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
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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 Based
Value 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 Skimming
Market 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
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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
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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