Recap What Is a Price Price is the

Recap

What Is a Price? • Price is the amount of money charged for a product or service. • Sum of all the values that consumers give up in order to gain the benefits of having or using a product or service. • Only element in the marketing mix that produces revenue

Factors to Consider When Setting Prices Customer Perceptions of Value

Factors to Consider When Setting Prices Customer Perceptions of Value

Factors to Consider When Prices Setting Value-based pricing Good-value pricing Value-added pricing

Factors to Consider When Setting Prices Good-value pricing offers the right combination of quality and good service to fair price • Everyday low pricing (EDLP) involves charging a constant everyday low price with few or no temporary price discounts • High-low pricing involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items • Value-added pricing attaches value-added features and services to differentiate offers, support higher prices, and build pricing power •

Factors to Consider When Setting Prices Company and Product Costs • Cost-based pricing adds a standard markup to the cost of the product

Factors to Consider When Prices Fixed costs Variable costs Setting Total costs

Factors to Consider When Setting Prices Company and Product Costs • Total costs are the sum of the fixed and variable costs for any given level of production • Average cost is the cost associated with a given level of output

Factors to Consider When Setting Prices Break-Even Analysis and Target Profit Pricing • Break-even is the price at which total costs are equal to total revenue and there is no profit • Target profit pricing is designed to determine how many units we will need to sell to both cover costs AND achieve a set profit.

Factors to Consider When Setting Prices Break-Even Analysis and Target Profit Pricing

Lecture 18

Other External factors • • Economic conditions All environmental parties Government Social Concerns 13

Pricing Strategies 14

Pricing Products Topic Outline • • New-Product Pricing Strategies Product Mix Pricing Strategies Price Adjustment Strategies Price Changes

New-Product Pricing Strategies • Market-skimming pricing • Market- penetration pricing

New-Product Pricing Strategies • Market-skimming pricing is a strategy for 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 make fewer but more profitable sales. – Product quality and image must support the price – Buyers must want the product at the price – Costs of producing the product in small volume should not cancel the advantage of higher prices – Competitors should not be able to enter the market easily

Market-skimming pricing • Sony introduced the world first high definition television (HDTV) to the Japanese market , the high tech sets cost $43, 000.

New-Product Pricing Strategies • Market-penetration pricing sets a low initial price in order to penetrate the market quickly and deeply to attract a large number of buyers quickly to gain market share – Price sensitive market – Production and distribution costs must fail as sales volume increases. – Low prices must keep competition out of the market

Market-penetration pricing • Dell selling high quality computer products through lower cost direct channels. • Telecom Companies in Pakistan • Bank Alfalah credit card success

Product Mix Pricing Strategies Product line pricing Optionalproduct pricing By-product pricing Captiveproduct pricing Product bundle pricing

Product Mix Pricing Strategies • Product line pricing takes into account the cost differences between products in the line, customer evaluation of their features, and competitors’ prices • * For example Samsonite offers 20 different collections of bags of all shapes and sizes at price that range from under $50 to more than $1, 250.

The 475 g Pack Rs 330 Rs 420

Product Mix Pricing Strategies • Optional-product pricing takes into account optional or accessory products along with the main product • For example : a car buyer may choose to order a GPS navigation system & Bluetooth wireless communication. • Refrigerators come with optional ice maker

Product Mix Pricing Strategies • Captive-product pricing involves products that must be used along with the main product – Razor blade cartridges , Gillette once you bought the razor, you are committed to buying replacement cartridges – Glucometers – Printers

Product Mix Pricing Strategies • Two-part pricing involves breaking the price into: • • Fixed fee Variable usage fee – For example : PTCL company charge a flat rate line rent, then charge for minutes – Concession stands in cinemas

Price Mix Pricing Strategies • By-product pricing refers to products with little or no value produced as a result of the main product. • Producers will seek little or no profit other than the cost to cover storage and delivery. • Molasses from sugar refining – High Grade – Baking, Rum Making – Low Grade – Animal feed

Price Mix Pricing Strategies • Product bundle pricing combines several products at a reduced price

Price-Adjustment Strategies Discount and allowance pricing Promotional pricing Segmented pricing Geographic pricing International pricing Psychological pricing Dynamic pricing

Price-Adjustment Strategies Pricing Strategies • Discount and allowance pricing reduces prices to reward customer responses such as paying early or promoting the product • Discounts • Allowances

Price-Adjustment Strategies Price Discounts and Allowances • Quantity discount: The more you buy, the cheaper it becomes • Functional discount: discount offered by a manufacturer to trade-channel members if they will perform certain functions. • Seasonal discount: a price reduction to those who buy out of season. • Cash discount: A deduction granted to buyers for paying their bills within a specified period of time. E. g. 2/10 net 30

Price-Adjustment Strategies Allowance: Promotional money paid by the manufacturer to the retailer in return for an agreement to feature the manufacturer’s product in some way. a) Trade in allowances: are price reductions given for turning in an old item when buying a new one.

Price-Adjustment Strategies • Promotional allowances: are payments or price reductions to reward dealer for participating in advertising and sales support program 33

Price-Adjustment Strategies Pricing Strategies Segmented pricing is used when a company sells a product at two or more prices even though the difference is not based on cost

Segmented pricing a) Customer segment pricing: different customers pay different prices for the same product or service. For ex. Museums charge a lower admission for students. a) Product from pricing: different versions of the product are priced differently but not according to differences in their costs • • Nestle Pure Life- 1. 5 l (Rs 50) Nestle Pure Life- 19 l (Rs 170) b) Location pricing: company charges different prices for different locations e. g. Universities in Britain fee policy c) Time pricing : a firm varies it prices by the season , the month , the day and even the hour

Price-Adjustment Strategies Pricing Strategies Segmented Pricing To be effective: • Market must be segment able • Segments must show different degrees of demand • Watching the market cannot exceed the extra revenue obtained from the price difference • Must be legal