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PRICING PRODUCT
S
What is a Price????????The amount of money charged for a product or a service.It is the some of all the values that a customer give up in
order to gain the benefits of having or using the product or service.
It is the monetary value of a product or service.
“Price is the most important element determining a firm’s market share &
profitability.”
Price is the only element in the marketing mix that generates revenues; all other represent cost.
It is one of the most flexible marketing mix.
Factors of setting Prices
Cost based Value based Competition based
Value based Pricing:
“Setting prices based on buyer’s perception value rather than on the
seller’s cost.”
The company sets its target price based on customer perception of the product value.
The value & price then drive decisions about product design & what cost can be incurred.
Good-Value
Pricing
Value-Added Pricing
Types of
Value-Based Pricing
Good-Value Pricing:
“Offering just the right combination of quality & good
service at a fair price.”
Value-Added Pricing:
“Attaching value added features & services to differentiate a company’s offers & to support charging higher
prices.”
Examples:Santro, GLI, XLI.Dawlance H-zone Washing Machine.Blackberry cell phone.
Cost-Based Pricing:
“Setting prices based on the costs for producing, distributing & selling the product plus a fair rate of return for
effort & risk”
Examples:Auto Mobile IndustryHome Appliances IndustryImported CosmeticsConstruction Companies
Types of Costs:
Fixed Costs(overhead):Costs that do not vary with production or sales level.
Variable Costs:Costs that vary directly with the level of production.
Total Costs:The sum of fixed & variable costs for any given level of production.
“Setting prices to break even on the costs of making & marketing a product; or setting prices to make a target
profit.”
Break Even = Fixed cost Price – Variable cost
Break-even Analysis(Target Profit Pricing):
Target Costing:Pricing that starts with an ideal profit price, then target costs that will ensure that the price is met.
Product Cost Price Value Customer
ProductCostPriceValueCustomer
“Cost based Pricing”
“Value based Pricing”
Internal Factors
Company’s Marketing Strategy
Objectives
Marketing Mix
Organizational Consideration
PRICING STRATEGIES
NEW-PRODUCT PRICING
STRATEGIES
1. MARKET SKIMMING PRICING
“Setting a high price for a new product to skim maximum revenues layer by layer from the segments
willing to pay the high price; the company makes fewer but more profitable sales.”
Example:World Call Wireless USB started price at Rs.3999then shrank to
Rs.1299Seasonal ProductsCell PhonesSony Play station 3 initially sold at $599 then gradually reduced to
$299Technological Markets
2.MARKET PENETRATION PRICING
“Setting low price for a new product in order to attract a large number of buyers &
a large market share.”
Examples:Consumer productsShopping productsMarket of DVD Players
PRODUCT MIX PRICING
STRATEGIES
1.PRODUCT LINE PRICING
“Setting the price steps between various products in a product line based on cost difference between
the products, customer evaluations of different features, & competitor’s prices.”
Examples:Beverage line of NestleBakeparlor of kolsonHome care line of Unilevers
2.OPTIONAL PRODUCT PRICING
“The pricing of optional or accessory products along with the main product.”
Examples:VCD Player Option in CarsDigital Microwave OvenIce Bar Option in RefrigeratorAssembling of Computer System
3.CAPTIVE PRODUCT PRICING
“Setting a price for products that must be used along with a main product.”
Examples:Bikes & PetrolStapler & PinsVCD Player & CD’sPrinters & ink fillingsWashing Machine & Detergents
4.BY-PRODUCT PRICING
“Setting a price for by-products in order to make the main product’s
price more competitive.”
Examples:Wallets, handbags from leather cuttingsPaper from sugarcane wastageSewage & manure as fertilizers
5.PRODUCT BUNDLE PRICING
“Combining several products & offering the bundle at a
reduced price.”
Example:Baby PacksMakeup PacksGents Wallet PacksTooth paste & Tooth Brush packsPerfumes & Body Spray PacksShirt & Tie PacksFacial Kits
PRICE ADJUSTMENT STRATEGIES
1.DISCOUNT & ALLOWANCE
Price reduction on large volume sales
Cash Discount
Quantity Discount
Functional/Trade Discount
Seasonal Discount
Price reduction to loyal customers
Price reduction to trade channel members
Price reduction on off-season purchases
“A straight reduction in price on purchases during a stated period of time.”
Conti…
“Promotional money paid by manufacturers to retailers in return for an arrangement to feature
the manufacturer’s products in some way.”
Trade-in-Allowance
Promotional Allowance
Price reduction for turning on an old item when buying a new one
Price reduction to award dealers for achieving some target
2.Segmented Pricing
“Selling a product or service at two or more prices, where the difference in prices is not based on differences in costs.”
Product-form
Customer-segmented
Location based
Time based
Different versions of products at different prices
Different customers pay different prices for same products
Different prices for different locations
Seasonal prices of products
3.Psychologocal Pricing“A pricing approach that considers the psychology of
prices & not simply the economics; the price is used to say something about the product”
Reference Prices
Sales Sign
Prices ending in 9
Sign post Pricing
Pricing-Matching Guarantees
Buyer carry in their minds & refers to when looking products
Sales! New low Prices! Price after Rebate! Buy 1, Get 1.
9 digit at the end of price; $12999
Price below cost to pull customer; Loss Leader Price
Seller promises to meet or beat any competitor’s price
4.PROMOTIONAL PRICING
“Temporarily pricing products below the list price, & sometimes even below
cost, to increase short-run sales.”
Loss Leaders
Special Events
Cash Rebates
Others
Low prices to appeal customers
In certain seasons to draw more customers
For customers who buy product from dealers
Low-interest financing, Longer Warranties, Free maintenance, Discount Offers
5.GEOGRAPHICAL PRICING
“Setting prices for customers located in different parts of the country or world.”
FOB-Origin
Uniform Delivered
Zone Pricing
Basing-Point
Freight Absorption
Goods are placed free on board a carrier;
Same price plus freight to all customers; regardless of their location
Company sets zones; customer within a zone pay same price
Designated one city as basing point; customer pay freight cost from that city to customers
Seller absorbs all or part of freight charges in order to get desired business
6.DYNAMIC PRICING
“Adjusting prices continually to meet the characteristics & needs of
individual customers & situations”
Many direct marketers monitor inventories, costs & demand at any given moment & adjust prices instantly.
Buyers also benefit from Web & Dynamic Pricing; negotiate prices at online auction sites & exchanges.
It adjust prices according to market forces & often works in the benefit of customers.
7.INTERNATIONAL PRICING
“Companies trading internationally may set different prices in different countries or a
uniform price internationally”
Factors affecting international pricing:Economic ConditionsCompetitive SituationsLaws & RegulationsWholesaling & Retailing SystemCustomer Preference & PerceptionMarketing ObjectivesVarious World Markets
MARKETING CHANNEL &
SUPPLY CHAIN MANAGEMENT
SUPPLY CHAIN
“Producing a product or service & make it available to buyers requires building
relationships not only with customers, but also with the key suppliers & resellers forms
a company’s supply chain”
PARTNERS OF SUPPLY CHAIN
UPSTREAM PARTNERS:A set of firms that supply the raw material,
components, parts, information, finances & expertise needed to create a product or service.
DOWNSTREAM PARTNERS:It is a set of wholesalers & retailers, form a vital
connection between the firms & its customers.
VALUE DELIVERY NETWORK
“The network made up of the company, suppliers, distributers & ultimately customers who “partner” with each other to improve the
performance of the entire system.”
MARKETING CHANNEL
“A set of interdependent organizations that help make a product or service available for use or
consumption by the consumer or business user”
Functions of Marketing Channel
Storage
Customer Search
Promotion
Flow of Product
Payment Flow
Contact
Customer Feedback
Negotiation
Finance
Risk Sharing
Information
Matching
CHANNEL LEVEL
“A layer of intermediaries that performs some work in bringing the product & its
ownership closer to the final buyer.”
Direct Marketing Level/Zero Level:A marketing level that has no intermediary level.
Indirect Marketing Channel:A channel containing one or more intermediary levels.
Producer
Customer Customer
Retailer
Producer
Retailer
Wholesaler
Customer
Producer
ZERO LEVEL ONE LEVEL TWO LEVEL
CHANNEL CONFLICT
“Disagreement among marketing channel members on goals & roles-who should do
what & for what rewards.”
Horizontal Conflicts:That occur among firm at the same level of channel.
Vertical Conflicts:That occur between different levels of the same channel.
Conventional Distribution Channel
“A channel Consisting of one or more independent producers, wholesalers & retailers each a separate
business seeking to maximize its own profit even at the expense of profits for the system as a whole.”
Vertical Marketing System
“A distributional channel structure in which producers, wholesalers & retailers act as a united
system. One channel member owns the others, have contracts with them, or has so much power
that they all cooperate.”
Retailer
Wholesaler
Customer
Producer
WholesalerRetailer
Producer
Customer
Conventional Marketing Channel
Vertical Marketing Channel
Major Types of VMSs:
1.Corporate VMS:
“A vertical marketing system that combines successive stages of production & distribution under single
ownership- channel leadership is established through common ownership.”
It integrates successive stages of production & distribution under single ownership.Coordination & conflict management are attained through regular organization channel.
2.Contractual VMS:“A vertical Marketing System in which independent firms at
different levels of production & distribution join together through contracts to obtain more economies or sales impact than they could
achieve alone.”
Most common type is Franchise Organization- a channel member links several stages in the production-distribution stages.
Three types of Franchises:Manufacturer-Sponsored Retailer Franchise SystemManufacturer- Sponsored Wholesaler Franchise SystemService-Firm-Sponsored Retailer Franchise System
Major Types of VMSs:
Major Types of VMSs:
3.Administrated VMS
“A vertical marketing system that coordinates successive stages of production & distribution, not through common
ownership or contractual ties, but through the size & power of one of the parties.”
Horizontal Marketing System
“A channel arrangement in which two or more companies at one level join together to follow a new marketing opportunity.”
Companies can combine their financial, production, or marketing resources to accomplish more than any one company could alone.
They might joint forces with competitors or noncompetitorsThey may also work well globally.
Multichannel Distribution System
“A distribution system in which a single firm sets up two or more marketing channels to reach one or more
customers segments.”
Companies expand their sales & market coverage & gain market opportunities.
Such systems are hard to control as they generate more conflicts.
Producer
Consumer
Segment 4
Consumer
Segment 3
Consumer
Segment 2
Consumer
Segment 1
Distributer
DealersRetailers
Channel Design Decision
Extremely important decisionIt calls for:
Analyzing Customer needSetting Channel ObjectivesIdentifying Major Channel AlternativesEvaluating the Major Alternatives
1. Analyzing Customer NeedsMarketing Channel are the part of overall Customer Value Delivery
Network. It starts with finding out:
What target consumers want from the channel?Do consumers want to buy from near by locations or are they willing
to travel to more distant centralized locations?Would they rather buy in person, over the phone, through the mail, or
online?Do they value breadth of assortment or do they prefer specialization?Do consumers want many add-on-services?
The faster the delivery, the greater the assortment provided, & the more add-on-services supplied, the greater the channel’s service level.
2. Setting Channel Objectives
Companies should decide which segments to serve & the best to channel to use in this case.
The nature of company, its products, its market intermediaries, its competitors & the environment influence the company’s channel objectives.
Companies selling perishable goods require more direct marketing channel.
The companies may compete in or near the same outlet that carry competitors products.
Environmental factors such as economic conditions & legal constraints may affect channel design & decisions.
3. Identifying Major Alternatives
The company should identify its major alternatives in terms of type of intermediaries, the number of intermediaries, & the responsibilities of each channel member.
1.Types of intermediaries:The company should identify the types of channel members available to carry out its channel work. The following channel alternatives might emerge:
Company Sales ForceManufacturer’s AgencyIndustrial Distribution
2.Number of Marketing Intermediaries:Companies must determine the number of channel members to use at each level. Three strategies are available:
Intensive DistributionExclusive DistributionSelective distribution
3.Responsibilities of Channel Members:Producers & intermediaries must agree upon the terms & responsibilities of each channel member like price policies, conditions of sale, territorial rights & specific services.
4. Evaluating the Major Alternatives
A company must evaluate its major alternatives against
1.Economic Criteria:Comparing the sales, costs & profitability of different channel alternatives.2.Control Issues:Giving intermediaries some control over the marketing of products.3.Adaptive Criteria:Channels involve long-term commitments to keep the channel flexible so that it can adapt to environmental changes.
Communicating Customer Value
Promotion Mix
Advertising
Public Relation
Personal Selling
Direct Marketing
Sales Promotion
1.Advertising “Any Paid form of non personal presentation &
promotion of ideas, goods or services by an identified sponsor.”
It includes Broadcast, Print, Internet, Outdoor & other forms.
2. Sales Promotion
“Short-term incentives to encourage the purchase or sale of a product or service.”
It includes Discount, coupons, Displays & Demonstration.
3. Public Relation
“Building good relations with the company’s various publics by obtaining favorable publicity, building up a
good corporate image & handling or heading off unfavorable rumors, stories & events.”
It includes Press Releases, Sponsorship, Special Events & Web Pages.
4. Personal Selling
“Personal presentation by the firm’s sale force for the purpose of making sales & building customer
relationship.”
It calls for Sales Presentation, Trade Shows & Incentive Programs.
5. Direct Marketing
“Direct connection with carefully targeted individual consumers to both obtain an immediate response &
cultivate lasting customer relationship.”
It highlights Catalogs, Telephone Marketing, Kiosks, Internet & more.
Sender
Media
Encoding
Noise
Decoding Receiver
Response
Feedback
Message
Process of Communication
Sender’s Field Receiver's Field
Steps in Developing Effective Communication
1. Identifying the Target Audience
Communications initiates with a clear target audience.It may be:
Potential BuyersCurrent UsersIndividualsGroupsSpecial PublicsGeneral Public
Target Audience Influence Heavily on:What, When, Where, Who & how a message should be conveyed.
2. Setting Communication objectives
The communicators must set the objectives on the base of following six factors to be achieved from the buyers. These are:
AwarenessKnowledgeLikingPreferenceConvictionPurchase
3. Designing a Message
A message should follow AIDA Model which calls forAttentionInterestDesireAction
Message designing involves two main stages:Message content (what to say)Message Structure & Format (how to say)
Message ContentA message should have some appeals or themes for achieving the desired resultsThe appeals may be:
Rational AppealsThese are related to audience self-interest. Such appeals explain the product’s quality, economy, value & performance.
Emotional AppealsThese are attempt to stir up emotions that can motivate purchases.These can be positive emotional appeals like love, pride, joy & humorOr negative like fear, guilt & shame.
Moral AppealsThese are directed to audience sense of what is right & proper.
Message Structure
Major message structure issues involves:Whether to draw conclusion or leave on to the audienceWhether to present the strongest arguments first or lastWhether to present a one-sided or two-sided argument
Message FormatIn a print ad; the headline, copy, illustration, colors, pictures,
message size, position, shape & movement etcOn air ad; words, sound, voices & background music etcIn a television ad; facial expressions, gestures, postures, dress,
hairstyle, age etc
4.Choosing the Media
The communicator must now select channels of communication. It has two broad communication channels:
Personal Communication ChannelNon Personal Communication Channel
Personal Communication Channel
“It calls for two or more people communicating directly with each other, including face to face, on the phone, through mail or e-mail or even
through an internet chat.”
Channels interact either:Directly with the target buyersThrough independent expertsConsumer advocatesOnline buying guidesOthers making statement to buyers
Modes of Personal Communication
1.Word-of-Mouth Influence:“Personal Communication about a product between
target buyers & neighbors, friends, family members & associates.”
2.Buzz Marketing:“Cultivating opinion leaders & getting them to spread
information about a product or service to others in their communities.”
Non Personal Communication Channel
“It involves media that carry messages without personal contact or feedback, including major
media, atmospheres & events.”
It includes:Print Media (newspapers, magazines, direct mail)Broadcast Media (radio, television)Display Media (billboards, signs, posters)Online Media (e-mail, website)
5.Selecting the Message Source
Messages delivered by highly credible sources are more persuasiveThey might hire Doctors, Dentists, Healthcare Providers, Superstars, Celebrities, Leaders, Well-known Athletes, Actors even Cartoon Characters etc.For Example:
Shahid Afridi promoting Head n ShouldersCartoon Characters like in the ads of Safeguard, Dew,
DingDong Bubble, Nestle Cerelac, Tetra Packs of milk,Ali Zafar in the ad of Mobilink JazzFilmstar Shan in the ad of Lipton Tea
6.Collecting Feedback
Feedback on marketing may suggest changes in the promotion program or in the product offer itself.
The marketer wants to know:Whether the target market remember the messageHow many times they saw itWhat points they recallHow they felt about messageHow many customers bought a productHow many people talked to others about itHow many people visited the store
The result suggest either the promotion is creating awareness or providing the expected satisfaction or not.
Setting Promotion Budget & Mix
One of the hardest marketing decision faced by a company is to how much to be spend on promotion budget.
Four methods are devised to set the promotion budgetAffordable MethodPercentage-of-Sales MethodCompetitive-Parity MethodObjective-&-Task Method
1.Affordable Method:
“Setting the promotion budget at the level management thinks the company can afford.”
Usually, small companies adopt this method. They start with total revenues, deduct operating expenses & capital outlays & then devote some portion of remaining funds to advertising.
Demerits:Ignores the effect of promotion on sales.Places promotion last among spending priorities.Leads to an uncertain promotion budget, which makes long-run
planning difficult.
2.Percentage-of-Sales Method
“Setting the promotion budget at a certain percentage of current or forecasted sales or as a percentage of the unit
sales price.”Merits:
Simple to useHelps creating relationship between promotion spending,
selling price & profit per unit.
Demerits:Wrongly views sales as the cause of promotion rather than as
the result.Based on availability of funds not on opportunitiesAs budget varies year-to-year , long-range planning is
difficultNo any specific bases for choosing percentage
3.Competitive-Parity Method
“Setting the promotion budget to match the competitors’ outlays.”
Merits:Represents collective wisdom of industryPrevents promotion wars
Demerits:No grounds for believing that the competitors has better idea of what a
company should spend on promotion than does the company itself.Each company has its own promotional needsNo evidence that this method prevents promotion wars.
4.Objective-&-Task Method
“Developing the promotion budget by:Defining specific objectives Determining the task that must be performed to achieve
these objectivesEstimating the cost of performing these task.”
Merits:Forces management to spell out its assumption about the relationship between dollar spent & promotion resultDemerits:Hard to figure out which specific task will achieve stated objectives.
ADVERTISING
Advertising
“Any paid form of nonpersonal presentation & promotion of ideas, goods or
services by an identified sponsor through medium.”
Advertising is not only used by business firms but a wide range of not-for-profit organizations, professionals & social agencies also use advertising
It involves four major & important decisions when developing an advertising program. These are:
Setting Advertising Objectives
Setting Advertising Budget
Developing Advertising strategy
Evaluating Advertising Campaigns
Setting Advertising Objectives
Step 1
“A specific communication task to be accomplished with a specific target audience during a specific period of time.”
Bases of Objectives:Target MarketPositioningMarketing Mix
Primary Purposes of Advertising Objectives:InformativePersuasiveReminder
Setting the Advertising
Budget
Step 2
“The dollars or other resources allocated to a product or company advertising program.”
Advertising budget depends on:Stages in the Product Life CycleMarket ShareUndifferentiated Brands-requiring high budget to achieve
competitive edge
Developing Advertising
Strategy
Step 3
“The strategy by which the company accomplishes its advertising objectives.”
It consists of two major elements;Creating Advertising MessageSelecting Advertising Media
In today’s world advertising is the most important function performed by the media-planners
CREATING THE
ADVERTISING MESSAGE
Advertising succeeds only when it gains attention & communicates well
An effective advertising message strategy develops with:Identifying Customer benefitsCreative ConceptAdvertising Appeals-meaningful, believable, distinctiveExecution StyleToneAttention-getting WordsFormat Elements
Execution Style
Slice of Life
Lifestyle
FantasyMood or ImageMusicalPersonality
SymbolTechnical Expertise
Scientific Evidence
Testimonial Evidence
SETTING ADVERTISING
MESSAGE
Advertising Media
“The vehicles through which advertising messages are delivered to their intended audience.”
It is selected by:Deciding on Reach, Frequency & impact.Choosing among major media typesSelecting specific media vehiclesDeciding on media timing
Reach:Measure of percentage of people in the target market who are exposed to the ad campaignsFrequency:Measure of how many times an average person is exposed to the messageMedia Impact:Qualitative value of a message exposure through a medium.
Media Types:Television, Newspapers, Direct Mail, Magazines, Radio, Outdoor & Internet
Media Vehicles:It calls for selecting a specific media within each general media typeFor example: which TV Channel is suitable for the adMedia Planners evaluate media vehicles on the basis of:
Audience QualityAudience EngagementEditorial Quality
Media Timings:The firms either;
Follow the seasonal patternsOppose the seasonal patternsSame all year
Continuity & Pulsing are the patterns of Ad.
EVALUATING THE
ADVERTISING EFFECTIVENES
S
Step 4
“It calls for the net return on advertising investment divided by the costs of the advertising investment.”
Advertisers evaluate two types of results:
The Communication EffectsThe Sales & Profit Effects
