PRICING STRATEGIES

Ankit Singh
Email anktsngh15@gmail.com

You dont sell through price. You sell the
price.
PRICE - MEANING
The sum of all the values that consumers exchange for the benefits of
having or using the product or service

Price is Just not a number on Tag, Price comes in many forms & Performs
many functions .
Rents, tuition, fares, fees , rates, tolls, retainers, wages, & commissions all
are some or the other way the price which
We pay for getting the good or service.



CHANGING PRICE
ENVIRONMENT ??
Pricing trends are changing

Buyers are becoming empowered
A. Can get Instant price comparisons from thousands of vendors (Policybazar.com)
B. Name the price and have it met (Priceline.com)
C. Get Products free ( Microsoft Products)

Sellers are getting competitive advantage
1. Monitor Customer Behavior & tailor offers to individuals
2. Give certain customers access to special prices

Both buyers & sellers can
1. Negotiate prices in online auctions & exchanges (OLX & IBIBO)

HOW CONSUMER ARRIVES
AT A PERCEPTION OF PRICE
Reference Prices :
1. Comparing and Observed price with an internal reference price, or they
remember an external frame of reference such as posted regular retail price.
2. Sellers Manipulate by pricing high to give the impression that the product is of
better quality, Manufacturers promote reference prices by indicating that
product was priced much higher originally, or by pointing to a competitors
price.

POSSIBLE CONSUMER REFERENCE PRICES
Fair price
Typical price
Last price paid
Upper-bound price
Lower-bound price
Competitor prices
Expected future price
Usual discounted
price

Price Quality Inferences : Many consumers uses price as an indicator of
quality
1. High priced items are considered as of possessing high quality
2. Some brands adopt exclusivity & scarcity as a mean to Justify premium pricing.
3. Luxury goods makers of watches, Jewelry , Perfume & other products often
emphasize exclusively in their communications message & channel Strategies


Price Endings
1. Many sellers believe prices should not end in an odd number
2. Research has shown that consumers tend to process prices in a Left to right
manner rather than by rounding's.
3. Those companies who wants a high Price Image, it Should avoid the odd
ending Tactic.
SETTING THE PRICE
Setting the pricing objective
Determining Demand
Estimating Costs
Analyzing Competitors Costs, Prices & Offers
Selecting a Pricing Method
Selecting the Final Price
SETTING THE PRICING
OBJECTIVE
Survival : As long as prices cover variable costs and some fixed costs , the
company stays in business, its a short term objective in the long term the
firm must learn how to add value and go for wealth maximization.

Maximum Current Profit : Many companies try to set price that will maximize
current profits by estimating the demand the demands & costs associated
with alternative prices.

Maximum Market Share : Some companies want to maximize their market
share by believing that higher sales volume will lead to lower unit costs and
higher long run- profit.


MARKET PENETRATION
PRICING
Conditions favoring adaptation of a Market Penetration Pricing Strategy :
1. Market is highly price sensitive &low price stimulates Market Growth
2. Production & Distribution cost fall with accumulated production experience
3. Low price discourages actual & potential competition.

ELASTICITY OF DEMAND
If demand hardly changes with the change in price we can say that the demand is Inelastic

The higher the elasticity , the greater the volume growth resulting from a 1 % price reduction.
If demand is elastic sellers will consider lowering the price.
Price elasticity may be negligible with a small price change & Substantial with a large price change, it may
differ for a price cut versus a price Increase, & there may be a Price indifference band within which price
changes have little or no effect.
Long run price elasticity may differ from a short term price elasticity.
SETTING THE PRICING
OBJECTIVE. CONT
Maximum Market Skimming :
Companies unveiling a new technology favor setting high prices to Maximize
market skimming.
This strategy can be fatal if a worthy competitor decides to price low.
Conditions Favoring Market Skimming Strategy :
1. A Sufficient Number of Buyers have a high current demand.
2. The unit costs of producing a small volume are not so high that they cancel the
advantage of charging what the traffic will bear
3. The higher initial price does not attract more competitors to the market.
4. The high price communicates the image of a superior product.
SETTING THE PRICING
OBJECTIVE. CONT
Product Quality Leadership : Many brands strives to be Affordable Luxuries
products or services characterized by high level of perceived Quality, taste, and
status with a price just high enough not be out of customers reach.
Other Objective : Non- Profit organizations & Public organizations may have other pricing objectives.


Eg : A Non Profit hospital will price surgeries just to recover is operational cost.
A University will aim for partial recovery, knowing that it must rely on donations & Public Grants to cover its remaining costs
DETERMINING DEMAND
Each price will lead to a different level of demand & will therefore have a different impact on a
company's marketing Objectives. In a normal case they are inversely related, the higher the price , the
lower will be the demand, but sometimes this varies.
Price Sensitivity of Demand :
The Demand curves shows the markets probable purchase quantity at alternative prices, It sums the
reactions of many Individuals who have different price sensitivities.
Customers are less price sensitive when :
1. There are less competitors in the market
2. They do not readily notice the higher price
3. They are slow to change their buying habits
4. They think higher prices are justified.
5. Price is the only a small part of the total cost of obtaining , operating & and servicing the product over
its lifetime.


PRICE ELASTICITY OF
DEMAND
Measure of the sensitivity of demand to changes in prices
not price sensitive - no real change in
demand
price sensitive - changes in demand
Inelastic Demand
Q
2
Q
1
Quantity
P
1 (10)
P
2 (15)
Electricity
P
r
i
c
e

Elastic Demand
Q
2
(50)
Quantity
P
1 (10)
P
2 (15)
Fast food
Q
1
(150)
P
r
i
c
e

100 105
Inelastic Demand
Elastic Demand