Price Mix

Price

• Sum of all the values that consumers exchange for the benefits of having / using the product– Monetary– Energy– Time– Psychic

Factors Determining Pricing

Internal & External

Factors Determining Pricing

• Marketing Objective– Survival– Profit Maximisation– Share Maximisation– Quality Leadership– Blocking of Competition

Factors Determining Pricing

• Marketing Mix Strategy– Coordinated with other mix elements– Positioning: Price vs. Non-Price– Product: Image / Quality Perception– Distribution: Push vs. Pull

Factors Determining Pricing

• Costs– Price that covers costs & gives a healthy ROI– Fixed Cost + Variable Cost = Total Cost– Cost Reduction vs. Profit Reduction

Factors Determining Pricing

• Market Demand– Sets the upper limit of prices– Type of Market• Pure Competition (Uniform Product)• Monopolistic Competition (Differentiated Product)• Oligopolistic Competition (Most price sensitive)• Pure Monopoly

– Price-Demand Relationship

Factors Determining Pricing

• Consumer Perception of Value– Buyer Orientation– Value Maximisation

Factors Determining Pricing

• Price Sensitivity– Elastic vs. Inelastic– Unique Products vs. Substitutable Products– Share of Wallet

Factors Determining Pricing

• Competitors Cost & Price– Consumer Consideration Set– Benchmarking– Competitive Position

Methods of Price Determination

Cost BasedValue Based

Competition Based

Cost Based Pricing

• Cost Plus Pricing– Cost + Standard Markup– Ignores Competition & Demand– Fair & Certain– Ideal for customised products: Construction

Value Based Pricing

• Starting point is customer• Price is determined on the basis of value

associated• Keeping profit margin a cost is determined• On the basis of the cost a product is designed• Commonly used be restaurants

Competition Based Pricing

• Going rate pricing• Product Comparison– Parity: Match Pricing– Superior: Higher Pricing– Inferior: Lower Pricing

Strategies for Pricing of New Products

Market SkimmingMarket Penetration

Market-Skimming Pricing

• Skim revenues layer by layer• Start by selling at high prices to innovators• Conditions– Quality & Image must justify the price– Sizeable demand at that price– Additional cost of low volume should not offset

the price premium– Competition should not replicate at lower prices

Market-Penetration Pricing

• Opposite of skimming• Set a low price to penetrate and have high MS• Volumes offset value gains• Upward revision post loyalty• Conditions– Market is price sensitive– Scale must result in cost reduction– Competition should not better the price

Strategies for Pricing of Product Mix

Product Line Pricing

• Different prices for different products in the line on the basis of– Cost Differences– Customer Value Assessment– Competitors Prices

• Cover the entire range of customers• Must be well distinguished from each other

Optional Product Pricing

• Base Product at lowest pricing• Variations of the base product with different

add-ons for customer benefit• Base Product: Promotion Product• Variants: Sales Product• Most commonly used in automobiles

Captive Product Pricing

• Main Product + Captive Product• Sell main product on low price• Make high margins on captive products– Nintendo Console + Games– Canon Printer + Catridge– Multiplex Ticket + Refreshment

Bundle Pricing

• Combining various products and offering the bundle at a price which is less than the sum of the individual MRPs of the products

• Helps sell more of a brand to the customer– McDonald’s Value Meals– Hotel Package

Price Adjustment Strategies

Discounts

Discount Pricing

• Adjustment in basic pricing to reward / induce the customer to buy– Higher Volume of a Product– Off-Season– Loyal Buyer

• Types of discounts– Cash– Quantity– Seasonal

Allowance Pricing

• Price reduction for turning in an old item when buying a new one

• Induce customers to replace products earlier than required

• Most commonly used in industries such as –– Automobiles– Durables

Segmented Pricing

• Product is sold at two or more different prices even though the cost is the same– Customer Segment Pricing(Rail Travel)– Location Pricing (Cinema Hall)– Time Pricing (Season, Month, Day, Hour)

Psychological Pricing

• Prices work psychologically and say something about the product

• Not just about economics• Work using reference prices• Suggest product difference / value– 299 vs. 300

Promotional Pricing

• Temporary drop in prices to create buying excitement and urgency– Loss Leadership (Diapers)– Special-Event (Diwali)

• Overuse can result in – Deal Syndrome– Dilution of Brand Equity– Price Wars

Price Changes

Price Cuts

• Underutilised capacity• Falling market share• Gain share from competitor• Guard for consumer reaction• Predict the competitive reaction

Price Increases

• Rising input costs• Overdemand & shortage• Methods– Absolute Increase– Effective Increase

• Reasons should be communicated• Guard for consumer reaction• Predict the competitive reaction

Responding to Competitive Price Changes

• Is the category price sensitive• Actions– Match price– Increase perceived quality– Improve product and increase price– Launch a fighter brand