Lecture 6

Parveen Sharma

Marketing of
Financial
Products

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Contents
Marketing Mix: Price

The Concept
Objective of Pricing
Factors Affecting Pricing
Pricing Strategies
Pricing Strategy & PLC
Relationship Pricing
Break-even Analysis

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Marketing Mix: Price

"Price is what you pay. Value is what you get."

- Warren Buffett

Pricing decisions need to balance a businesss need to make a profit,

with the markets value perception (i.e. what the market is prepared to
pay).
If the price is too high, customers wont buy the products; if the price
is too low, there is a risk that the business will not be able to generate
enough profit to breakeven.

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Marketing Mix: Price

P in marketing mix generating revenue
Product
Place
= Cost
Promotion

Price = Revenue

Complex process determine value consumers will exchange for offering

Price of financial services is generally expressed in terms of interest
rates, fees, brokerages, commissions and premiums.

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Marketing Mix: Price

Pricing of Insurance products

The formulation of pricing strategies

becomes significant with the viewpoint of
influencing the target market or prospects. To
be more specific in the Indian context where
the disposable income in the hands of
prospects is found low due to inflation, it is
pertinent that the insurance organizations
adopt such a strategy for pricing that makes it
a motivational tool & paves the ways for
increasing the insurance business. Of course,
a motivational pricing strategy is required to
be given due weightage.

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Marketing Mix: Price

Price is very important part of Marketing Mix as it affects

whether people can afford the product and how quickly sales will
grow
how competitively it is priced compared to rival products
the products image high price can mean high quality
Price = Cost + Perceived Value
In addition to price of financial services consumers might also be
motivated by other factors such as security, piece of mind, prestige and
wealth.

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Marketing Mix: Price

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Marketing Mix: Price

Objective of Pricing
Profit
Survival
Market Share
Cash Flow

Status Quo
Product Quality
Communicating Image

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Marketing Mix - Price

Factors affecting pricing

Internal Factors
Company Objective

Share holders

Component of Marketing Mix

Consumers

Costs
Risks

External Factors

Pricing

NN

Competition
Legal & Regulatory

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Pricing Strategies

Discriminating Pricing
First degree
different prices to each customer depending upon their
intensity of demand
Second degree
Lower prices for buyers/investor of a larger volume
Third degree
Customer groups student, senior citizen
Image pricing
Channel
Location
Time
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Pricing Strategies

Product-mix pricing
Product line pricing Setting price steps between various products
in a product line
Captive-product pricing main product at lower price, ancillary
product at higher price
Two-part pricing split into fixed and variable component
By-product pricing by-products obtained in production of other
products
Product-bundling pricing

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Pricing Strategies

Product-Bundling pricing

Reliance SIP Insure provides free life

insurance cover to investors at no
extra cost.
In the unfortunate event of the
demise of an investor during the
tenure of the SIP, the insurance cover
will take care of the unpaid
installments

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Pricing Strategies

Pricing will depend on type of market i.e.

if the market is exclusive or advanced , the consumers may expect
high prices
Price Skimming is common
if it is mass market where similar products are sold to large number
of customers then a low or Penetration Pricing might be used

Penetration Pricing: Setting a price at

lower level to gain greater market share

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Price Skimming: Setting price higher

initially to create higher image

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Pricing Strategies
If the market is very competitive and business is to grow by increasing
sales, prices may have to be reduced
Prices may need to be equal or below competitors selling very similar
products
This is called Competitive Pricing

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Pricing Strategies

Growing business needs profits to invests back into the business

Prices of products have to cover all costs if profits are to be made

Adding a profit mark up to the unit costs will achieve this

This is called Cost-plus Pricing

Cost-plus Pricing: Setting price at the

unit cost plus a percentage mark up

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Pricing Strategies
Loss Leader Pricing
Making a deliberate loss on a product which will be cancelled out by
profit made on other items
It is widely used in two ways
Selling vanila products at lower cost
Attract customers to buy these products
And then cross-sell

Loss Leader Pricing: Setting price below

/at hoping to gain other profitable sales

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Pricing Strategies

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Pricing Strategy & Product Life Cycle

Introduction

Growth

Maturity

Decline

Sales

Low sales

Rapidly Rising

Peak Sales

Declining sales

Costs

High

Average

Low cost

Low cost

Profits

Negative

Increasing

High & declining

Declining profits

Marketing
Objective

Increasing
Awareness

Increase Market
share

Inc profit,
defending share

Reduce costs &

Milk brand

Price
Strategy

Penetration/
Skimming

Penetration if
new

Competition
pricing

Reduce
Prices

Promotion/
Ads

Heavy
promotions

Awareness &
Interest

Differences &
benefits

For customer
retention

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Pricing Relationship Pricing

Retaining your customers is a lot less expensive than getting new

ones. So, how do you keep them coming back for more?
Relationship Pricing: Often products are priced so that customers are
encouraged to much of their business with one institution.
Relationship pricing also involves building extras into the product to add
value to the customer and differentiate

Lot of Small & big industrial customers are influenced by FIs having
expertise in developing relationship.
LGD Marketing
Lunch
Golf
Dinner
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Break-even Analysis

Breakeven analysis is an aid in making pricing decisions.

Break-even Volume = Fixed cost/(Price Variable cost)
Break-even chart for determining Target Return Price and Break-even volume

Price per unit = Rs 100 AVC = Rs 60 Fixed cost = Rs 120000

BEP(in units) = 120000/(100 60) = 3000 units
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? ueries
Contact me @ +91-9050050288
or
Email to parveen_72@yahoo.in

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Term for the Lecture

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Mark up Pricing
Absorption cost Pricing
Target Return Pricing
Marginal cost Pricing
Perceived Value Pricing
Value Pricing
Going Rate Pricing
Auction Type Pricing
Group Pricing

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Thank
You
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