1. Pricing: Understanding and Capturing Customer Value

2. Pricing Methods Markup pricing Target-return pricing Perceived-value pricing Value pricing Going-rate pricing Auction-type pricing

3. Pricing Strategies New-Product Pricing Strategies Product Mix Pricing Strategies Price Adjustment Strategies Price Changes Topic Outline

4. New-Product Pricing Strategies Market-skimming pricing Market- penetration pricing Pricing Strategies

5. New-Product Pricing Strategies Market-skimming pricing is a strategy with high initial prices to “skim” revenue layers from the market Product quality and image must support the price Buyers must want the product at the price Costs of producing the product in small volume should not cancel the advantage of higher prices Competitors should not be able to enter the market easily Intel chip based laptops charging high prices for latest chips

6. New-Product Pricing Strategies Market-penetration pricing sets a low initial price in order to penetrate the market quickly and deeply to attract a large number of buyers quickly to gain market share Price sensitive market Inverse relationship of production and distribution cost to sales growth Low prices must keep competition out of the market Pricing Strategies

7. Product Mix Pricing Strategies Pricing Strategies Product line pricing Optional- product pricing Captive- product pricing By-product pricing Product bundle pricing

8. Product Mix Pricing Strategies Product line pricing takes into account the cost differences between products in the line, customer evaluation of their features, and competitors’ prices Optional-product pricing takes into account optional or accessory products along with the main product- car with GPS system Pricing Strategies

9. Product Line Pricing Strategies Restaurant that has different cuisines Firm having different types of shampoos

10. Product Mix Pricing Strategy - Captive Pricing Strategy – Some companies produce products that need the use of ancillary products such as razors and manufacturing of inkjet or laser printers – Gillette shaving system(twin blades free with its razor) – Kodak( film roll with camera) – low priced HP printer + high priced cartages

11. Product Mix Pricing Strategy - Two- part Pricing Combines flat rate plus variable: e.g., monthly fee plus cost per minute Mobile bills

12. Price Mix Pricing Strategies By-product pricing refers to products with little or no value produced as a result of the main product. Producers will seek little or no profit other than the cost to cover storage and delivery. Pricing Strategies

13. Product Mix Pricing Strategy - Price Bundling Combining several products at reduced prices – Training with purchase – McDonalds’ Happy Meals

14. Price-Adjustment Strategies Discount and allowance pricing Segmented pricing Psychological pricing Promotional pricing Geographic pricing Dynamic pricing International pricing

15. Price Adjustment Strategies Discount & Allowance Reducing Prices to Reward Customer Responses such as Paying Early or Promoting the Product. Discount & Allowance Reducing Prices to Reward Customer Responses such as Paying Early or Promoting the Product. Segmented Adjusting Prices to Allow for Differences in Customers, Products, or Locations. Segmented Adjusting Prices to Allow for Differences in Customers, Products, or Locations. Cash Discount Quantity Discount Functional Discount Seasonal Discount Customer Product Form Location Time Trade Discount International Pricing Adjusting Prices for International Markets. Price Depends on Costs, Consumers, Economic Conditions & Other Factors.

16. Price-Adjustment Strategies Segmented pricing is used when a company sells a product at two or more prices even though the difference is not based on cost Pricing Strategies

17. DIFFERENT KINDS OF FARES FOR DIFFERENT CUSTOMER SEGMENTS Differential Pricing strategy

18. Price-Adjustment Strategies To be effective: Market must be segmentable Segments must show different degrees of demand Watching the market cannot exceed the extra revenue obtained from the price difference Must be legal Pricing Strategies Segmented Pricing

19. Price-Adjustment Strategies Psychological pricing occurs when sellers consider the psychology of prices and not simply the economics Reference prices are prices that buyers carry in their minds and refer to when looking at a given product – Noting current prices – Remembering past prices – Assessing the buying situations Pricing Strategies

20. PSYCHOLOGICAL PRICING This method takes into consideration the consumer's perception of price. Odd-Even Pricing: a product priced at Rs. 299.95 may be perceived as offering more value than a product priced at Rs. 300.00. Prestige Pricing: The higher the price the more likely customers are to perceive it has being higher quality compared to a lower priced product. marketers, looking to present an image of high quality, may choose to price products at even levels (e.g., Rs. 100 rather than Rs.99.99).

21. Price-Adjustment Strategies Promotional pricing is when prices are temporarily priced below list price or cost to increase demand Loss leaders Special event pricing Cash rebates Low-interest financing Longer warrantees Free maintenance Pricing Strategies

22. Price-Adjustment Strategies Risks of promotional pricing Used too frequently, and copies by competitors can create “deal-prone” customers who will wait for promotions and avoid buying at regular price Creates price wars Pricing Strategies

23. Price-Adjustment Strategies Geographical pricing is used for customers in different parts of the country or the world FOB-origin pricing Uniformed-delivered pricing Zone pricing Basing-point pricing Freight-absorption pricing Pricing Strategies

24. Price-Adjustment Strategies FOB-origin (free on board) pricing means that the goods are delivered to the carrier and the title and responsibility passes to the customer Uniformed-delivered pricing means the company charges the same price plus freight to all customers, regardless of location Pricing Strategies

25. Price-Adjustment Strategies Zone pricing means that the company sets up two or more zones where customers within a given zone pay a single total price Basing-point pricing means that a seller selects a given city as a “basing point” and charges all customers the freight cost associated from that city to the customer location, regardless of the city from which the goods are actually shipped Pricing Strategies

26. Price-Adjustment Strategies Freight-absorption pricing means the seller absorbs all or part of the actual freight charge as an incentive to attract business in competitive markets Pricing Strategies

27. Price-Adjustment Strategies Dynamic pricing is when prices are adjusted continually to meet the characteristics and needs of the individual customer and situations Changing prices as per the changing market conditions. Petrol Pricing Strategies

28. Price-Adjustment Strategies International pricing is when prices are set in a specific country based on country-specific factors Economic conditions Competitive conditions Laws and regulations Infrastructure Company marketing objective Pricing Strategies

29. Price Changes Price cuts Price increases Initiating Pricing Changes

30. Price Changes Initiating Pricing Changes Price cuts occur due to: Excess capacity Increased market share Price increase from: Cost inflation Increased demand Lack of supply

31. Price Changes Price increases Product is “hot” Company greed Price cuts New models will be available Models are not selling well Quality issues Buyer Reactions to Pricing Changes

32. Price Changes Questions – Why did the competitor change the price? – Is the price cut permanent or temporary? – What is the effect on market share and profits? – Will competitors respond? Responding to Price Changes

33. Price Changes Solutions – Reduce price to match competition – Maintain price but raise the perceived value through communications – Improve quality and increase price – Launch a lower-price “fighting” brand Responding to Price Changes

34. Chapter 11- slide 34 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price Changes Responding to Price Changes

35. Public Policy and Pricing Price competition is a core element of our free-market economy. In setting prices, companies usually are not free to charge whatever prices they wish. Many laws govern the rules of fair play in pricing. The Monopolies and Restrictive Trade Practices (MRTP) Act, 1969 The Competition Act, 2002

36. Public Policy and Pricing Salient features of the Competition Act: anti-competitive agreements prohibition of abuse of dominant positions by an enterprise regulation of combinations such as acquisitions, mergers, joint ventures, takeovers, and amalgamations

37. Public Policy and Pricing Under the MRTP Act, acts such as misleading consumers about the prices at which goods and services are available in the market and false offers of bargain prices are considered to be unfair trade practices The Consumer Protection Act, 1986 (amended in 2002), also safeguards the interests of consumers

38. Public Policy and Pricing Predatory pricing, or selling and providing services with the intention of reducing competition or eliminating competitors, is not permissible under the MRTP Act or the Competition Act.

39. Destroyer/Predatory Pricing Deliberate price cutting or offer of ‘free gifts/products’ to force rivals (normally smaller and weaker) out of business or prevent new entrants Microsoft – has been accused of predatory pricing strategies in offering ‘free’ software as part of their operating system – Internet Explorer and Windows Media Player - forcing competitors like Netscape and Real Player out of the market.

40. Public Policy and Pricing With advancements in technology, additional concerns, such as scanner fraud, are on the rise.

41. Thank You