Principles of Marketing -Pricing Strategy

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Pricing Strategy

Prof. Rushen Chahal

                      Prof. Rushen Chahal   1
      1. Pricing
• Pricing cannot be achieved through the
  simple application of a formula, as the actions
  of marketers and competitors and the
  perceptions and behaviour of consumers all
  have an influence on the pricing decision.
• Skill is required to assess how both consumers
  and competitors will respond to a particular
  pricing decision in the context of a particular
  marketing mix.

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1. Pricing

Determining a price range

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       2. Pricing objectives
Pricing objectives need to be closely linked
with organizational objectives such as:
i) Financial
• Profit (Return on investment; profit maximization)
• Cash flow

ii) Marketing
• Market share and positioning / Sales volume
iii) Status quo
iv) Survival
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2. Pricing objectives
     Price–quality matrix

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3. New-Product Pricing Strategies

 Market skimming pricing:- is a strategy with high initial
 prices to “skim” revenue layers from the market

 Market penetration pricing:- sets a low initial price in
 order to penetrate the market quickly and deeply to
 attract a large number of buyers quickly to gain
 market share

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4. Pricing Method – price range

a. Markup pricing:- to add an additional markup or
extra to the products’ costs
e.g. unit cost = variable cost per unit + (fixed costs /
expected units sales)

* Markup price = unit cost / (1- desired return of sales)

b. Target Return pricing:- determine what is the ROI
(return on investment)

e.g. target return price = unit cost + [(desired return
x invested capital) / units sales ]
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4. Pricing Method – price range

 c. Perceived Value pricing:- based on
  what customers feel and think the
  products are worth based on the
 d. Value pricing: - to charge at lower
  prices such as EDLP (Everyday low
 e. Going-rate pricing:- Charging what
  other competitors are doing.

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5. Pricing Tactics- Price Adjustment /
  Prices are adapted to suit customers based on
  many factors such as:-
  1. Geographical pricing
  2. Pricing discounts
  3. Promotional pricing
  4. Differentiated pricing
  5. Product mix pricing

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5. Pricing Tactics- Price Adjustment /
  1. Geographical pricing: - pricing based
     on different countries and locations
  a. Barter:- exchange of goods without
     the unit value of money
  b. Buyback:- seller agrees to purchase
     some goods from the buyer
  c. Compensation deal:- to pay in cash
     and other payment forms
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5. Pricing Tactics- Price Adjustment /
  2. Price discount: - concerned with the final
  decision of the price

  a. Trade discounts:- reduces prices to reward
  customer responses such as paying early or
  promoting the product

  b. Quantity discounts:- encourage bulk
  purchases over a certain volume with rebates
  given back to buyer

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5. Pricing Tactics- Price Adjustment /

  c. Seasonal discounts:- given to offset cash
  flow difficulties usually during quiet periods.
  d. Cash discounts:- to encourage prompt
  e. Allowances:- applies to trade-in products or
  just simple promotional allowances for agents.

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5. Pricing Tactics- Price Adjustment /
 3. Promotional pricing: - to stimulate purchase.

 a. Loss leaders:- are products sold below cost
    to attract customers in the hope they will
    buy other items at normal markups.

 b. Special event pricing:- is used to attract
    customers during certain seasons or periods.

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5. Pricing Tactics- Price Adjustment /
 c. Cash rebates:- are given to consumers
    who buy products within a specified
 d.     Low     interest financing,     longer
      warrantees, and free maintenance:-
      lower the consumer’s total price.
 e. Psychological discounting:- to increase
    price at extreme high rates then
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5. Pricing Tactics- Price Adjustment /
  4. Differentiated pricing: - to adjust price to
     different customers and locations. Might
     be price discriminating.
  a. Customer segment:- different pricing for
     different groups
  b. Product form pricing:- depending on their
     size and form/shapes
  c. Image pricing:- based on a name
  d. Channel pricing:- using different ways to
  e. Time pricing: - based on hours and time of
     day                         Prof. Rushen Chahal 15
5. Pricing Tactics- Price Adjustment /
 5. Product mix pricing:- pricing to achieve
   the most profits out of the product lines.
 a. Product line pricing:- takes into account the
   cost differences between products in the line.

 b. Optional product pricing:- takes into account
    optional or accessory products along with the
    main product, e.g. customized options such
    as haircare products during a haircut.

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5. Pricing Tactics- Price Adjustment /
  c. Captive product pricing:- involves products
  that must be used along with the main
  product, e.g. cheap fountain pen but
  expensive black ink.

  d. Two-part pricing:- is where the price is
  broken into:
     •Fixed fee
     •Variable usage fee

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5. Pricing Tactics- Price Adjustment /
  e. By-product pricing:- refers to products with
  little or no value produced as a result of the
  main product, e.g. meat waste by-products.

  f. Product bundle pricing:- combines 2 or
  more different or similar products at a
  reduced price, e.g. milk bundled with a toy.

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