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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 (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 (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

Documents

TARUN MKT