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PRICINGTARUN JOSHI
(2012MBA034)
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Price
Price is the amount of money charged for agood or service
The only marketing mix element thatproduces revenue
Changing too much chases awaypotential customers, charging too little cuts
revenue
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Factors to Consider
when Setting Prices
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General Pricing ApproachesCost-Based Pricing
Break-Even Analysis and Target ProfitPricing
Value-Based Pricing
Competition-Based Pricing
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Product
Cost
Price
Value
Customers
Cost Based Pricing
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BE= Fixed Costs/Contribution (SP-VC)
Example - Meal - SP = Rs.40, VC = Rs.16
Fixed costs are Rs. 2400 a dayBE=Rs.2400/Rs.24 = 100
Need to sell 100 meals @ Rs. 40 to break-even
VC = 40%, contribution = 60%
BE = Rs.2400/.6 = Rs.4000
Break-even
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`
Break-even Analysis or Target ProfitPricing
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Price - Quality Strategies
Premium
Strategy
Overcharging
Strategy
Good-Value
Strategy
Economy
Strategy
Price
Higher Lower
Higher
Lowe
r
Quality
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Price-Adjustment Strategies
Price Adjustment Strategies
Discount & AllowanceReducing Prices to Reward
Customer Responses such asPaying Early or Promoting
the Product.
SegmentedAdjusting Prices to Allow
for Differences in Customers,Products, or Locations.
Cash Discount
Quantity Discount
Functional Discount
Seasonal Discount
Customer
Product Form
Location
Time
Trade-In Allowance
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Customer
Value
Price
Cost
Product
Value-based Pricing
Pricing StrategiesNew-Product Pricing Strategies
Existing-Product Pricing Strategies
Psychological Pricing
Promotional Pricing
2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th editionUpper Saddle River, NJ 07458 Kotler, Bowen, and Makens
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New-Product
Pricing Strategies
Prestige Pricing
Market-Skimming Pricing
Market-Penetration Pricing
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Market Skimming Market Penetration
>Setting a high pricefor a new product to
skim maximumrevenues from thetarget market.
>Results in fewer,more profitable
sales.
>Popular night clubcharges a high covercharge
> Setting a low price
for a new product inorder to attract alarge number ofguests.
>Results in a larger
market share.>New Marriott
Setting Initial Product Prices
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Product-Bundling Pricing Transfer surplus reservation price (the maximum
price a customer will pay for a product) Customer A will pay Rs. 600 for a Any Ammusement
Park and and Rs1300 for a hotel room, Customer B willpay Rs 600 for the Disney pass and Rs. 1500 for thehotel roomA hotel selling a two night package withpass for Rs. 3500 will get both customer
Price-bundling also reduces price competitionby making it hard to figure price of components In an airline and hotel package it is difficult to
determine the price of the room
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Psychological Pricing
Price-quality relationship. Reference prices.
Rounding.
Length of the field
Promotional Pricing Temporary pricing of products below list
price and sometimes below cost
Value Pricing
Price Sensitivity Measurement
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Price Sensitivity Measurement
Price Sensitivity Measurement (PSM) helpsto establish a balance of price withproduct or service value based on
consumers perceptions of that value. The product or service to be cheap? The product or service to be expensive?
The product or service to be too expensive, soexpensive that you will not consider buying it?
The product or service to be too cheap, socheap that you would question the quality?
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Setting the Price
Selecting the Pricing Objectives; Survival. Maximum current Profit. Maximum Market Share.
Determining Demand; Price Sensitivity.
Estimating Demand Curves. Price Elasticity of Demand.
Estimating Costs; Types of Costs & Level of Production. Accumulated Production. Target Costing.
Analyzing Competitors Costs, Prices & Offers;
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Price Sensitivity Measurement
Price Sensitivity Measurement (PSM) helpsto establish a balance of price withproduct or service value based on
consumers perceptions of that value. The product or service to be cheap? The product or service to be expensive?
The product or service to be too expensive, soexpensive that you will not consider buying it?
The product or service to be too cheap, socheap that you would question the quality?
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Selecting a Pricing Model
Markup Pricing : The most elementary pricing methodis to add a standard markup to the products cost.
Unit Cost = V.C. + (F.C/Unit sold) Markup Price= unit cost/(1-Desired return)Exp.
VC per unit =10
FC = 300000 Exp. Unit sales= 50000 UNIT COST = 10(300000/50000) =10+6=16 MARKUP PRICE = 16/(1-.02) = 20/-
Target return pricing= unit cost/(Desired return X investment)/ unit sales(investment = 1000000)
16+(0.20/1000000)/50000= 20/-
Break even Volume : FC/(price-VC) = 300000/(20-10) =30000
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THANKS
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