Pricing Not Vry Good

7/28/2019 Pricing Not Vry Good

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Pricing Strategies

& Practices

Presented by:

Gireesh Rathore


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Steps in setting prices

Step 1 identifying pricing objectives and

constraints

Step 2 estimate demand and revenue

Step 3 determine cost volume and profitrelation ships


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Step 4Select an approximate price level

1. Demand oriented approach

2. Cost oriented approach3. Profit oriented approach

4. Customer oriented approach


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Step 5

One price or flexible price

Company customer and competitiveeffects

Incremental costs and revenue


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Discount

Allowances

Geographic adjustments

Step 6


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Four approaches for selecting anapproximate price level


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Skimming Pricing

Skimming pricing involves setting thehighest initial price that customers really

desiring the product are willing to pay.


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Many are predicting afire sale in laptops assupply exceeds demand.

High price, Low volumes

Skim the profit from themarket

Suitable for products thathave short life cycles orwhich will facecompetition at some pointin the future (e.g. after apatent runs out)

Examples include:

jewellery, digital technology,new DVDs, etc.

Market skimming


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Penetration Pricing

Penetration pricing involves setting alow initial price on a new product to

appeal immediately to the mass market.


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Penetration pricing

Price set to penetrate the market

Low price to secure high volumes

Typical in mass market productschocolate bars, food stuffs, householdgoods, etc.

Suitable for products with long anticipated

life cycles May be useful if launching into a new

market


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Prestige Pricing

Prestige pricing involves setting a high

price so that quality- or status-conscious

consumers will be attracted to the productand buy it.


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Price Lining

Price lining involves setting a the price ofa line of products at a number of different

specific pricing points.


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Odd-Even Pricing

Odd-even pricing involves settingprices afew dollars or cents under an even number.


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Bundle Pricing

Bundle pricing involves the marketing oftwo or more products in a single package

price.


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Yield Management Pricing

Yield management pricing involves thecharging of different prices to maximize

revenue for a set amount of capacity at

any given time.


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Standard Markup Pricing(cost)

Standard markup pricing involvesadding a fixed percentage to the cost of

all items in a specific product class.


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Markups for a manufacturer, wholesaler, andretailer on a home appliance sold to theconsumer for $100
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Cost-Plus Pricing

Cost-plus pricing involves summing the

total unit cost of providing a product or

service and adding a specific amount to

the cost to arrive at a price.


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Calculation of the average cost (AC) plus

a mark upAC = Total Cost/Output

Cost-Plus Pricing


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Experience Curve Pricing

Experience curve pricing is a method of

pricing based on the learning effect,

which holds that the unit cost of many

products and services declines by 10

percent to 30 percent each time a firmsexperience at producing and selling them

doubles.


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Target Pricing(profit)

Target pricing involves estimating the price

that the ultimate consumer would be willing to

pay for a product, working backward through

markups taken by retailers and wholesalers to

determine what price is charged to wholesalers,and then deliberately adjusting the composition

and features of a product to achieve the target

price to consumers.


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Target Profit Pricing

Target profit pricing involves setting an

annual target of a specific dollar volume

of profit.


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Setting price to target a specified profit

level

Estimates of the cost and potential

revenue at different prices, and thus the

break-even have to be made, to determine

the mark-up

Mark-up = Profit/Cost x 100

Target Profit Pricing


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Target Return-On-Sales Pricing

Target return-on-sales pricing involves

setting a price to achieve a profit that is aspecified percentage of the sales volume.


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Target Return-On-Investment

Pricing

Target return-on-investment pricing

involves setting a price to achieve an

annual target return-on-investment (ROI).


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Slide 14-82

Above- At- or Below-MarketPricing

Above-, at-, or below-market pricinginvolves setting a market price for a productor product class based on a subjective feel for

the competitors price or market price as thebenchmark.


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Customary Pricing(competition)

Customary pricing involves setting a

price that is dictated by tradition, a

standardized channel of distribution,

or other competitive factors.


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Loss-Leader Pricing

Loss-leader pricing involves deliberately

selling a product below its customary

price, not to increase sales, but to attract

customers attention in hopes that they

will buy other products as well.


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Loss-Leader Pricing

Goods/services deliberately sold below costto encourage sales elsewhere

Typical in supermarkets, e.g. at Christmas,selling bottles of gin at 3 in the hope thatpeople will be attracted to the store and buyother things

Purchases of other items more than coversloss on item sold

e.g. Free mobile phone when taking oncontract package


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Slide 14-23

99 Only StoreWhat price policy is used?
http://www.99only.com/


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Company, Customer, and CompetitiveEffects on Pricing

Customer Effects

Company Effects

STEP 5: SET THE LIST ORQUOTED PRICE

Product Line Pricing

Competitive Effects

Price War


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Product Line Pricing

Product line pricing involves setting theprice of a line of products at a number of

different specific pricing points.


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Price War

A price war involves successive pricecutting by competitors to increase or

maintain their unit sales or market share.


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Marginal cost the cost of producing ONE extraor ONE fewer item of production

MC pricing allows flexibility

Particularly relevant in transport where fixedcosts may be relatively high

Allows variable pricing structure e.g. on a flightfrom Delhi to Mumbai providing the cost of the

extra passenger is covered, the price could bevaried a good deal to attract customers and fillthe aircraft

Marginal Cost Pricing


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Slide 14-30

Seasonal Discounts

Quantity Discounts

STEP 6: MAKE SPECIALADJUSTMENTS TO THE LIST

OR QUOTED PRICE

Trade (Functional) Discounts

Cash Discounts

Discounts

Noncumulative Quantity Discounts

Cumulative Quantity Discounts
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Slide 14-36

Uniform Delivered Pricing

FOB Origin Pricing


OR QUOTED PRICE

Geographical Adjustments

Single-Zone Pricing

Multiple-Zone Pricing

FOB With Freight-Allowed (Absorption) Pricing


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Slide 14-40

Price Discrimination


OR QUOTED PRICE

Geographical Pricing

Predatory Pricing


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Quantity Discounts

Quantity discounts are reductions in unitcosts for a larger order.


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Promotional Allowances

Promotional allowances are cash

payments or extra amount of free goodsawarded sellers in the channel of

distribution for undertaking certain

advertising or selling activities to promote

a product.


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Uniform Delivered Pricing

Uniform delivered pricing is the price

the seller quotes includes all

transportation costs.


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Price Discrimination

Prices for rail travel differ for the samejourney at different times of the day

Charging a differentprice for the samegood/service in

different markets Requires each market

to be impenetrable

Requires different

price elasticity ofdemand in eachmarket


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Predatory Pricing

Predatory pricing is the practice of

charging a very low price for a productwith the intent of driving competitors

out of business.


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Ten ways to increase prices

without increasing price - Winkler Revise the discount structure

Change the minimum order size

Charge for delivery and special services

Invoice for repairs on serviced equipment

Charge for engineering, installation

Charge for overtime on rushed orders

Collect interest on overdue accounts


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Conclusion

Hence pricing practices should be done

very carefully as it affects the whole

organization, customers and its reputation. Pricing practices also responsible for

positioning of the business.


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Thank you!

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Pricing Not Vry Good