Unit 6 part_1_pricing_and_pricing_strategies
Download as PPTX, PDF0 likes105 views
The document discusses pricing and pricing strategies. It defines pricing as the process of setting the price of a product or service. Setting prices can be challenging as prices that are too high will reduce sales and prices that are too low will not generate sufficient revenue. Pricing objectives include earning revenue, increasing sales, beating competition and gaining market share. Key factors that impact pricing are costs, demand, competition and government policies. Common methods for setting prices include cost-plus pricing, value-based pricing and competition-based pricing. Popular pricing strategies are skimming pricing, penetration pricing, dynamic pricing and bundle pricing.
![Cost Plus Pricing
• A cost-plus pricing is also called Mark Up pricing
• It’s also known as markup pricing since businesses who use
this strategy “mark up” their products based on how much
they’d like to profit.
• E.g. The shoes cost $25 to make, and the firm wants to make
a $25 profit on each sale. The company will set the price of
the shoes at $50 [at 100 percent Markup]](https://image.slidesharecdn.com/unit6part1pricingandpricingstrategies-210416150300/85/Unit-6-part_1_pricing_and_pricing_strategies-9-320.jpg)
Unit 6 part_1_pricing_and_pricing_strategies
- 2. What is ‘Pricing’? • In simple terms, pricing is the process of setting the price of a product or service. • The term ‘pricing’ has been derived from ‘price’ • Price is the amount of money a customer has to pay in order to acquire a product or service
- 3. ‘Pricing’ Can be Tricky • Setting prices for products can be a tough task • If a company sets prices of its products and services too high, it will miss out on valuable sales because customers will switch to competitors products • If the a company sets the prices of its products and services too low, it will not be able to earn revenue
- 4. Objectives of Pricing • To Earn revenue and make profits • To Increase / maximize sales • To Beat the competition • To Increase market share • To Achieve price – quality leadership – e.g. Apple, Mercedes Benz
- 5. Factors impacting Pricing • Marketing objectives of the company • Costs of manufacturing • Demand & nature of Demand • Competition in the market • Government Policies
- 6. Pricing Policy • Generally, pricing policy refers to how a company sets the prices of its products and services based on costs, value, demand, and competition. • Different companies can have different pricing policies depending upon various factors listed in the previous slide
- 7. METHODS OF SETTING PRICE
- 8. Methods of Setting Price • The main types of pricing strategies are: Cost-Plus Pricing or Markup Pricing Value-Based Pricing Competition-Based Pricing
- 9. Cost Plus Pricing • A cost-plus pricing is also called Mark Up pricing • It’s also known as markup pricing since businesses who use this strategy “mark up” their products based on how much they’d like to profit. • E.g. The shoes cost $25 to make, and the firm wants to make a $25 profit on each sale. The company will set the price of the shoes at $50 [at 100 percent Markup]
- 10. Value Based Pricing • A value-based pricing strategy is when companies price their products or services based on what the customer is willing to pay • Value based pricing is customer driven while cost based pricing is product driven • E.g. parker pen
- 11. Competition Based Pricing • Competition-based pricing is also known as going rate pricing. It doesn’t take into account the cost of their product or consumer demand. • Instead, a competition-based pricing strategy uses the competitors’ prices as a benchmark. • E.g. Pepsi and Coke
- 13. Pricing Strategies • The following types of prominent pricing strategies can be noted: Skimming Pricing Penetration Pricing Dynamic Pricing Psychological Pricing Freemium Pricing Bundle Pricing
- 14. Skimming Pricing • Price skimming is a pricing strategy in which a marketer sets a relatively high initial price for a product or service at first, then lowers the price over a period of time. • Over a period of time, the price comes down due to a number of reasons like development in technology, new substitutes in the market etc.
- 15. Penetration Pricing • Penetration pricing is just opposite to skimming pricing • In penetration pricing, the companies enter the market with extremely low price to take the attention of the consumer away from high priced competitors • This strategy is suitable only in the short run and is not sustainable • In the longer run, the prices are gradually increased. The strategy is based on disruption and temporary loss, hoping to gain a good market share. E.g. JIO
- 16. Dynamic Pricing • Dynamic pricing is also known as surge pricing, demand pricing, or time-based pricing. • It’s a flexible pricing strategy where prices fluctuate based on market and customer demand. • Hotels, airlines companies, Indian railways in case of selected trains use dynamic pricing by applying algorithms that consider competitor pricing, demand, and other factors.
- 17. Psychological Pricing • Psychological pricing is what it sounds like — it targets human psychology to boost sales. • For example, according to the "9-digit effect", even though a product that costs Rs. 99 is essentially Rs. 100, customers may see this as a good deal simply because of the "9" in the price.
- 18. Freemium Pricing • A combination of the words “free” and “premium,” freemium pricing is when companies offer a basic version of their product hoping that users will eventually pay to upgrade or access more features • Freemium is a pricing strategy commonly used by software companies. • They choose this strategy because free trials and limited memberships offer a “peek” into a software’s full functionality
- 19. Bundle Pricing • A bundle pricing strategy is when the firm offers (or "bundle") two or more complementary products or services together and sell them for a single price. • The firm may choose to sell bundled products or services only as part of a bundle, or sell them as both components of bundles and individual products.
- 20. THANK YOU