MG 2452-EEFAUNIT-IV - PRICING

R.HARIHARANAP/EEE

Price: the exchange value of a good or service

INTRODUCTION

The Importance of Price to Marketers• Manage demand

• Adapt to competitive environment

• Psychology of the consumer

• BOTTOMLINE issues

Profits = Total Revenues - Total Costs

or

Profits =(Price x Quantity Sold) - Total Costs

NATURE OF PRICE

Steps in Setting the Right Price

Results lead to the right price

Fine tune with pricing tacticsFine tune with pricing tactics

Choose a price strategyChoose a price strategy

Estimate demand, costs, and profitsEstimate demand, costs, and profits

Establish pricing objectivesEstablish pricing objectives

Pricing Objectives

Profit Maximization:

Target-Return Objectives:

achieving a specified return on either sales or investment

ProfitabilityProfitability

Pricing Objectives

Sales maximization:

Market-share objectives:for controlling a portion of the market

Profitability

VolumeVolume

Pricing Objectives

Value Pricing

Meeting Competition

Meeting Competition

Profitability

Volume

Pricing Objectives

Prestige Objectives: set at a relatively high level

Meeting Competition

PrestigePrestige

Profitability

Volume

Four Market Structures

Market structure characterized by homogeneous products in which there are so many buyers and sellers that none has a significant influence on price

PureCompetition

PureCompetition

Agricultural products; STRESS Availability

Four Market Structures Market structure involving

a heterogeneous product and product differentiation among competing suppliers, allowing the marketer some degree of control over prices

PureCompetition

MonopolisticCompetition

MonopolisticCompetition

Focus on Retailing; Price

Four Market Structures

Market structure involving relatively few sellers and barriers to new competitors due to high start-up costs

PureCompetition

MonopolisticCompetition

OligopolyOligopoly

sensitive to other’s prices;

PROMOTION is KEY

Four Market Structures

PureCompetition

MonopolisticCompetition

Oligopoly

MonopolyMonopoly

Market structure involving only one seller of a good or service for which no close substitutes exist

Anti-trust legislation has eliminated nearly all monopolies

Government regulated monopolies do exist in certain areas, such as public utilities

Competitive Environment

• Number ofsellers

• Productdifferences

• Importance ofmarket mix

• Large numberof sellers

• Similar products

• Distribution isimportant

• Large numberof sellers

• Unique butsubstitutable

• Pricing isimportant-

• Differentiated • products

• A few largecompetitors

• Similarproducts

• Promotion iskey to achieveperceivedproductdifferences

• Singleproducer

• Unique andunsubstitutable

• Unimportant

BASIS OFCOMPARISON

PURECOMPETITION

MONOPOLISTICCOMPETITION OLIGOPOLY MONOPOLY

Number of sellersMany One

PRICE DETERMINATION IN ECONOMIC THEORY

Demand: schedule of the amounts of a firm’s good or service that consumers purchase at different prices during a specified period

Supply: schedule of the amounts of a good or service that firms will offer for sale at different prices during a specified time period.

Price Discrimination

Price Discrimination

Charging a different price for the same good/service in different markets

Requires each market to be impenetrable

Requires different price elasticity of demand in each marketPrices for rail travel differ for the same

journey at different times of the day

Pricing Objectives

Meet Business

Objectives

Volu

me

Sales

Max

imiz

atio

n

Mar

ket S

hare

Profitability

Profit-Maxim

ization

Target Return G

oals

Other Pricing Objectives Status Quo Image Social & Ethical Considerations

Price Strategies for New Products

PR

ICE

PR

ICE

PR

ICE

Skimming Penetration

Penetration Pricing

Skimming Pricing

Low price establish product in the market

High price/Prestige pricing appeal to early adopters; recover high R&D costs

Lower price over time

Move inventory, stimulate D, extend product life

Marketing Strategy Over the Product Life Cycle

INTRODUCTION GROWTH MATURITY DECLINEMarketing strategy Market development Increase market Defend market Maintain efficiency inemphasis share share exploiting product

Promotion Mount sales Appeal to Emphasize Reinforce loyal Strategy promotion for mass market brand differences, customers; reduce

product awareness benefits & loyalty promotion costs

Place strategy Distribute through Build intensive Enlarge Be selective in selective outlets network of distribution distribution, trim

outlets network unprofitable outlets

Pricing High price/unique Lower price Price at or below Set price to

strategy product / cover over time competition remain profitable production costs or

reduce toLow price/gain liquidatemarket share

Pricing Tactics

Price Lining • Price points: Setting a limited number of prices for certain categories of

products

Psychological Pricing

• Odd-even

Discounting • Quantity discounts• Cash discounts (2/10 net 30)

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