved by making

a compromise on product features in rural

y Purchase of items at time of marriages involvesprestige. Premium pricing can be set for suchitems

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Competitors and Legal Environmenty Competitionwas from regional brands in the pasty Entry of multi-nationals has increased the level of

competition ofnational brands

y Competitors are now being driven to non-pricefactors to capture share in rural

y Legaly Price advantage to small scale manufacturersy Lower rates of interest on purchase of agricultural

implementsy Subsidies on inputs

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Pricing Strategies

y Optional-product pricing differential pricing policyfor main item and spares/accessories to penetrate into

villages and small townsy Captive-product pricing setting prices for products

that must be used alongwith the main producty Low price points to ensure inclusion of item in daily

basket of purchasey Highlight value not price

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Pricing Strategies

y Avoid fancy packaging since rural customers moreinterested in sturdiness

y

Companies also need to go in for refill or reusablepacksy Need to introduce product sharing services in rural

(especially for durables)y Price bundling Combo pack by HUL for shampoo,

toothpaste, cream and talcum powder at attractiveprice points

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Market Entry Strategies

y Penetration pricing to secure wider market acceptanceand take advantage of economy of scale

y

Economy pricing by minimising marketing costs. Thisis used largely by regional brandsy Value pricing based on changed economic situationy Coinage pricing by setting prices at coinvalue 1, 2, 5, 10y Psychological pricing to take advantage of price quality

relationship

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PENETRATE OR SKIM?FACTOR SKIM IF PENETRATE IF

Demand Elasticity Inelastic Elastic

Cost of production and marketingcompared to competitors

Higher Lower

Economies of scale No Yes

Ease of entry of competitors No Yes

Rate of acceptance of concept Low High

Type of market Segmented Mass market

Firms financial resources High Low

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Marketing Strategies

y Discounts and Allowancesy Cash discount

y Quantity discounty Free gifts

y Popular in ruraly Ensure that gifts are complementary to the main producty Difficult to monitor in rural with retailers pocketing the

free gifts due to limited reach of media and literacy levels

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TRADE DISCOUNTS

DISCOUNT DESCRIPTION OBJECTIVE

TradeBasic discount given to

wholesalers a nd retailers Channel motivation

VolumeBased on higher quantity

off-takePush

Cash For payment on time Reduce receivables

SeasonalDiscounts in low demand

periodsOrder smoothening

PromotionFor participation inlocalised promotion

Demand stimulation

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PRICING BY RETAILERSy Two types of retailers in rural:

y Retailers in feeder townsy Retailers in villages

y These retailers:y Sell smaller quantitiesy Sell mainly loose productsy Sales cycle is daily or weeklyy Sell to people with comparatively lower purchasing power

yMalpracticesy Weights and measuresy Adulterationy Cheating on prices and calculations

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PRICING STRATEGY

y Three tests of effectiveness

1. Is it in tune with customer expectations?

2. Is it consistent with the other Ps?3. Is it competitive enough to give the target market

share

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yLook at rural more as value consciousy

Understand the power of the retaileryKeep track of the competitionyRs. 1 and Rs. 5 are strong price points

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ch 08 pricing strategy

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