•Objectives of pricing

•Factors influencing pricing decision in industrial marketing

• Differentiating factors industrial & consumer pricing

•Pricing theories

•Cost and competition based methods used for B2B

Sixth Lectureon

pricing

Objectives of Pricing

SURVIVAL

•Cover fixed costs and some variable costs•Avoid Extinction

PROFIT MAXIMIZATION

•Requires accurate knowledge of demand, cost functions

REVENUE MAXIMIZATION

•Costs hard to determine•Works if market is price sensitive•Increase in revenue leads to decrease in unit costs.

2

Factors influencing pricing decision

Govt. .policy regulation,

if any

Govt. .policy regulation,

if any

Competitive analysis:

CompetitiveLevel pricing

Competitive analysis:

CompetitiveLevel pricing

Cost analysis:Cover all costs

&Profit margins

Cost analysis:Cover all costs

&Profit margins

Demand Analysis:

Pricevs.

volume

Demand Analysis:

Pricevs.

volume

Pricing objectives:

SurvivalMax profit

leadership ,etc

Pricing objectives:

SurvivalMax profit

leadership ,etc

Pricing decision

Pricing decision

Industrial vs. Consumer Pricing

Aspects Industrial pricing Consumer pricing

Pricing Negotiated price, bulk discounts, delivery, installation, penalty, training , etc are considered

Listed price is final subject to discount scheme, if any

Evaluation Based on firm’s value chain and competitive offerings

Customer decision

Buyers Professionals

Extract value for money

Individuals. Limited choice

Bargaining Competitive bidding & negotiation

Only through by haggling

Pricing : Theories

Penetration Pricing :( Nano car)

Market Skimming(Lap tops when introduced, telecom launches, etc)

Value Pricing(Status products: luxury cars, fashion clothes, perfumes)

Loss LeaderSuper market sales for stock clearance, buy one take one free, annual/

seasonal sales)

Psychological Pricing( Discount sale unto 50%, Bata pricing, etc)

Marginal Cost Pricing

(more production to cover fixed costs)

Influence of Elasticity

Cost-Plus Pricing

B2B pricing methods most commonly used

Cost based methods:

1. Rate of return pricing (fixed percentage mark up over cost, profit as a fixed % of sales, fixed return on investment, etc)

2. Cost plus or Mark up pricing( lawyers, consultants, builders, accountants etc)

3. Marginal cost pricing( in competitive market scenario cover cost by maximizing productivity and lower input costs. However it does not provide stable pricing policy. In case of recession this method may be used)

B2B pricing methods most commonly used

Competition Method

1. Competitive bidding & negotiating

2. Price leadership( big vs. small player collective wisdom to exploit market)

3. Trade association prices( Base on the understanding of the members/price cut by one member can spark off price war)

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