1. Principles of Marketing Lecture-25

2. Summary of Lecture-24

4. Factors Affecting Price Decisions

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

6. Today’s Topics

7. Setting Pricing Policy

8. 1.Selecting the pricing objective 2. Determining demand 3. Estimating costs 4.Analyzing competitors’ costs, prices, and offers 6. Selecting final price 5.Selecting a pricing method

9. Pricing Objectives

10. Profit- Oriented Sales- Oriented Status Quo

11. Pricing Objectives Pricing Objectives Profit Oriented Target Return Maximize Profits

12. Pricing Objectives Pricing Objectives Sales Oriented Profit Oriented Dollar or Unit Sales Growth Growth in Market Share Target Return Maximize Profits

13. Pricing Objectives Pricing Objectives Sales Oriented Dollar or Unit Sales Growth Profit Oriented Status Quo Oriented Growth in Market Share Target Return Maximize Profits Meeting Competition Nonprice Competition

14. General Pricing Approaches

15.  Cost-based Pricing  Value-based Pricing  Competition-based Pricing

16. Cost-based pricing

17.  Cost plus pricing – add a standard mark up to cost

18. Break even pricing total costs = total revenue

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

20. Rupees (in thousands) 1200 1000 800 600 400 200 0 Total cost Fixed cost Target profit Total revenue 1020304050 Sales volume in units (thousands) Break-even point

21. Break-even Volume = Fixed Cost --------------- Price - Variable Cost

22. Value-Based Pricing

23.  Uses buyer’s perceptions of value not the seller’s cost as the basis for pricing.  Price is considered along with the other marketing- mix variables before the marketing program is set.

24. Product Cost Price Value Customers Customer Value Price Cost Product Cost-Based PricingValue-Based Pricing

25. Competition-based pricing

26. Setting Prices Sealed-Bid Company Sets Prices Based on What They Think Competitors Will Charge. Sealed-Bid Company Sets Prices Based on What They Think Competitors Will Charge. Going-Rate Company Sets Prices Based on What Competitors Are Charging. Going-Rate Company Sets Prices Based on What Competitors Are Charging. ?

27. New Product Pricing Strategies

28. Market Skimming Market Penetration

29. Market-Skimming  Setting a High Price for a New Product to “Skim” Maximum Revenues from the Target Market.  Results in Fewer, But More Profitable Sales.  I.e. Intel

30. Use Under These Conditions – Product’s quality and image must support its higher price. – Costs can’t be so high that they cancel the advantage of charging more. – Competitors shouldn’t be able to enter market easily and undercut the high price.

31. Market Penetration  Setting a Low Price for a New Product in Order to “Penetrate” the Market Quickly and Deeply.  Attract a Large Number of Buyers and Win a Larger Market Share.  I.e. Dell

32. Use Under These Conditions Market must be highly price- sensitive so a low price produces more market growth. Production/distribution costs must fall as sales volume increases. Must keep out competition & maintain its low price position or benefits may only be temporary.

33. Product Mix Pricing Strategies

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

35. Product Line Pricing Setting Price Steps Between Product Line Items i.e. Rs. 299, Rs. 399

36. Optional-Product Pricing  Pricing Optional or Accessory Products  Sold With The Main Product  i.e. Car Options

37. Captive-Product Pricing  Pricing Products That Must Be Used With The Main Product  i.e. Razor Blades, Film, Software

38. By-Product Pricing  Pricing low-value By- Products to get rid of them

39. Product-Bundle Pricing  Pricing bundles of products sold together  i.e. Season tickets, Computer makers

40. Enough for today...

41. Summary

42. Setting Pricing Policy

43. General Pricing Approaches

44. New Product Pricing Strategies

45. Market Skimming Market Penetration

46. Product Mix Pricing Strategies

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

48. Next….

49. Pricing (cont..)

50. Principles of Marketing Lecture-25