1. ME-5th Module
PRICING PRACTICES & STRATEGIES

2. Module V
PRICING PRACTICES & STRATEGIES
1.Factors affecting Price Determination -
Pricing Process
2. Pricing Strategies - Cost Oriented
3.Pricing Strategies - Competition
Oriented
4.Pricing based on other economic
considerations
5.Pricing in large enterprises - Pricing in
small business
2

4. Internal Factors affecting Price Determination-
• 1. Product Cost: Cost of the product is the basic determinant of its price.
Only after ascertaining cost, pricing can be achieved in a financially
healthy manner.
• 2. Pricing Objectives: Pricing objectives of a company play a crucial role in
determining the price. A well established company can afford to offer a
very low price for its product, if the objective is to capture market and
wipe out competition.
• 3. Product differentiation: The concept of product differentiation aims to
distinguish one brand from the other on various dimensions.
• 4. Product life cycle: The price of a product is influenced by the stage in its
life cycle.- introduction,growth, maturity, and decline.
• 5. Marketing mix: The marketing mix refers to the set of actions, or tactics, that
a company uses to promote its brand or product in the market. pricing decisions
should be conducive to the working of the other elements in the
marketing mix. Price, Product, Promotion and Place.

5. marketing mix & Product life cycle
• The marketing mix refers to the set of actions, or tactics, that a company
uses to promote its brand or product in the market. The 4Ps make up a
typical marketing mix - Price, Product, Promotion and Place.

6. External Factors affecting Price Determination-
• 1.Product Demand: Demand refers to the desire to
purchase a product backed by purchasing power
• 2.Competition: Competition refers to other players in
the market, within the industry, offering products
which satisfy the same needs of the customers, as
offered by the company under consideration.
• 3.Economic conditions: This refers to the play of
business cycles.
• 4.Different kinds of buyers: Buyers can be either
business buyers/industrial buyers or individual
customers/final users.
• 5.Government regulations: The laws of the land govern
every aspect of business and pricing is also covered
among them.

7. Economic factors
• Economic factors can alter companies'
pricing strategies.
• Prices need to be flexible, especially in
response to inflation and recessions.
• There are numerous strategies that can
be employed to combat economic
changes and lead to corporate sales and
profits.

8. Pricing Strategy Objectives
• Long Run Profits
• • Short Run Profits
• • Increase Sales Volume
• • Company Growth
• • Match Competitors Price
• • Create Interest & Excitement about the Product
• • Discourage Competitors From cutting Price
• • Social, Ethical & Ideological Objectives
• • Discourage New Entrants
• • Survival

9. STEPS OF PRICE PLANNING

13. A.COST-ORIENTED PRICING
• Cost-oriented pricing is the most elementary
pricing method. It involves the calculation of
all the costs that can be attributed to a
product. whether variable or fixed. and then
adding to this figure a desirable markup. as
determined by management
• Because of the simplicity of this method,
retailers, wholesalers. and some
manufacturers use it to determine their prices
• Using the cost of production as the basis for
pricing a product.

14. COST-ORIENTED PRICING
A1. Mark-up Pricing In mark-up pricing, the selling price of
the product is fixed by adding a particular margin or mark
up to its cost. It is also known as Cost Plus Pricing.
A2. Full cost pricing is a practice where the price of a product
is calculated by a firm on the basis of its direct costs per unit
of output plus a markup to cover overhead costs and profits
A3. Marginal cost-pricingcomes under the idea of variable
costs. It bases a product’s selling price on the variable costs
of its production and includes a margin and ignores any
fixed cost.
A4. The break-even price is the price necessary to make
normal profit. It is a price which includes all costs, including
variable and fixed costs.
• At the break-even price, the firm neither makes a loss or
profit.

15. WEAKNESSES OF THE COST-ORIENTED APPROACH
• Ignoring Marketing Environment
• ignores the demand of the product which is an
important variable in pricing.
• . It is not possible to accurately ascertain total
costs in all cases.
• it does not explicitly take into account the
elasticity of demand.
• This method cannot be used for price
determination of perishable goods because it
relates to long period.

16. B.Market-Oriented or Demand Based Pricing
• Market-OrientedPricing Method: Under this method
price is calculated on the basis of market conditions.
• Pricing that is determined by how much
customers are willing to pay for a product or
service.
• This method results in a high price when demand
is strong and a low price when demand is weak.
• May be differentiated based on considerations
such as time of purchase, type of customer or
distribution channel.

17. B1.Market Skimming
• One of the most commonly used
strategies is the skimming strategy.
• In this strategy, the firm skim the market
by selling at a premium price. Skimming
method skims the market in the first
instance through high price and then
settles down for a lower price.
• Examples include: Playstation, jewellery,
digital technology, new DVDs,
innovations and First to Market products
etc.

18. B2.Penetration Pricing
• Penetration Pricing keeps a low price for
a new product or service during its initial
offering. The objective of penetration
price strategy is to gain grip in a highly
competitive market. Market share or
market penetration are the two most
important objective.
• Typical in mass market products – chocolate bars,
food stuffs, household goods, etc.
• Suitable for products with long anticipated life cycles
• May be useful if launching into a new market
©ARC Consulting cc 2012

19. B3.Charging What the Traffic Will Bear
• It points out demand price. Cost of service and
value of service principle are the two
principles in pricing.
• The second term is charging what the traffic
can bear.
• Professionals like lawyers, doctors, chartered
accountants etc., adopt this principle.
• They charge their fees on the basis of ability to
pay and the cost factor comes secondary in
their charges.

20. C. Competition-based pricing
• Marketers will choose a brand image and
desired market share as per competitive
reaction.
• It is necessary for the marketer to know what
the rival organisation is charging.
• Level of competitive pricing enables the firm
to price above, below, or at par and such a
decision is easier in many cases

21. C1.Discount Pricing
• Traders or buyers were offered price concessions in
the form of deductions from the list price of from the
amount of a bill or invoice. These are forms of
indirect price competition.
• The common forms of discount pricing are:
– Trade Discount: It is given to the buyers buying for resale,
for example, wholesaler or retailer.
– Cash Discount: It is a rebate or a concession given to the
trader or consumerto encourage him to pay in full by cash
or cheque within a short period of the date of the bill or
invoice.
– Quantity Discount: These are given to the customerto
encourage to make bulk or large purchases at a time.
– Quantity Discount: These are given to the customerto
encourage to make bulk or large purchases at a time.
– Seasonal Discount: Additional seasonal discount for
example 10%, 15% are offered to a dealer or a customer.

22. C2.Premium Pricing
• Premium pricing is the practice in which a high-
end product is sold at higher than that of
competing brands to give it a snob appeal
through an aura of exclusivity. It also referred to
as skimming, image pricing or prestige pricing.
• The firm may decide to charge a high initial price
to take advantage of the fact that some buyers
are willing to pay a much higher price than others
as the product is of high value to them.
• The skimming pricing is followed to cover up the
product development cost as early as possible
before competitors enter the market.

23. C3.Competitor Pricing (Going Rate)
• In case of a price leader, rivals have difficulty
in competing on price – too high and they lose
market share, too low and the price leader
would match price and force smaller rival out
of market
• In this strategy, we are compelled to follow
pricing leads of rivals especially where those
rivals have a clear dominance of market share
• Where competition is limited, ‘going rate’
pricing may be applicable – banks, petrol,
supermarkets, electrical goods – find very
similar prices in all outlets

24. D. Other popular methods
D1.Value Pricing
• prices are decided on the basis of the customer’s
perceived value. They see the buyer’s perceptions of
value, not the seller’s cost as the key indicator of
pricing.
D2. Sealed Bid Pricing
• In sealed bid pricing, the firms submit bids in sealed
covers for the price of the job or the service.
D3.Psychological Pricing
• Psychological pricing is a pricing strategy that utilizes
specific techniques to form a psychological or
subconscious impact on consumers
• a product with a $99 price tag is cheaper than a
product of $100

25. Other popular methods
D4.Odd Pricing
• In odd pricing method, the buyer charges an odd price
to get noticed by the consumer. One such example is of
Bata. Bata prices are always an odd number like
899.99, etc.
D4.Geographical Pricing
• Geographical pricing is a method in which the
marketer decides pricing strategy depending on the
location of the customer like domestic pricing,
international pricing, third world pricing etc.
D6.Discriminatory Pricing
• Discriminatory pricing is a method in which the
marketer discriminates his pricing on a certain basis
like the type of customer,location and so on.

26. D7.Loss Leader
• Loss-Leader Pricing sharply cut prices on one or few
popular items (even below its cost) to attract
customers. They may charge very high prices for
some of their other products;
• Goods/services deliberately sold below cost to
encourage sales elsewhere
• Purchases of other items more than covers ‘loss’ on
item sold
• e.g. ‘Free’ mobile phone when taking on contract
package

27. D8.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
• Flooding the market with cheap (often imported)
goods
• Anti-competitive and illegal if it can be proved

28. Pricing in large enterprises
&
Pricing in small business

29. Pricing Strategies of Companies
Some pricing strategies of companies are more permanent in nature, while
other pricing moves are used temporarily.
Companies may use a variety of pricing strategies, depending on their own
unique marketing goals and objectives – and also on which industry they
represent- The can use one of these three strategies cost-based-
competition-based and value-based
1. Price Skimming
A company will sometimes use a price skimming strategy when introducing a
new product, especially when the product is a newer technology. The
objective of price skimming is to set a high price initially to help recover
the costs of production and advertising.
2.PenetrationPricing
A company entering an existing and competitive market may use a
penetration pricing strategy. The goal of penetration pricing is to set low
prices early to attract lots of customers.
3. Return on InvestmentPricing
A company will often have a target profit figure--return on investment, or
ROI--it wants to earn on a product.
4. Geographical Pricing
Geographical pricing is more discretionary in nature

30. 10 different pricing strategies for small business
• 1. Pricing for market penetration:Penetration
strategies aim to attract buyers by offering
lower prices on goods and services than
competitors.
• 2. Economy pricing: It involves minimizing
marketing and production expenses as much
as possible,and economy pricing aims to
attract the most price-conscious consumers.
• 3. Pricing at a premium With premium
pricing, businesses set costs higher because
they have a unique product or brand that no
one can compete with

31. 10 different pricing strategies for small business
• 4. Price skimming: setting rates high during the initial
phase of a product. The company then lowers prices
gradually as competitor goods appear on the market
• 5. 5. Psychological pricing
• Psychological pricing refers to techniques that
marketers use to encourage customers to respond
based on emotional impulses, rather than logical ones.
• 6. Bundle pricing
• With bundle pricing, small businesses sell multiple
products for a lower rate than consumers would face if
they purchased each item individually
• Bundle pricing is when you encourage people to buy
things in bundles or packages by offering discounts.

32. 10 different pricing strategies for small business
• 7. Geographical pricing
• Geographical pricing involves setting a price point based on
the location where it’s sold.
• 8. Promotional pricing
• Promotional pricing involves offering discounts on a
particular product. For instance, you can provide your
customers with vouchers or coupons that entitle them to a
certain percentage off the good or service. “Buy One Get
One”
• 9. Value pricing customers don’t care how much a product
costs a company to make, so long as the consumer feels
they’re getting an excellent value by purchasing it.
• 10. Captive pricing
• If you have a product that customers will continually renew
or update, you’ll want to consider a captive pricing strategy

33. Assignments
• 1Factors affecting Price Determination
• 2. 6step process of pricing
• 3.Major Pricing Strategies
• 4.Pricing Strategies for small business
• 5.write about the economic considerations
which affecting pricing Strategies
• 6 How the Cost Oriented pricing Strategies
differ from Competition Oriented Strategies ?

34. Question Bank
Part-A
• Define
– Cost Plus Pricing
– Penetration Pricing
– Skimming the Cream Pricing:
– Penetration Pricing
– Value Pricing
– Psychological Pricing
– Destroyer/Predatory Pricing
– Contribution Pricing
– mark-up
• Part-B
• Factors affecting Price Determination
• the 6step process of pricing
• .Pricing Strategies for small business
• write about the economic considerations which affecting pricing Strategies
• How the Cost Oriented pricing Strategies differ from Market Oriented Strategies?
• Part-C
• Major Pricing Strategies