Pricing strategy
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This document discusses various pricing strategies and factors that influence pricing policies. It begins by defining pricing as the process of determining the amount received for a product based on factors like costs, competition, and demand. It then outlines different pricing objectives and influences on pricing policies, including consumers, government, manufacturers, and competitors. The document primarily focuses on various pricing strategies such as cost-based pricing, customer-based pricing, competitor-based pricing, product-based pricing, and new product pricing. It provides examples of pricing methods within each category like penetration pricing, premium pricing, odd pricing, product bundling, and more.
Pricing strategy
- 1. Pricing strategies and policies Made by: Solovyeva Tatiana Tamara Stjepanovic Downer
- 2. Pricing • Pricing is the process of determining what a company will receive in exchange for its product. • Pricing factors are manufacturing cost, market place, competition, market condition, brand, and quality of product. • Pricing is also a key variable in microeconomic price allocation theory. • Pricing is a fundamental aspect of financial modeling and is one of the four P’s of the marketing mix.
- 3. List Price – what the customer pays • Physical good/service • Assurance of quality • Repair facilities • Packaging • Credit • Warranty • Delivery
- 4. Pricing Objectives • Profit-oriented: profit maximization, satisfactory profit, target return on investments • Sales-oriented: to get specified share of the market (market share, market maximizzation) • Status quo-oriented: maintain stable prices/ competitor activity (especially if satisfied with present situation). Existing or meet competitors
- 5. Influence on Pricing Policy Pricing policy is generally affected by four major players: • consumer preferences and attitudes • government policy and legislation • manufacturers and wholesalers business practices • competitors marketing efforts
- 6. Other factors that influence the price of a product include:
- 9. Pricing strategies 1. Cost-based pricing 2. Customer-based pricing 3. Competitor-based pricing 4. Product-based pricing 5. New product-based pricing
- 10. 1. Cost-based pricing • Cost plus pricing ! • Full-cost pricing ! • Target profit pricing ! • Marginal cost pricing A fixed percentage of profit will be added to the cost and it will be taken by manufacturer, wholesaler and retailer. It is also called mark-up pricing.
- 11. 1. Cost-based pricing • Cost plus pricing ! • Full-cost pricing ! • Target profit pricing ! • Marginal cost pricing Setting price in order to cover both fixed and variable cost. Total cost will be computed by adding variable and fixed incurred in the product. The price of each product is dependent on costs it creates. It is also called absorption cost pricing.
- 12. 1. Cost-based pricing • Cost plus pricing ! • Full-cost pricing ! • Target profit pricing ! • Marginal cost pricing Setting price to target specified profit level. It estimates of the cost and potential revenue at different prices and the break-even has to be made. It is possible when there is no competition in the market. It is also called break-even pricing.
- 13. 1. Cost-based pricing • Cost plus pricing ! • Full-cost pricing ! • Target profit pricing ! • Marginal cost pricing Price is fixed on the basis of additional variable cost associated with an additional out put. The travel industry often employs marginal pricing to fill capacity.
- 14. 2. Customer-based pricing • Predatory pricing • Odd pricing • Psychological pricing Predatory pricing (known as aggressive pricing or "undercutting"), intended to drive out competitors from a market. Prices are deliberately set very low by a dominant competitor in the market in order to restrict or prevent competition. The price set might even be free, or lead to losses by the predator. Predatory pricing is illegal under competition law.
- 15. 2. Customer-based pricing • Predatory pricing • Odd pricing • Psychological pricing The seller tends to fix a price whose last digits are odd numbers. The customer perceives the price to be lower than it actually is. Odd pricing refers to a price ending in 1,3,5,7,9 just under a round number, such as $0.19, $2.47, or $64.93. Even pricing refers to a price ending in a whole number or in tenths, such as $0.20, $2.50, $65.00.
- 16. 2. Customer-based pricing • Predatory pricing • Odd pricing • Psychological pricing Pricing designed to have a positive psychological impact. For example, selling a product at $3.95 or $3.99, rather than $4.00. There are certain price points where people are willing to buy a product. If the price of a product is $100 and the company prices it as $99, then it is called psychological pricing. The aim of psychological pricing is to make the customer believe the product is cheaper than it really is. Pricing in this way is intended to attract customers who are looking for “value”.
- 17. 3. Competitor-based pricing • Going rate pricing • Follow the leader • Loss leaders Setting a price that is in line with the prices charged by direct competitors. A company bases its price on competitor’s prices, with less attention paid to its own costs or to the demand.
- 18. 3. Competitor-based pricing • Going rate pricing • Follow the leader • Loss leaders Setting the price of product and service to be the same as its largest competitor. A follow-the- leader price strategy can entail either raising or lowering the price. The competitor may choose to counter this strategy by continually raising and lowering prices to make matching difficult. Setting the price according to its largest competitor. This type of pricing strategy does not work for businesses of all sizes.
- 19. 3. Competitor-based pricing • Going rate pricing • Follow the leader • Loss leaders A loss leader or leader is a product sold at a low price (at cost or below cost level) to stimulate other profitable sales. This would help the companies to expand its market share as a whole.
- 20. 4. Product-based pricing • Product line pricing • Optional-product pricing • Captive-product pricing • By-product pricing • Product-bundle pricing Setting price steps between line items and fixed price for product lines, not products. It is the use of limited number of prices for all product offerings of a vendor.
- 21. 4. Product-based pricing • Product line pricing • Optional-product pricing • Captive-product pricing • By-product pricing • Product-bundle pricing Pricing optional or accessory products sold with the main product.
- 22. 4. Product-based pricing • Product line pricing • Optional-product pricing • Captive-product pricing • By-product pricing • Product-bundle pricing Pricing product that must be used with the main product. Price is usually higher than the price of the main product in order to overcome the low profit earned on the main product.
- 23. 4. Product-based pricing • Product line pricing • Optional-product pricing • Captive-product pricing • By-product pricing • Product-bundle pricing Setting prices for by product obtained from the original product which sets a way to sustain competitive pressure on the original product. Pricing of low-values of by-products in order to get rid of them.
- 24. 4. Product-based pricing • Product line pricing • Optional-product pricing • Captive-product pricing • By-product pricing • Product-bundle pricing Pricing bundles of the related products sold together. Common in fast food industry.
- 25. 5. New product-based pricing ! • Penetration pricing ! • Skimming pricing ! • Premium pricing Setting a low price for a new product in order to attract a large number of buyers and enlarge market share.
- 26. 5. New product-based pricing ! • Penetration pricing ! • Skimming pricing ! • Premium pricing Setting a high price for a new product to skim maximum layer by layer from segments willing to pay the high price. Company makes fewer but more profitable sales.
- 27. 5. New product-based pricing ! • Penetration pricing ! • Skimming pricing ! • Premium pricing Keeping the price of a product or service artificially high in order to encourage favorable perceptions among buyers, based solely on the price. It is also called prestige pricing.
- 30. High-Low Pricing
- 31. Thank you for your attention!