Pricing Strategy
MKT 460 (Strategic Marketing)
Taufique Hossain
Consumer Psychology and Pricing
 Reference Prices: Comparing an observed price to an
internal reference price they remember or to an external
frame of reference such as posted ‘regular retailed price’
 Price-quality inferences: Consumers use price as an
indicator of quality.
 Price Cues: Consumers perception of prices are also
affected by alternative pricing strategies.
Steps in Setting Price
Select the price objective
Determine demand
Estimate costs
Analyze competitor price mix
Select pricing method
Select final price
Step 1: Selecting the Pricing Objective
 Survival
 Maximum current profit – Market penetration pricing
 Maximum market share
 Maximum market skimming
 Product-quality leadership
Step 2: Determining Demand
Price Sensitivity
Estimating
Demand Curves
Price Elasticity
of Demand
Price sensitivity
Customers are less price sensitive when:
 There are few or no substitute or competitors
 They do not readily notice the higher price
 They are slow to change their buying habits
 They think that the higher prices are justified
 Price is only a small part of the total cost of obtaining,
operating and servicing the product over its lifetime.
Inelastic and Elastic Demand
Estimating demand curves
 Surveys
 Price experiments
 Statistical analysis
 Experience/past performance analysis
Estimating demand curves
1-7th March 15th -21st March 22nd – 28th March
No of subscribers
10,000
9,800
9,700
Rate
0.80
0.85
0.85
Mins Used
100
90
88
800,000
749,700
725,560
Revenue
80
77
75
ARPU
150
200
Migration
50
100
Churn
Churn %
0.50%
1.00%
ARPU
80
77
75
1-7th March
15th -21st March
22nd – 28th March
Step 3: Estimating Costs
Types of Costs
Accumulated
Production
Target Costing
Cost Terms and Production
 Fixed costs
 Variable costs
 Total costs
 Average cost
 Cost at different levels
of production
Cost per Unit as a Function of Accumulated Production
Step 5: Selecting a Pricing Method
 Markup pricing
 Target-return pricing
 Perceived-value pricing
 Value pricing
 Going-rate pricing
 Auction-type pricing
 Product line pricing
Break-Even Chart
Step 6: Selecting the Final Price
 Impact of other marketing
activities
 Company pricing policies
 Gain-and-risk sharing
pricing
 Impact of price on other
parties
Price-Adaptation Strategies
Geographical Pricing
Discounts/Allowances
Promotional Pricing
Differentiated Pricing
Price-Adaptation Strategies
Countertrade
 Barter
 Compensation deal
 Buyback arrangement
 Offset
Discounts/ Allowances
 Cash discount
 Quantity discount
 Functional discount
 Seasonal discount
 Allowance
Promotional Pricing Tactics
 Loss-leader pricing
 Special-event pricing
 Cash rebates
 Low-interest financing
 Longer payment terms
 Warranties and service
contracts
 Psychological discounting
Differentiated Pricing
 Customer-segment
pricing
 Product-form pricing
 Image pricing
 Channel pricing
 Location pricing
 Time pricing
 Yield pricing
Initiating and responding to price changes
 Initiating price cuts
 Low quality trap
 Fragile market share trap
 Shallow pocket trap
 Price war trap
 Initiating price increase
 Delayed quotation pricing
 Escalating clauses
 Unbundling
 Reduction of discounts
Reactions to competitive price cuts
Reactions to competitive price cuts