Principles of Marketing -Pricing Strategy

8/3/2019 Principles of Marketing -Pricing Strategy

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PPRINCIPLESRINCIPLES OFOF MMARKETINGARKETING

Pricing Strategy

Prof. Rushen Chahal

Prof. Rushen Chahal 1


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1. Pricing1. Pricing

Pricing cannot be achieved through thesimple application of a formula, as the actionsof marketers and competitors and theperceptions and behaviour of consumers allhave an influence on the pricing decision.

Skill is required to assess how both consumers

and competitors will respond to a particularpricing decision in the context of a particularmarketing mix.



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Determining a price rangeDetermining a price range


1. Pricing


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2. Pricing objectives2. Pricing objectives

Pricing objectives need to be closely linkedwith organizational objectives such as:

i) Financial Profit (Return on investment; profit maximization)

Cash flow

ii) Marketing Market share and positioning / Sales volume

iii) Status quo

iv) SurvivalProf. Rushen Chahal 4


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2. Pricing objectives2. Pricing objectives


Pricequality matrix


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3. New3. New--Product Pricing StrategiesProduct Pricing Strategies

Market skimming pricing:- is a strategy with high initial

prices to skim revenue layers from the market

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



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44.. PricingPricing MethodMethod priceprice rangerange

a. Markup pricing:- to add an additional markup or

extra to the products costs

e.g. unit cost = variable cost per unit + (fixed costs /expected units sales)

* Markup price = unit cost / (1- desired return of sales)

b. Target Return pricing:- determine what is the ROI(return on investment)

e.g. target return price = unit cost + [(desired returnx invested capital) / units sales ]



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4.4. Pricing MethodPricing Method price rangeprice range

c. Perceived Value pricing:- based on

what customers feel and think the

products are worth based on the

attributes

d. Value pricing: - to charge at lower

prices such as EDLP (Everyday low

pricing)e. Going-rate pricing:- Charging what

other competitors are doing.



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5. Pricing Tactics5. Pricing Tactics-- Price Adjustment /Price Adjustment /

adaptationadaptation

Prices are adapted to suit customers based on

many factors such as:-

1. Geographical pricing

2. Pricing discounts

3. Promotional pricing

4. Differentiated pricing

5. Product mix pricing



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1. Geographical pricing: - pricing basedon different countries and locations

a. Barter:- exchange of goods withoutthe unit value of money

b. Buyback:- seller agrees to purchase

some goods from the buyer

c. Compensation deal:- to pay in cash

and other payment forms



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2. Price discount: - concerned with the finaldecision of the price

a. Trade discounts:- reduces prices to rewardcustomer responses such as paying early or

promoting the product

b. Quantity discounts:- encourage bulkpurchases over a certain volume with rebates

given back to buyer



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c. Seasonal discounts:- given to offset cash

flow difficulties usually during quiet periods.

d. Cash discounts:- to encourage prompt

payments.

e. Allowances:- applies to trade-in products or

just simple promotional allowances for agents.



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3. Promotional pricing: - to stimulate purchase.

a. Loss leaders:- are products sold below cost

to attract customers in the hope they will

buy other items at normal markups.

b. Special event pricing:- is used to attract

customers during certain seasons or periods.



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c. Cash rebates:- are given to consumers

who buy products within a specified

time.

d. Low interest financing, longer

warrantees, and free maintenance:-

lower the consumers total price.

e. Psychological discounting:- to increase

price at extreme high rates then

discount.Prof. Rushen Chahal 14


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4. Differentiated pricing: - to adjust price todifferent customers and locations. Mightbe price discriminating.

a. Customer segment:- different pricing fordifferent groups

b. Product form pricing:- depending on theirsize and form/shapes

c. Image pricing:- based on a named. Channel pricing:- using different ways to

sell

e. Time pricing: - based on hours and time of

day Prof. Rushen Chahal 15


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5. Product mix pricing:- pricing to achievethe most profits out of the product lines.

a. Product line pricing:- takes into account thecost differences between products in the line.

b. Optional product pricing:- takes into account

optional or accessory products along with themain product, e.g. customized options such

as haircare products during a haircut.



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c. Captive product pricing:- involves productsthat must be used along with the mainproduct, e.g. cheap fountain pen but

expensive black ink.

d. Two-part pricing:- is where the price is

broken into:Fixed fee

Variable usage fee



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e. By-product pricing:- refers to products with

little or no value produced as a result of the

main product, e.g. meat waste by-products.

f. Product bundle pricing:- combines 2 or

more different or similar products at a

reduced price, e.g. milk bundled with a toy.


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Principles of Marketing -Pricing Strategy