PRICING

What is Pricing?

Is the process of determining what a company will receive in exchange for its products.

Two Views

Buyers’ View – For those making a purchase, such as final customers, price refers to what must be given up to obtain benefits.

Sellers’ View - To sellers in a transaction, price reflects the revenue generated for each product sold and, thus, is an important factor in determining profit.

Common Questions

Are they getting their money’s worth?

Can they afford that certain product?

Can I have a discount?

Why is it so expensive?

What a Price should do!

• Achieve the financial goals of the company. (e.g., profitability)

• Fit the realities of the marketplace. (Will customers buy at that price?)

• Support a product's market positioning.

Factors that affects Pricing

Cost Customer Competition Other Factors

•Supplier's prices

•Price inflation

•Exchange rate movements

• Quality

•Growth in customer's income

•Perception about future prices

•Quality perception

• Demand

•perfect competition

•Imperfect Competition

•Role of Middle Man

Pricing Strategies

Penetration pricing

• Here the organization sets a low price to increase sales and market share. Once market share has been captured the firm may well then increase their price.

Pricing Strategies

Skimming pricing

• The organization sets an initial high price and then slowly lowers the price to make the product available to a wider market. The objective is to skim profits of the market layer by layer.

Pricing Strategies

Competition pricing

• Setting a price in comparison with competitors. Really a firm has three options and these are to price lower, price the same or price higher.

Pricing Strategies

Product Line Pricing

• Pricing different products within the same product range at different price points.

Pricing Strategies

Bundle Pricing

• The organization bundles a group of products at a reduced price.

Pricing Strategies

Psychological pricing

• The seller here will consider the psychology of price and the positioning of price within the market place.

Pricing Strategies

Premium pricing

• The price set is high to reflect the exclusiveness of the product.

Pricing Strategies

Optional pricing

• The organization sells optional extras along with the product to maximize its turnover

Basic Guidelines

• Your price must be enough higher than costs to cover reasonable variations in sales volume.

• You have to make a living.

• Your price should almost never be lower than your costs or higher than what most consumers consider "fair"

Price Discounts

Quantity discount - offered to customers who purchase in large quantities.

Cumulative quantity discount - a discount that increases as the cumulative quantity increases.

Price Discounts

Seasonal discount - based on the time that the purchase is made and designed to reduce seasonal variation in sales.

Cash discount - extended to customers who pay their bill before a specified date.

Price Discounts

Trade discount - a functional discount offered to channel members for performing their roles.

Promotional discount - a short-term discounted price offered to stimulate sales.

ACTIVITY

The PRICE is right