Presented by: Shubham Jain Gopal Maheshwari Deepak Chaudhry Mayank Verma

Price Has Many Names

Rent Fee Rate Commission Assessment

Tuition Fare Toll Premium Retainer

Bribe Salary Wage Interest Tax

Only Element That brings REVENUE

A firm must set a price for the first time when

It develops a new product It introduces its regular product into a new distribution channel or geographical area It enters bids on new contract work ( as in Industrial Sale )
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Customer perceptions of value

Other internal and external considerations

Product cost

Marketing strategy, objective and mix.

Price floor No profits Nature of the market and below this demand Competitors strategies price and prices

 Value-based Pricing
Setting prices based on buyers perceptions of value rather than on the sellers cost. Cost-Based Pricing
Setting prices based on the costs for producing distributing and selling the product plus a fair rate of return for effort and risk.

PRICE COMPETITION

NON-PRICE COMPETITION

where a company tries to distinguish its product or service from competing products on the basis of low price.

firm tries to distinguish its product or service from competing products on the basis of attributes like design and workmanship

Cost Consumer Channel of distribution Competition Compatibility

Selecting the pricing objective Determining demand Estimating costs Analyzing competitors costs, prices, offers Selecting a pricing method Selecting the final price

Survival Maximize current profit Maximize market share Maximize market skimming Product - quality leadership

Each price will lead to a different level of demand and have a different impact on a companys marketing objectives.
Demand and price are inversely related i.e. Higher the price, lower the demand

Company needs to consider : Price sensitivity Price elasticity of demand

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Shared cost ( part of cost is borne by other party ) Sunk investment (product used is required as a complement to earlier purchase ) Inventory effect ( buyers can not store the product ) Items bought more frequently ( more sensitive ) / infrequently ( less sensitive )

Unique value effect ( quality , prestige or exclusiveness ) Substitute awareness by buyers Difficult comparison by buyers End benefit ( expenditure small part of total income ) Total expenditure ( purchase cost is insignificant compared to the cost of end product ) Low cost items (less sensitive ) / high cost items ( more sensitive)

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This determines the changes in demand with unit change in price If there is little or no change in demand, it is said to be price inelastic. If there is significant change in demand, then it is said to be price elastic.
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There are few or no substitutes Buyers readily do not notice the higher price Buyers are slow to change their buying habits Buyers think that the higher prices are justified

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Fixed costs Variable costs

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Cost that do not vary with production or sales level.

Examples

Factory Land, Building

Machinery Management Salaries

Property Taxes
Insurance Rent

Cost that vary directly with the level of production.

Examples
Direct Material Cost Direct Labor Cost Factory Supplies

Break Even Pricing setting price to break even on the cost of making and marketing a product

Break Even Volume the point at which total revenue and total cost curves cross each other.

Example
Total cost = fixed cost + variable cost Break even volume = Price variable cost Fixed cost = 300000 20 10

30,000 units

Price set to penetrate the market

Low price to secure high volumes

Typical in mass market products chocolate bars, food stuffs, household goods, etc.
Suitable for products with long anticipated life cycles May be useful if launching into a new market

High price, Low volumes Skim the profit from the market

Suitable for products that have short life cycles or which will face competition at some point in the future (e.g. after a patent runs out) Examples include: Playstation, jewellery, digital technology, new DVDs, etc.

Price set in accordance with customer perceptions about the value of the product/service
Examples include status products/exclusive products

Companies may be able to set prices according to perceived value.

Used to play on consumer perceptions

Classic example - 9.99 instead of 10.99! Links with value pricing high value goods priced according to what consumers THINK should be the price

Charging a different price for the same good/service in different markets Requires each market to be impenetrable
Requires different price elasticity of demand in each market

Prices for air travel differ for the same journey at different times of the day