PRICING STRATEGIES

Price Price has different meanings in different

situations…

What is the price of your honesty?

What is the price of your soul?

What is the price of education?

What is the price of a car?

So what do we pay price for…? VALUE

Bundle of utilities

Want satisfying ability

Commodities and services

So these commodities and services are Brands … !!!For which the pricing strategies are designed

Pricing Strategy :

It is a strategic tool that organizations use to differentiate their products from competitors and thereby gain the competitive edge to capture the market.

OBJECTIVES

Develop marketing strategy - perform marketing analysis, segmentation, targeting, and positioning.

Make marketing mix decisions - define the product, distribution, and promotional tactics.

Estimate the demand curve - understand how quantity demanded varies with price.

OBJECTIVES (contd.)

Calculate cost - fixed and variable costs associated with the product

Understand environmental factors - evaluate likely competitor actions, understand legal constraints, etc

Set pricing objectives - for example, profit maximization, revenue maximization, or price stabilization (status quo)

Determine pricing - using information collected in the above steps, select a pricing method, develop the pricing structure, and define discounts

Pricing Strategies - Exercise

Place pricing strategies onto the correct section of the matrix :

Wall-Mart launch a new range of own-label soups.

A cable TV provider moves into a new area and needs to achieve a market share.

Holiday Inns try to fill hotels during winter weekends.

Nokia launch a new videophone. Cunard launched two new crew

ships/ Burger King introduces new range

of value meals.

Pricing Strategies - Exercise

Pricing Strategies - Exercise

Price-Quality Strategies

Philip Kotler identified 9 price-quality strategies

Premium HighValue

SuperValue

OverCharging

MidValue

GoodValue

Rip-offFalse

EconomyEconomy

High QualityHigh Quality

Low QualityLow Quality

High PriceHigh Price Low PriceLow Price

PremiumHigh Value Super Value

Overcharging Mid-Value Good Value

Rip-off False Economy Economy

High QualityHigh Quality

Low QualityLow Quality

High PriceHigh Price Low PriceLow Price

PRICING APPROACHES

Demand Oriented pricing

Cost – based pricing

Competitor – based pricing

Demand-oriented pricing Skimming pricing –

a new/innovative product is charged a high price. Then prices are lowered to "skim" off the next layer of buyers

SKIMMING…

WHIRLPOOL OBJECTIVEHarness maximum contribution

when the going is smooth

STRATEGYNothing can cool better & faster…

So get it fast

SKIMMING…

APPLE i-Pod OBJECTIVE

New product ,new market… A new way of listening to music

STRATEGYKeep the prices high, aggressive promotion

Penetration pricing

A low initial price in order to penetrate quickly into the mass market

discourages competitors from entering the market, and is the best approach when many segments of the market are price sensitive

PENETRATION…

REJOICE OBJECTIVE:

To effectively combine packaging size and associated price

STRATEGY

Come out with Re1 sachet… use when you please

PENETRATION…

5PAISA.COM OBJECTIVE

To highlight easy and smooth and cheap internet transactions

STRATEGYSet a very low amount for each transaction which seemed miniscule to the Indian consumer

PENETRATION…

Reliance India Mobile OBJECTIVE

A luxury item in reach of a common man’s hand

STRATEGY“kar lo duniya mutthi mein”

PENETRATION…

T-SERIES CASSETTES OBJECTIVE

To open the floodgates of unprecedented competition..

STRATEGY Sabotaged other players in the

music industry… unbeatable pricing

Prestige pricing

A few products are not taken seriously by some buyers unless they are priced at a particular level

Psychological Pricing

Pricing takes advantage of human psychology that feels like $499.95 is less than $500.

PSYCHOLOGICALLY ODD…

TANISHQ OBJECTIVE

To indicate the auspiciousness in prices

STRATEGYAffordable jewelry over a wide range of prices to choose from

Cost-oriented approaches Standard mark-up pricing –

Typically a manufacturer marks his price up 15% over his costs, a wholesaler 20% over his costs, and a retailer 40% over his costs

Cost-plus pricing

Add a small percentage to the retailer's costse.g. cost plus 5%

Experience curve pricing

A company less to produce a product or provide a service over time, since learning will make them more efficient

Competition-oriented approaches Above-, at-, or below-market pricing -

Certain stores advertise "low cost" or "discount" pricing.

Loss-leader pricing

works on the basis of losing money on certain very low priced advertised products to get customers in the door who will buy other products at the same time

Geographical Pricing

Geographical pricing is evident where there are variations in price in different parts of the world. For example rarity value, or where shipping costs increase price.

Western union money

Value Pricing.

This approach is used where external factors such as recession or increased competition force companies to provide 'value' products and services to retain sales.

e.g. value meals at McDonalds.

McDonalds

Product Bundle Pricing.

Here sellers combine several products in the same package. This also serves to move old stock.

BUNDLING…

BUNDLING …

DOMINO’S

OBJECTIVE

To increase the market share by using price as a strategy.

STRATEGY

Factors like delivery time,4 different pizzas in pack.

PROMOTIONAL…

Premium Pricing- Use a high price where there is a uniqueness

about the product or service.

PREMIUM PRICING…

DOVE OBJECTIVE

To position it as a cut above the rest of the soaps.

STRATEGY“Not a Soap, It’s 1/4th moisturizing cream…”

PREMIUM PRICING…

NOKIA N SERIES OBJECTIVE

To create its unique identity in the crowd flooding the market

STRATEGY

To once again create an exclusivity around a product which had been commoditized

Economy Pricing

This is a no frills low price. The cost of marketing and manufacture are kept at a minimum. Supermarkets often have economy brands for soups, spaghetti, etc.

ECONOMY… AIR DECCAN OBJECTIVE

To expand the pie… to fly the middle class AC three or two traveler

STRATEGYCater to the “Great Indian Dream”

PRICES CRASHING DOWN!!!

ECONOMY…

BIG BAZAAR OBJECTIVE

Simple! Thrash the competition!

STRATEGYA series of well planned advertisements across all media to emphasize low prices

Innovative Packaging Pricing…

REVLON

OBJECTIVETo give an international exposure to the growingly beauty conscious woman

STRATEGYIntroduce low priced small trial bottles of nail enamel to entice the already captive Indian audience

Price War

Price wars are frequent in industries where…

Cost differentiation opportunities exists Capital is intensive and products are

homogeneous

Examples: Telecommunication, Airfares, Cola

Is this the ‘COLA’ War ?!

Discussion: Impact of Ethics on Pricing How should you price if your product is a life-

saving drug?

What are the ethical considerations? Customers have no choice Need to pay for the research When cheaper options doesn’t work Competition decides

The Take-Away Lesson: Adopt a very deliberate price strategy

Will you be the low price leader? Or the service leader?

Will you deliberately price low in order to penetrate the market quickly (first-mover advantage)? Or will you price high to skim off the early adopters at a premium profit?

Will you bundle several products in order to make a greater profit?

Will you round off to the nearest dollar or use an odd price approach?

THE INDIAN FONDNESS OF ENDING WITH A SWEET!!

Cadbury’s

OBJECTIVE

To make your mouth water for more!!!

STRATEGY

Kuch meetha ho jaye!!!

EVERY MARKETER’S DREAM…

NIHIL ULTRA… NOTHING BEYOND… (the pie!)