2. Contents
• Understanding pricing
• Consumer psychology and pricing
• How companies price
• Adapting the price
• Responding to price changes
3. What is a price?
• It quantifies value and determines profit
• It expresses the value of the exchange
relationship
• It is the determining factor in a
marketing exchange
• ‘Price’ can also be a fee, rent, fare,
commission, etc
5. Price: flexibility
• Changes in price are more readily
implemented than the other 3P’s
• Product - major re-investment
• Place - find and convince new distributors
• Promotion - long time scales/involves
outside agencies
9. Price Cues
• “Left to right” pricing (Rs 299 vs. Rs 300)
• Odd number discount perceptions
• Even number value perceptions
• Ending prices with 0 or 5
• “Sale” written next to price
10. Steps in Setting Price
Select the price objective
Determine demand
Estimate costs
Analyze competitor price mix
Select pricing method
Select final price
11. Step 1: Selecting the Pricing
Objective
• Survival
• Maximum current
profit
• Maximum market
share
• Maximum market
skimming - Nokia
• Product-quality
leadership -
Bugatti
14. Factors Leading to Less Price
Sensitivity
• The product is more distinctive
• Buyers are less aware of substitutes
• Buyers cannot easily compare the quality of substitutes
• The expenditure is a smaller part of buyer’s total income
• The expenditure is small compared to the total cost of
the end product
• Part of the cost is paid by another party
• The product is used with previously purchased assets
• The product is assumed to have high quality and
prestige
• Buyers cannot store the product
15. Step 3: Estimating Costs
Types of Costs
Accumulated
Production
Activity-Based
Cost Accounting
Target Costing
16. Cost Terms and Production
• Fixed costs / overheads
• Variable costs
• Total costs
• Average cost (total
cost/production)
• Cost at different levels of
production
• ABC
17. Cost per Unit as a Function of
Accumulated Production
18. Selecting a Pricing Method
• Markup pricing
– Unit cost= variable cost + fixed cost/unit sales
– Markup price = unit cost/(1-desired return on
sales)
• Target-return pricing
= unit cost + (desired return x invested capital)/unit
sales
• Perceived-value pricing
• Value pricing – EDLP, high-low pricing
• Going-rate pricing
• Auction-type pricing
21. Step 6: Selecting the Final Price
• Impact of other
marketing activities
• Company pricing
policies
• Gain-and-risk sharing
pricing
• Impact of price on
other parties
