Principles of Marketing

-Kotler
Pricing Strategies (14)

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2 wheeler categories , segments

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Learning Objectives
After studying this chapter, you should be able to:
1. Describe the major strategies for pricing
initiative and new products
2. Explain how companies find a set of prices that
maximize the profits from the total product mix
3. Discuss how companies adjust their prices to
take into account different types of customers
and situations
4. Discuss the key issues related to initiating and
responding to price changes
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4 Ps
Importance of Price
Cost, Profit, market share, price
elasticity, Primary demand vs.
secondary demand
Who determines price?
Price vs.value . psychological
segmentation
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Electrical Equipment Limited

case

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Srikant goes shopping

What price does he pay for his soap?
Why does he pay that? What is right
price for him? What does he refer it to?

Reference prices :Fair price, last price,

competitors price. Hi low, future
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Chapter Outline

1.
2.
3.
4.
5.

New-Product Pricing Strategies

Product Mix Pricing Strategies
Price Adjustment Strategies
Price Changes
Public Policy and Pricing

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Hi MRP./ low street price

Psychological tool. Perceived
value.
Price Quality inferences.
Scarcity limited editions.
Price cues. Bata pricing. Left digit.
Rounding off . 0, 5
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Pricing objectives
Survival: short term. Over capacity,
intense comp. V.C + some FC.
Max. current profit. Demand and cost.
Max mkt share: price sensitive mkt.
economies of scale.
Max mkt skimming.
Product quality leadership. affordable
luxuries
Partial cost recovery. NGO, govt. edu
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Demand
Price sensitivity . Price elasticity
Inelastic when ; distinct, not aware
of substitutes, essentials, small
expenditure, infrequent, cost borne
by another party, can not store,
industrial products.

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Break even analysis.

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New-Product Pricing Strategies

Pricing Strategies

Market skimming pricing

Market penetration pricing

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New-Product Pricing Strategies

Pricing Strategies
Market skimming pricing is a strategy with high
initial prices to skim revenue layers from the
market

Product quality and image must support the price

Buyers must want the product at the price
Costs of producing the product in small volume
should not cancel the advantage of higher prices
Competitors should not be able to enter the
market easily.
Bic, Biro
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New-Product Pricing Strategies

Pricing Strategies
Market penetration pricing sets a low initial
price in order to penetrate the market quickly
and deeply to attract a large number of buyers
quickly to gain market share

Price sensitive market

Inverse relationship of production and

distribution cost to sales growth

Low prices must keep competition out of the

market
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Product Mix Pricing Strategies

Pricing Strategies

Product line pricing

Optional product pricing
Captive product pricing
By-product pricing
Product bundle pricing
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Product Mix Pricing Strategies

Pricing Strategies
Product line pricing takes into account
the cost differences between products
in the line, customer evaluation of their
features, and competitors prices
Optional product pricing takes into
account optional or accessory products
along with the main product
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Product Mix Pricing Strategies

Pricing Strategies
Captive product pricing involves
products that must be used along with
the main product. Printer / cartridge

Two-part pricing is where the price is

broken into:

Fixed fee
Variable usage fee
E.g copying, rent-a-car, power genr.
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Price Adjustment Strategies

Pricing Strategies
By-product pricing refers to products
with little or no value produced as a
result of the main product. Producers
will seek little or no profit other than
the cost to cover storage and delivery.
Molasses, lignin, derated components.
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Price Adjustment Strategies

Pricing Strategies

Product bundle pricing combines

several products at a reduced price.
Computer+printer+table. Meals vs. a
la carte. Camera kit.

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Price Adjustment Strategies

Pricing Strategies

Discount and allowance pricing

Segmented pricing
Psychological pricing
Promotional pricing
Geographical pricing
Dynamic pricing
International pricing
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Price Adjustment Strategies

Pricing Strategies
Discount and allowance pricing
reduces prices to reward customer
responses such as paying early or
promoting the product

Discounts

Allowances
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Price Adjustment Strategies

Pricing Strategies

Discounts

Cash discount for paying promptly

Quantity discount for buying in large
volume
Functional (trade) discount for selling,
storing, distribution, and record keeping
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Price Adjustment Strategies

Pricing Strategies

Allowances

Trade in allowance for turning in an old

item when buying a new one . Exchange /
trade-in
Promotional allowance to reward dealers
for participating in advertising or sales
support programs
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Price Adjustment Strategies

Pricing Strategies
Segmented pricing is used when a
company sells a product at two or more
prices even though the difference is not
based on cost

Customer segment pricing

Product form segment pricing

Location pricing
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Price Adjustment Strategies

Pricing Strategies
To be effective:

Market must be segmentable

Segments must show different degrees of

demand

Watching the market cannot exceed the extra

revenue obtained from the price difference

Must be legal
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Price Adjustment Strategies

Pricing Strategies
Customer segment pricing is when different
customers pay different prices for the same
product or service
Product form segment pricing is when different
versions of the product are priced differently
but not according to differences in cost
Location pricing is when the product is sold in
different geographic areas and priced
differently in those areas, even thought the
cost is the same
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Price Adjustment Strategies

Pricing Strategies
Psychological pricing occurs when sellers
consider the psychology of prices and not
simply the economics

Reference prices are prices that buyers carry

in their minds and refer to when looking at a
given product

Noting current prices

Remembering past prices
Assessing the buying situations
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Price Adjustment Strategies

Pricing Strategies
Promotional pricing is when prices are temporarily
priced below list price or cost to increase demand

Loss leaders

Special event pricing

Cash rebates

Low interest financing

Longer warrantees

Free maintenance
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Price Adjustment Strategies

Pricing Strategies
Loss leaders are products sold below cost to
attract customers in the hope they will buy
other items at normal markups
Special event pricing is used to attract
customers during certain seasons or periods
Cash rebates are given to consumers who buy
products within a specified time
Low interest financing, longer warrantees,
and free maintenance lower the consumers
total price
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Price Adjustment Strategies

Pricing Strategies
Risks of promotional pricing

Used too frequently, and copies by

competitors can create deal-prone
customers who will wait for promotions
and avoid buying at regular price

Creates price wars

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Price Adjustment Strategies

Pricing Strategies
Geographical pricing is used for customers in
different parts of the country or the world

FOB pricing

Uniformed delivery pricing

Zone pricing

Basing point pricing

Freight absorption pricing

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Price Adjustment Strategies

Pricing Strategies
FOB (free on board) pricing means that the
goods are delivered to the carrier and the title
and responsibility passes to the customer
Uniformed delivery pricing means the
company charges the same price plus freight
to all customers, regardless of location
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Price Adjustment Strategies

Pricing Strategies
Zone pricing means that the company sets up
two or more zones where customers within a
given zone pay a single total price
Basing point pricing means that a seller
selects a given city as a basing point and
charges all customers the freight cost
associated from that city to the customer
location regardless of the city from which the
goods are actually shipped
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Price Adjustment Strategies

Pricing Strategies
Freight absorption pricing means the
seller absorbs all or part of the actual
freight charge as an incentive to
attract business in competitive
markets
Freight equalisation steel, coal, power,
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Price Adjustment Strategies

Pricing Strategies

Dynamic pricing
International pricing

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Price Adjustment Strategies

Pricing Strategies
Dynamic pricing is when prices are
adjusted continually to meet the
characteristics and needs of the
individual customer and situations

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Price Adjustment Strategies

Pricing Strategies
International pricing is when prices are set in a
specific country based on country-specific factors

Economic conditions

Competitive conditions

Laws and regulations

Infrastructure

Company marketing objective

PPP.

Gray market
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Price Changes
Initiating Pricing Changes

Price cuts
Price increases

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Price Changes
Initiating Pricing Changes
Price cuts is a reduction in price

Excess capacity

Increase market share

Price increases is an increase in selling
price

Cost inflation

Increased demand and lack of supply

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Price Changes
Buyer Reactions to Pricing Changes
Price cuts

New models will be available

Models are not selling well
Quality issues

Price increases

Product is hot
Company greed
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Price Changes
Responding to Price Changes
Questions

Why did the competitor change the price?

Is the price cut permanent or temporary?

What is the effect on market share and

profits?

Will competitors respond?

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Price Changes
Responding to Price Changes
Solutions

Reduce price to match competition

Maintain price but raise the perceived

value through communications

Improve quality and increase price

Launch a lower-price fighting brand

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Public Policy and Pricing

Pricing Within Channel Levels
Price fixing: Sellers must set prices
without talking to competitors
Predatory pricing: Selling below cost with
the intention of punishing a competitor
or gaining higher long-term profits by
putting competitors out of business
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Public Policy and Pricing

Pricing Across Channel Levels
Retail (resale) price maintenance is when a
manufacturer requires a dealer to charge a
specific retail price for its products
Deceptive pricing occurs when a seller states
prices or price savings that mislead
consumers or are not actually available to
consumers
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Public Policy and Pricing

Pricing Across Channel Levels
Deceptive pricing occurs when a seller states prices
or price savings that mislead consumers or are
not actually available to consumers

Scanner fraud failure of the seller to enter current

or sale prices into the computer system

Price confusion results when firms employ pricing

methods that make it difficult for consumers to
understand what price they are really paying

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