SETTING THE PRICE

3 Cs-Customers demand
schedule, Cost function
and Competitors prices
are important in the
selection of price

STEPS IN SETTING THE PRICE

1.
2.
3.
4.

Selecting the Pricing Objective

Determining demand
Estimating costs
Analyzing competitors costs, prices,
and offers
5. Selecting a Pricing Method
6. Selecting the final price

STEP 1:Selecting the Pricing

Objective

Survival
Maximum Current Profit
Maximum Market Share
Maximum Market Skimming
Product-Quality Leadership
Other Objectives

STEP 2:Determining Demand

Each alternative price and its impact

on the demand conditions

STEP 3:Estimating costs

Demand sets a ceiling on the price
the company can charge for its
product. Costs set the floor.
DEMAND.CEILING

COSTS.FLOOR

STEP 4:Analysing Competitors

costs, Prices and offers

Evaluate the price and the benefits

sought by the customers and
compare it with competition

STEP 5:Selecting a Pricing method

Markup Pricing
Target-Return Pricing
Perceived Value Pricing
Value Pricing
Going-rate Pricing
Auction-Type Pricing
Group Pricing

Markup Pricing
Variable Cost per unit: Rs.20
Fixed Costs: Rs.500000
Expected sales (in units): 20000
Unit Cost=V.C. + F.C./Unit Sales
i.e. Rs.45
Assume that Mark up is 10 percent
Markup Price = Unit Cost / (1-Desired
Return on sales)
i.e. Rs. 50

Target-Return Pricing
Planned ROI:10 percent
Invested Capital: 1 million
Target-return price=
Unit cost+(Desired ReturnxInvested
Capital) / Unit Sales
i.e. Rs. 50

Perceived Value Pricing

Customers Perceived Value

Value Proposition based value must
be delivered which must even be
perceived by the customers

Value Pricing

Winning customers by charging fairly

low prices for high quality offering.
Retailers such as Big Bazaar, Peter
England

Going-rate Pricing

Company bases its price on

competitors prices.
i.e. Same, More or Less than
competition.

Auction-Type Pricing
Rise of internet has evolved this type
of pricing
English type: ascending type bids
Dutch type: descending type bids
Sealed bid

Group Pricing

Consumers and or business buyers

join groups to avail a volume discount
and other concessions

STEP 6:Selecting the final price

Impact of other marketing activities

Company pricing policies
Impact of price on other parties

Assignment
Line Extension of Sonata range of
watches
A professional such as a Doctor,
Management Consultant etc.
Artifacts and murals
Herbal face wash for men
Courses in Distance Learning
Portable iron
Hyderabadi Pearl earings shop at
Colaba, Mumbai