Principles of Marketing Lecture-27

Summary of Lecture-26

Price - Quality Strategies

Premium Strategy Overcharging Strategy Overcharging Strategy Good-Value Strategy Good-Value Strategy Economy Strategy Economy Strategy Price HigherLower Higher Lower Quality

Price-Adjustment Strategies

Discount and Allowance Pricing Segmented Pricing Psychological Pricing Promotional Pricing Geographical Pricing International Pricing

Today’s Topics

Initiating and Responding to Price Changes

Initiating Price Increases Competitor Reactions To Price Changes Initiating Price Cuts Buyer Reactions to Price Changes Price Changes

Initiating Price Cuts is Desirable When a Firm: – Has excess capacity – Faces falling market share due to price competition – Desires to be a market share leader

 Price Increases are Desirable: – If a firm can increase profit, faces cost inflation, or faces greater demand than can be supplied.  Alternatives to Increasing Price – Reducing product size, using less expensive materials, unbundling the product.

 Buyer reactions to price changes must be considered.  Competitors are more likely to react to price changes under certain conditions. – Product is uniform – Buyers are well informed

Responding to price changes

Hold Current Price; Continue to Monitor Competitor’s Price. Hold Current Price; Continue to Monitor Competitor’s Price. Reduce Price Raise Perceived Quality Raise Perceived Quality Improve Quality & Increase Price Improve Quality & Increase Price Launch Low-Price “Fighting Brand” Launch Low-Price “Fighting Brand” Has Competitor Cut Price? Has Competitor Cut Price? Will Lower Price Negatively Affect Our Market Share & Profits? Will Lower Price Negatively Affect Our Market Share & Profits? Can/ Should Effective Action be Taken? Can/ Should Effective Action be Taken? Yes No

 Respond To Price Changes Only If… – Market share / profits will be negatively affected if nothing is changed.

Four strategies  Reduce price  Raise perceived quality  Improve quality and increase price  Launch a low price fighting brand

End of Price part…..

Review 2 nd P (Price)

What is Price?

Price Has Many Names  Rent  Fee  Rate  Commission  Tuition  Fare  Toll  Premium  Bribe  Salary  Wage  Interest  Tax

Definition

Price – The amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service.

Factors Affecting Price Decisions

Internal Factors Pricing Decisions Pricing Decisions External Factors Target Market Positioning Objectives

Internal Factors Affecting Pricing Decisions

Marketing Objectives Marketing-Mix Strategy Costs Organizational Considerations

External factors affecting Pricing decisions

Market and Demand Competitors’ Costs, Prices, and Offers Other External Factors Economic Conditions Reseller Needs Government Actions Social Concerns

Price Elasticity of Demand How quantity demanded responds to price changes

Price Quantity Demanded per Period A. Inelastic Demand - Demand Hardly Changes With a Small Change in Price. P2P2 P1P1 Q1Q1 Q2Q2 Price Quantity Demanded per Period P’ 2 P’ 1 Q1Q1 Q2Q2 B. Elastic Demand - Demand Changes Greatly With a Small Change in Price.

General Pricing Approaches

 Cost-based Pricing  Value-based Pricing  Competition-based Pricing

Break-even…for Determining Target Return Price and Break- even Volume

Rupees (in thousands) Total cost Fixed cost Target profit Total revenue Sales volume in units (thousands) Break-even point

New Product Pricing Strategies

Market Skimming Market Penetration

Product Mix Pricing Strategies

Product Line Pricing Optional-Product Pricing Captive-Product Pricing By-Product Pricing Product-Bundle Pricing Product Mix Pricing Strategies Product Mix Pricing Strategies

Price - Quality Strategies

Premium Strategy Overcharging Strategy Overcharging Strategy Good-Value Strategy Good-Value Strategy Economy Strategy Economy Strategy Price HigherLower Higher Lower Quality

Price-Adjustment Strategies

Discount and Allowance Pricing Segmented Pricing Psychological Pricing Promotional Pricing Geographical Pricing International Pricing

Initiating Price Increases Competitor Reactions To Price Changes Initiating Price Cuts Buyer Reactions to Price Changes Price Changes

Responding to price changes

Hold Current Price; Continue to Monitor Competitor’s Price. Hold Current Price; Continue to Monitor Competitor’s Price. Reduce Price Raise Perceived Quality Raise Perceived Quality Improve Quality & Increase Price Improve Quality & Increase Price Launch Low-Price “Fighting Brand” Launch Low-Price “Fighting Brand” Has Competitor Cut Price? Has Competitor Cut Price? Will Lower Price Negatively Affect Our Market Share & Profits? Will Lower Price Negatively Affect Our Market Share & Profits? Can/ Should Effective Action be Taken? Can/ Should Effective Action be Taken? Yes No

Enough for Pricing...

Summary

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Principles of Marketing Lecture-27