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  1. 1. UNIT 4
  2. 2. ROLE AND IMPORTANCE OF PRICINGThe only element that generates revenuePrice and sales volume together decide the revenue of any business.Major determinant of a buyer’s choice.In the last few decades, non price factors become quite importantStill it remains an important factor in determining sales and profitability.
  3. 3. CHANGING PRICING ENVIRONMENT ‘We want LG to be an aspirational brand’ Repositioning of LG Electronics “Value for money” “Aspirational”Source- http://www.thehindubusinessline.in/catalyst/2007/11/22/stories/2007112250010100.htm
  4. 4. FACTORS INFLUENCING PRICINGInternal FactorsExternal Factors
  5. 5. INTERNAL FACTORSCorporate and marketing objectives of the firmThe image sought by the firm though pricingThe characteristics of the productThe stage of the product in its life cycleUse patterns and turnaround rate of the product
  6. 6. INTERNAL FACTORSCosts of manufacturing and marketingExtent of distinctiveness of the product and extent of differentiation practicedOther elements of marketing mix and their interaction with pricingComposition of the product line of the firm
  7. 7. EXTERNAL FACTORS Market characteristics Price elasticity of demand of the product in particular Buying behaviour of the customers of the product Bargaining power of major customers Bargaining power of major suppliers
  8. 8. EXTERNAL FACTORS Competitors’ pricing strategies Government controls/regulation on pricing Other relevant legal aspects Societal views Understanding reached, if any, with competitors/ price cartels
  9. 9. PRICING OBJECTIVESProfit maximization in the short termProfit optimization in the long termA minimum return on investmentA minimum return on sales turnoverAchieving a particular sales volume
  10. 10. PRICING OBJECTIVESAchieving a particular market shareDeeper penetration of the marketEntering new marketsTarget profit on the entire product line, irrespective of profit level of individual product
  11. 11. PRICING OBJECTIVESKeeping competition out, or keeping it under checkKeeping parity with competitionFast turnaround and early cash recoveryStabilizing the prices and margins in the market
  12. 12. PRICING OBJECTIVESProviding the commodity/service at prices affordable by the weaker sectionsProviding the commodities/services at prices that will stimulate economic development
  14. 14. COST BASED PRICINGMark-up pricing (Cost plus pricing)Absorption Cost pricingTarget return pricingMarginal cost pricing
  15. 15. DEMAND BASED PRICINGWhat traffic can bear’ pricingSkimming pricingPenetration PricingValue Pricing
  16. 16. COMPETITION ORIENTED PRICINGPremium pricingDiscount pricingParity/Going Rate pricing
  18. 18. GEOGRAPHIC PRICINGPoint of origin policyFreight-absorption policyUniform Delivered policyZonal-Delivered price policyBase point price policy
  19. 19. RESPONDING TO COMPETITORSThrough Price and Non-price variables
  20. 20. PRICE VARIABLESCost reduction using new technology or by using cheaply available raw materialTwo alternatives based competitive market conditions – reduce the market price of product or raise the market price
  21. 21. PRICE VARIABLESLowering price – too low price leads to loss, same policy can be adopted by rival producers/ competitorsRaising price – Reduce market demand considerably
  22. 22. NON-PRICE VARIABLESNot concerned with priceProduct modification, effective advertising and sales promotion measuresPriority to non price variables for facing competition and capturing market
  23. 23. NON-PRICE VARIABLESProduct differentiation – Registered trade mark, copy right, patents right, Change in appearance of the product i.e. colour, packaging, etc., Provision of supplementary services
  24. 24. NON-PRICE VARIABLESSelling costs – Expenditure incurred on advertising, sales promotion, discounts, Incentive measures to sales force and so on. Persuade customers to prefer firm’s products as against the products of competitors
  25. 25. PRODUCT LIFE CYCLE & PRICING DECISIONSIntroduction stageRapid skimming strategy – High price and heavy promotional expensesSlow skimming strategy – High price and low promotional expensesRapid penetrations strategy – Low price and heavy promotional expensesSlow penetration strategy – Low price and low promotional expenses
  26. 26. PRODUCT LIFE CYCLE & PRICING DECISIONSGrowth Stage Penetration pricing as increase in sales volume and competitionMaturity stage Pricing based on what consumers can bear and best competitor’s offerings Extended warranties, lowering of priceDeclining stage Low pricing