Pricing Strategy
The Second P
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Overview
1. Analyzing factors that affect pricing
2. Setting general pricing approaches
3. Deciding on exact pricing strategies
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Factors Affecting Pricing
INTERNAL Factors
Organizational and Marketing
Objectives
Marketing Mix Strategy
Costs
Organizational Considerations
Pricing
Decisions
EXTERNAL Factors
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(Kotler and Armstrong, 2001)
Nature of the Market and Demand
Competition
Other Environmental Factors
Goals in Pricing
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Survival
Profit
Return on Investment
Market Share
Cash Flow
Status Quo
Product Quality
(Dibb et al, 1997)
Different Kinds of Costs
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Fixed Cost
Total Fixed Cost
Average Fixed Cost
Variable Cost
Total Variable Cost
Average Variable Cost
Total Cost
Average Total Cost
Marginal Cost
(Stanton et al, 1991)
External Factors
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Pricing in Different Types of Market (pure
competition, monopolistic competition, oligopolistic
competition, pure monopoly)
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Consumer Perceptions of Price and Value
Analysing Price-Demand Relationship and
Price Elasticity of Demand
Competitors’ Prices (cooperative, adaptive,
opportunistic, and predatory pricing)
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Other External Factors (economic conditions,
resellers’ reaction, government, social concerns)
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General Pricing Approaches
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Cost-Based Pricing
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Cost-plus
Brake-even pricing
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Value-Based Pricing
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Competition-Based Pricing
New Product Pricing Strategies
Market-Penetration
Market-Skimming
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A pricing policy whereby
an organization charges
the highest possible
price that buyers who
most desire the product
will pay
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A price set below the
prices of competing
brands in order to
penetrate a market and
produce a larger unit
sales volume
(Dibb et al, 1997)
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Price-Adjustment Strategies
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Discount and allowance pricing (cash, quantity,
functional, and seasonal discount, and allowances)
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Segmented pricing
Psychological pricing and Reference prices
Promotional pricing (loss leaders, special events,
low-interest financing, long warranties)
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Geographical pricing (FOB, uniform-delivered,
zone-pricing, freight-absorption pricing)
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International pricing