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Marketing of Financial Products & Services- Marketing Mix - Price - Concept & Strategy
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Marketing of
Financial
Products
1 MoFP for
TKW’s
Lecture – 6 Parveen Sharma
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Contents
Marketing Mix: Price
The Concept
Objective of Pricing
Factors Affecting Pricing
Pricing Strategies
Pricing Strategy & PLC
Relationship Pricing
Break-even Analysis
MoFP for
TKW’s
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Marketing Mix: Price
MoFP for
TKW’s
Pricing decisions need to balance a business’s need to make a profit,
with the market’s value perception (i.e. what the market is prepared to
pay).
If the price is too high, customers won’t buy the products; if the price
is too low, there is a risk that the business will not be able to generate
enough profit to breakeven.
"Price is what you pay. Value is what you get." - Warren Buffett
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“P” in marketing mix generating revenue
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Marketing Mix: Price
MoFP for
TKW’s
Price = Revenue Product
Place = Cost
Promotion
Complex process determine value consumers will exchange for offering
Price of financial services is generally expressed in terms of interest
rates, fees, brokerages, commissions and premiums.
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Marketing Mix: Price
MoFP for
TKW’s
Pricing of Insurance products
The formulation of pricing strategies
becomes significant with the viewpoint of
influencing the target market or prospects. To
be more specific in the Indian context where
the disposable income in the hands of
prospects is found low due to inflation, it is
pertinent that the insurance organizations
adopt such a strategy for pricing that makes it
a motivational tool & paves the ways for
increasing the insurance business. Of course,
a motivational pricing strategy is required to
be given due weightage.
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Price is very important part of Marketing Mix as it affects…
…whether people can afford the product and how quickly sales will
grow
…how competitively it is priced compared to rival products
…the product’s image – high price can mean high quality
Price = Cost + Perceived Value
In addition to price of financial services consumers might also be
motivated by other factors such as security, piece of mind, prestige and
wealth.
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Marketing Mix: Price
MoFP for
TKW’s
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Marketing Mix: Price
MoFP for
TKW’s
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Profit
Survival
Market Share
Cash Flow
Status Quo
Product Quality
Communicating Image
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Objective of Pricing
MoFP for
TKW’s
Marketing Mix: Price
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9 MoFP for
TKW’s
Marketing Mix - Price
Factors affecting pricing
Company Objective
Component of Marketing Mix
Costs
Risks
Share holders
Consumers
Competition
Legal & Regulatory P
ricin
g
Internal Factors External Factors
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Pricing Strategies
MoFP for
TKW’s
Discriminating Pricing
First degree
different prices to each customer depending upon their
intensity of demand
Second degree
Lower prices for buyers/investor of a larger volume
Third degree
Customer groups – student, senior citizen
Image pricing
Channel
Location
Time
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Pricing Strategies
MoFP for
TKW’s
Product-mix pricing
Product line pricing – Setting price steps between various products
in a product line
Captive-product pricing – main product at lower price, ancillary
product at higher price
Two-part pricing – split into fixed and variable component
By-product pricing – by-products obtained in production of other
products
Product-bundling pricing
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Pricing Strategies
MoFP for
TKW’s
Product-Bundling pricing
Reliance SIP Insure provides free life
insurance cover to investors at no
extra cost.
In the unfortunate event of the
demise of an investor during the
tenure of the SIP, the insurance cover
will take care of the unpaid
installments
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Pricing will depend on type of market i.e.
if the market is exclusive or advanced , the consumers may expect
high prices
Price Skimming is common
if it is mass market where similar products are sold to large number
of customers then a low or Penetration Pricing might be used
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MoFP for
TKW’s
Penetration Pricing: Setting a price at
lower level to gain greater market share
Price Skimming: Setting price higher
initially to create higher image
Pricing Strategies
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If the market is very competitive and business is to grow by increasing
sales, prices may have to be reduced
Prices may need to be equal or below competitors selling very similar
products
This is called Competitive Pricing
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Pricing Strategies
MoFP for
TKW’s
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Growing business needs profits to invests back into the business
Prices of products have to cover all costs if profits are to be made
Adding a profit mark up to the unit costs will achieve this
This is called Cost-plus Pricing
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MoFP for
TKW’s
Cost-plus Pricing: Setting price at the
unit cost plus a percentage mark up
Pricing Strategies
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Loss Leader Pricing
Making a deliberate loss on a product which will be cancelled out by
profit made on other items
It is widely used in two ways
Selling vanila products at lower cost
Attract customers to buy these products
And then cross-sell
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MoFP for
TKW’s
Loss Leader Pricing: Setting price below
/at hoping to gain other profitable sales
Pricing Strategies
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Pricing Strategies
MoFP for
TKW’s
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Pricing Strategy & Product Life Cycle
MoFP for
TKW’s
Introduction
Sales
Costs
Profits
Marketing
Objective
Price
Strategy
Promotion/
Ads
Low sales
High
Negative
Increasing
Awareness
Penetration/
Skimming
Heavy
promotions
Rapidly Rising
Average
Increasing
Increase Market
share
Penetration if
new
Awareness &
Interest
Growth
Peak Sales
Low cost
High & declining
Inc profit,
defending share
Competition
pricing
Differences &
benefits
Maturity
Declining sales
Low cost
Declining profits
Reduce costs &
Milk brand
Reduce
Prices
For customer
retention
Decline
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Relationship Pricing: Often products are priced so that customers are
encouraged to much of their business with one institution.
Relationship pricing also involves building extras into the product to add
value to the customer and differentiate
Lot of Small & big industrial customers are influenced by FI’s having
expertise in developing relationship.
LGD Marketing
Lunch
Golf
Dinner
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Pricing – Relationship Pricing
MoFP for
TKW’s
Retaining your customers is a lot less expensive than getting new
ones. So, how do you keep them coming back for more?
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20 MoFP for
TKW’s
Break-even Analysis
Break-even Volume = Fixed cost/(Price – Variable cost)
Break-even chart for determining Target Return Price and Break-even volume
Price per unit = Rs 100 AVC = Rs 60 Fixed cost = Rs 120000
BEP(in units) = 120000/(100 – 60) = 3000 units
Breakeven analysis is an aid in making pricing decisions.
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Term for the Lecture
22 MoFP for
TKW’s
Mark up Pricing
Absorption cost Pricing
Target Return Pricing
Marginal cost Pricing
Perceived Value Pricing
Value Pricing
Going Rate Pricing
Auction Type Pricing
Group Pricing
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Thank
You MoFP for
TKW’s
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