*Pricing Policy in MarketingCopyright 2001 by McGraw-Hill Ryerson Limited

Presented by:Rohit Ranganathan

*AgendaPrice competition and value pricingPricing strategies for market entryPrice discounts and allowancesGeographic pricing strategiesSpecial strategies

*PricingPricing is one of the most important elements of the marketing mix, as it is the only mix, which generates a turnover for the organisation.

Pricing is difficult and must reflect supply and demand relationship. Pricing a product too high or too low could mean a loss of sales for the organisation. (e.g. Honda Civic Hybrid)

*Pricing FactorsPricing should take into account the following factors:Fixed and variable costs.CompetitionCompany objectivesProposed positioning strategies.Target group and willingness to pay.

*Pricing StrategyHow does a company decide what price to charge for its products and services?

Some firms have to decide what to charge different customers and in different situations (e.g. car dealer)

They must decide whether discounts are to be offered, to whom, when, and for what reason (e.g. frequent flyer)

*Price vs. Non-price CompetitionIn price competition, a seller regularly offers products priced as low as possible and accompanied by a minimum of services.(e.g. TATA Nano)With value pricing, firms strive for more benefits at lower costs to consumer. (Metro Cash-n-Carry)In non-price competition, a seller has stable prices and stresses other aspects of marketing (e.g. Mercedes Benz)With relationship pricing, customers have incentives to be loyal - get price incentive if you do more business with one firm. (Future Group Loyalty Card)

*Non-price CompetitionSome firms feel price is the main competitive tool; customers always want low prices (e.g. Big Bazaar)

Other firms are looking for ways to add value, thereby being able to avoid low prices (Apple)

Sometimes prices have to be changed in response to competitive actions (e.g. Low Cost Airlines)

Many firms would prefer to engage in non-price competition by building brand equity and relationships with customers (e.g. Kingfisher)

*Relationship PricingUses price as a method to build long-term relationships with the best customers (IT Companies)

Focuses on giving better deals to better customers (Jet Privilege Program)

Goal is to price relative to the value of the customer to the firm, while building loyalty and stimulating repeat buying

*The Price Determination ProcessIn pricing, an organization first must decide on its pricing goal.The next step is to set the base price for a product.The final step involves designing pricing strategies that are compatible with the rest of the marketing mix.Many strategic questions must be answered:Will our company compete on the basis of price or other factors?What kind of discount schedule (if any) should be adopted?

*SELECT PRICING OBJECTIVESELECT METHOD OF DETERMINING THE BASE PRICE:

Cost-pluspricing

Price based onboth demandand costs

Price set inrelation tomarket aloneDESIGN APPROPRIATE STRATEGIES:Price vs. non-pricecompetitionSkimming vs. penetrationDiscounts and allowancesFreight paymentsOne price vs. flexible price Psychological pricingLeader pricing Everyday low vs.high-low pricingResale pricemaintenanceThe Process: An Illustration

*Market Entry Pricing StrategiesMarket-Skimming Pricing: Setting a high initial price for a new product.Works if product is new, distinctive and desiredEarly in Product Life Cycle, when demand inelasticProtected by entry barriers, e.g. patents(e.g. Mitsubishi Pajero)

Market-Penetration Pricing: Setting a low initial price for a new product.Works if large market, elastic demandEconomies of scale are possibleFierce competition(e.g. TATA DOCOMO)

*Discounts and AllowancesQuantity discount: The more you buy, the cheaper it becomes. (Megamart)

Trade discounts: Reductions from list for functions performed - storage, promotion.

Cash discount: A deduction granted to buyers for paying their bills within a specified period of time, (after first deducting trade and quantity discounts from the base price) (MSEDL)

*Other Discounts and AllowancesSeasonal Discounts (e.g. Shoppers Stop Season Sale)

Promotional Discounts (e.g. launch of a new product / service) (Aircel launch in Mumbai)

*The Competition ActPredatory pricing: Selling at unreasonably low prices to lessen competition.(Local Broadband provider)Price discrimination: The use of different prices for different customers. It is illegal if a price advantage is granted to one, but not another, where both compete and the articles are similar.(Car Dealers)

*Geographic Pricing StrategiesPoint-of-Production pricing: Price quoted at factory - buyer pays transportation. (factory outlets)

Uniform delivered pricing: Same delivered price quoted to all; works if transportation costs small. (Maggi)

Zone-delivered pricing: Set same price within several zones, e.g. Bread

Freight-absorption pricing: Seller absorbs transport cost to penetrate market. (Sangam Direct)

*Psychology of PricingThe psychology of pricing suggests that price will convey a message about the product or service being soldleader pricingbait pricingprestige pricing

Price lining involves setting prices at a small number of fixed levels within a retail store

*Questionable Pricing PracticesResale price maintenance involves a supplier requiring that intermediaries sell a product at a certain price.

Some firms reduce prices, possibly even below cost, to attract customers; this form of loss-leader pricing is not illegal unless it persists for a long time with the goal of eliminating competition (predatory pricing)

*THANK YOU