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S. Suresh
What is a Price?
Narrowly, price is the amount of money
charged for a product or service.
- High-low pricing involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items
the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk. Cost-plus pricing adding a standard mark-up to the cost of the product. Break even pricing (target profit pricing) Setting price to break even on the costs of making and marketing a product, or setting price to make a target profit.
9-10
PRICING STRATEGIES
9-11
When to use:
Products quality and image must support its higher price. Costs of smaller volume cannot be so high they cancel the advantage of charging more. Competitors should not be able to enter market easily and undercut the high price. Ex: Sony HDTV in Japan
When to use:
Market must be highly price sensitive so a low price produces more market growth. Production and distribution costs must fall as sales volume increases. Must keep out competition and maintain low price or effects are only temporary. Ex: Dell selling PCs through low cost direct channels
Optionalproduct pricing
Captiveproduct pricing
By-product pricing
9-14
various products in a product line based on cost differences between the products, customer evaluations of different features, and competitors prices.
Samsonite childs backpack @ $ 50 to Black Label Vintage@ $1250 Bata in India
9-15
By-product pricing refers to products with little or no value produced as a result of the main product. Producers will seek little or no profit other than the cost to cover storage and delivery.
By-products of MeadWestvacos wood-processing used by Asphalt Innovations for producing chemicals
Product bundle pricing combines several products and offering the bundle at a reduced price
Fast Food Restaurants - burger, fries and soft drinks Resorts - airfare, accommodation, meals and entertainment.
9-16
The product is more distinctive Buyers are less aware of substitutes Buyers cannot easily compare the quality of substitutes The expenditure is a smaller part of buyers total income The expenditure is small compared to the total cost of Part of the cost is paid by another party The product is assumed to have high quality and Buyers cannot store the product
prestige the end product
Price-Adaptation Strategies
Discounts/ Allowances
Discounts A straight reduction in price on purchases during a stated period of time. Cash discount price reduction to buyers who pay their bills promptly. Quantity discount price reduction for those who buy in large quantities. Functional discount (trade discount) Offered by sellers to trade channel members who perform certain functions like selling, storing and record keeping.
Price-Adaptation Strategies
Discounts/ Allowances Allowance Promotional money paid by
manufacturer to retailers in return for an agreement to feature the manufacturers product in some way.
Trade in Allowances are price reductions given in turning old item when buying a new one. Promotional allowance are payments or price reductions to reward dealers for participating in advertising and sales support programs.
Price-Adaptation Strategies
Price-Adaptation Strategies
Psychological Pricing
A pricing approach that considers the psychology of prices and not simply the economics; the price is used to say something about the product. Ex: Smirnoff, Relska, Popov & Wolfschnidt Reference prices Prices that buyers carry in their mind and refer to when they look at a given product. Ex. Sale, Reduced, Price after rebate, Price
matching guarantee
Price-Adaptation Strategies
Promotional pricing Temporarily
pricing products below the list price, and sometimes even below cost, to increase short-run sales.
Loss leader prices pricing below the cost. Special event pricing (Dec. 31st, welcoming new year) Shopping festivals by Big Bazaar Low interest financing, longer warranties, free maintenance
Price-Adaptation Strategies
Geographical Pricing Setting prices for customers located in
different parts of the country or world. (FOB)Free on Board Goods are placed free on board a carrier; the customer pays the freight from the factory to the destination. Uniform-delivered pricing Company charges the same price plus freight to all customers, regardless of their location. Zone Pricing Company sets up 2 or more zones. All customers within a zone pay the same total price; the more distant the zone, the higher the price. Basing-point pricing Seller designates some city as a basing point and charges all customers the freight cost from that city to the customer. Freight absorption pricing Seller absorbs all or part of the freight charges in order to get the desired business.
Price-Adaptation Strategies
Dynamic Pricing - Adjusting prices
continually to meet the characteristics and needs of individual customers and situations.
Airlines offers specially designed for you.
A large proportion have a low and seasonal income Several approaches adopted by retailers and
companies to address this Rural retailers often extend credit Retailers also break the bulk and sell in loose form, in small quantities Companies use a similar strategy by introducing low-unit packing or LUP Companies also develop low-priced products with a target price for rural markets Companies might offer refill packs or recyclable and reusable packs
THANK YOU
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