Basic Pricing Strategies and Practices

Basic Pricing Strategies and Practices
profmanishparihar.blogspot.com
Why does Gillette command a premium price?
Definition:
In ordinary usage, price is the quantity of payment or compensation given by one party to another in return for goods or services.
Price is what you pay. For what you get. Tuition Interest Rent Fare Fee Retainer Salary Wage Education Use of money Use of building/equipment Taxi ride / rickshaw ride Services of a lawyer Consultants services over a period of time Services of white-collar jobs Services of blue-collar jobs
profmanishparihar.blogspot.com Source: Ch. 12, Marketing (Reference book) by Michael Etzel, Bruce Walker
Selling Price & Buying Price

Price can sometimes alternatively refer to the quantity of payment requested by a seller of goods or services called the asking price or selling price. the actual payment may be called the transaction price or traded price. Likewise, the bid price or buying price is the quantity of payment offered by a buyer of goods or services.
Objectives of Pricing
Short-term profit maximization Short-term revenue maximization Maximize quantity Maximize profit margin Differentiation Survival
Source: http://entrepreneurs.about.com/od/salesmarketing/a/pricingstrategy.htm
Summation of Objectives
Profit objectives e.g.
Targeted profit return Maximize profits
Volume/Sales objectives e.g.

Dollar or unit sales growth Market share growth
Status-quo objectives e.g.

Match competitors price
Factors affecting pricing:

Estimated demand Cost of the product Competition
Directly similar products Available substitutes Unrelated products
Other marketing mix elements

Product Distribution channels Promotion
Major Approaches to Pricing

1. 2. 3. 4. 5. Price Vs. Non-price competition Market entry strategies Discounts and allowances Geographic pricing strategies Special pricing strategies
1. Price Vs. Non-price competition

Price competition focuses on low prices for differentiation Non-price competition may involve quality, workmanship, design etc. to differentiate
Price competition
Examples..
Non-price competition
2. Market entry strategies

Market Skimming Price Market Penetration Price
Market skimming: LCD TVs
Source: http://ww.avsforum.com/avs-vb/showthread.php?t=681034
Started as a one-product one-man outfit in 1969 by a chemist Karsanbhai Patel. The new yellow powder detergent was priced at Rs. 3.50 per kg, at a time when HLL's Surf was priced at Rs 15 for market penetration.
"It all started to earn a side income, and at that stage, I had never imagined this kind of success." - Karsanbhai Patel, CMD, Nirma Ltd.
3. Discounts and allowances

Quantity discounts Trade discounts Cash discounts Rebates
Quantity discounts
Trade discounts
Cash Discount
Rebates
4. Geographic pricing strategies

Point of production pricing Uniform delivered pricing Zone delivered pricing Freight absorption pricing
5. Special pricing strategies

One price and flexible price strategies Price lining Odd pricing Leader pricing Everyday low pricing (EDLP) Resale price maintenance
Odd Pricing
Case-studies in Pricing Strategy
1. McDonalds Leader Pricing

McDonalds menu is recognized world over for its affordability. A McDonalds store gets an average of 3,000 walk-ins every day in each of its 165 restaurants in India. In September 2009, McDonalds announced reduction in prices by almost 25% for its lunch and dinner menus. Prices for its extra-value meals like McVeggie and McChicken were reduced to Rs. 85 and 95 respectively from Rs. 110 and 120 respectively. McDonalds began operations in India in 1996. The fastfood chain started making profits after it broke even in 2008.
2. Star Bazaar Pricing Error
1 Chocolate Horlicks Displayed price: Rs. 230/- Charged: Rs. 257.40 2 Toor Daal (500g) MRP: Rs. 39.00 Charged: Rs. 40.59 3 Himani Mudpack MRP: Rs. 80.00 Charged: Rs. 99.00 4 Amul Cheese Spread MRP: Rs. 55.00 Charged: Rs. 57.00 5 Sugar Powder 100g, MRP: Rs. 7.15 Charged: Rs. 8.91 6 Nescafe Classic, 50g, MRP: Rs. 75.00 Charged: Rs. 88.00
Ethical dilemma?
Which software would you upgrade first? price-rise or price-reduction?
3. Price-wars: Coke vs. Pepsi
Established - Coke: 1886; Pepsi: 1893 1933: Pepsi struggling to stave off bankruptcy. Dropped price of its 10c, 12 oz. bottle to 5c, making it a better value (discount) Ad jingle of Pepsi twice as much for a nickel better known in the US than the Coke ad
Price / Ounce
Pepsi
Coke
Price / Ounce
Coke Pepsi
Perceived Quality
profmanishparihar.blogspot.com Perceived
Quality
Coke vs. Pepsi, Contd.....

x
x x
Pepsi keeps price advantage through 60s and 70s, when Pepsi charged its bottlers 20% less for its concentrate (trade discount) With rising ingredient costs, Pepsi could no longer offer twice as much for the same price. So it raised price to Cokes level giving it a war chest to fuel an aggressive ad campaign Battle shifted from Price to Quality, with Pepsi targeting the youth What followed was the Pepsi Challenge & Real Thing Coke ads
Price / Ounce
Youth & Middle Class Segments Perceived Quality
Price / Ounce
Pepsi
Coke
First move: Pepsi Challenge 2nd move: Cokes Ad war Perceived Quality
Coke vs. Pepsi, Contd.....

x
Perceived quality caught up. Deeper pocketed and lower cost Coke initiated a price war in selective markets where Pepsi was weak in the 70s. (Geographical Pricing) Other companies moved into the lower left quadrant of the market. (market penetration pricing) But the two major players forced price down to ultimate value. To break price spiral, Coke launched New Coke to keep Coke loyals and induce switching among Pepsi buyers. (market skimming) Rejected by market. Attempts are on to move to next arena via niches in caffeine and sugar substitutes
Price / Ounce
Price / Ounce
Generics RC Cola
Coke & Pepsi Price Spiral
NewCoke Classic Coke & Pepsi Actual NewCoke Intended Perceived Quality
Perceived Quality
And the battle goes on..
The end

Basic Pricing Strategies and Practices

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Basic Pricing Strategies and Practices

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Copyright:

Verfügbare Formate

Basic Pricing Strategies and Practices

Why does Gillette command a premium price?

Selling Price & Buying Price

Volume/Sales objectives e.g.

Status-quo objectives e.g.

Factors affecting pricing:

Other marketing mix elements

Major Approaches to Pricing

1. Price Vs. Non-price competition

2. Market entry strategies

Market skimming: LCD TVs

3. Discounts and allowances

4. Geographic pricing strategies

5. Special pricing strategies

Case-studies in Pricing Strategy

1. McDonalds Leader Pricing

2. Star Bazaar Pricing Error

3. Price-wars: Coke vs. Pepsi

Coke vs. Pepsi, Contd.....

Youth & Middle Class Segments Perceived Quality

Coke vs. Pepsi, Contd.....

Coke & Pepsi Price Spiral

And the battle goes on..

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