Pricing strategy-1

Pricing approach
Selecting a competitive price
Pricing strategies
 Pricing approach
• Cost-plus pricing;-
Manufacturing cost + Marketing cost + Margin
Weaknesses of the approach
i. Product can be overpriced because of arbitrary
loading of production and other overhead.
ii. There is no room for strategic thinking
iii. Products can be eliminated from the rang ,
regardless of their synergy with others.
 Factors to consider while Pricing
a. product life cycle
b. product positioning
c. distribution channel discounts
d. Marketing objectives
e. The cost structure
f. Legal constraints
g. Consumers attitude
h. Competition– direct as well as substitutes
i. Company/product image
j. Economic situation
 PLC Stage-1
Gestation (new product development)-
A new product to market on budget but six
months late would forfeit 50% of its profit
potential. On contrary a product brought to
market on time but 50% over budget would
forfeit only 4% of its profit potential. The ideal is
to be on time and on budget with a product
which precisely meet the customer’s need.
New product development stages-
co. obj., exploration, screening, business analysis,
development , testing , commercialization
 PLC Stage-2
-Introduction (launch) –
consumers will continuously search for new and better
ways of satisfying their needs. In turn, this prompts
the producers to innovate and introduce new
products to the marketplace to secure their survival
and growth. Reasons for delay in launch
a. Delay in expansion of production capacity
b. Technical problems
c. Delay in making product available to customers
d. Customer inertia-reluctance to change
 PLC Stage-3
• 3- growth-
growth phase of a new product marks its
successful survival of the trials and
tribulations of infancy and promises the
prospects of profitability. Growth is usually a
consequences of change on both demand and
supply sides of the market and leads the
marketer to “Pull” or “Push” strategy”
 PLC Stage-4
• Maturity-
maturity occurs when new product has successfully
displaced the product(s) for which it was a
substitute. Customers know what they want and
the physical attributes of the product are well
known and understood. Marketer is heavily
engaged in developing and delivering an effective
marketing mix. Competition become more
intense. Non price competition based upon
promotion, distribution, service- presale and post
sale dominate.
 PLC Stage-5
• Saturation-
it is advanced stage of maturity . Market settled down usually
with 3-4 major players serving the mass market and small
firms meeting the specialist needs of minority. The 80/20
(Pareto principle ) large firms account for 80% sales and no.
of small firms account for 20% sales. In case of mass
market, competition will be intense as suppliers seek to
defend or build up market share because there is a strong
co-relation between market share and profitability.
Discounts and couponing, indirect offering will be more.
Saturation is a stage of greatest reward and greatest danger
 PLC Stage-6
• Decline-
as innovators and entrepreneurs conceive of
alternative ways of satisfying customer needs,
they bring their ideas to marketplace and
challenge status quo. The initial impact of
innovation may be small but as they win
market share from saturated market the
existing suppliers move into decline.
 PLC Stage-7
• Elimination-
most of products have finite life. Usually firms
develop a portfolio of products each at
different stages of their individual life cycle.
Boston box-
Question mark, star, cash cow, dog.
 Pricing and PLC
• Different positions of PLC call for different pricing
strategies.
i. Introduction stage
a)price low to win high market share
b) price high in recognition of novelty, prestige
ii. Growth
Price competitively to win market share
iii. Maturity --- as per growth phase
iv. Saturation--- stabilize price, consider raising it
v. Decline --- raise price
 Competitive pricing
• Rs6.50 Rs 8.50 Rs 10.00 Rs 13.00 Rs
A B C D E
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Possible range
• A marginal cost per unit
• B lowest price limit in the market
• C average cost per unit
• D going rate- price in the market
• E top end price in the market
 Pricing and product positioning
• Price can influence the position of a product in
the market-e.g. high price can convey an
image of better quality, design or
exclusiveness.
high . Product differentiation low
price high
differentiation
low
 Pricing and dist. channel
• If there are intermediaries, they have to be
rewarded for their services. There has to be a
total channel margin in the price to customer.
Discounts can be in the form of ;-
a. trade discount
b. quantity discount
c. promotional discount
d. cash discount
 Pricing and Corporate objectives

 Short term profit---

(somewhere between 4&5 on scale)

 maximize market share ---

(somewhere between 3 & 4 on scale )
 Pricing & Portfolio matrix
a. Question mark--rice competitive to get share
b. Star – price to maintain/ increase mkt. share
c. Cash cow-stabilize or even raise price
d. Dog – raise price

When these guidelines in mind, select a position

between 1 to 5 on the scale.
 Pricing & competition
• Current competition
Analyze the prices charged by competitors. Do
they influence your ultimate choice of prices,
select a position between 1to 5 on the scale
accordingly.
• Potential competition
will your chosen price attract or repel competitor.
Charging high price and making high margins will
attract. take a position between 1-5 on scale.
 Pricing & Consumer attitudes
• Consumer attitudes to your product/ service
or to your co, because of its name and
reputation might influence your ultimate
choice of price and accordingly you can take a
position between 1 to 5 on scale.
 Pricing strategies
• Strategically , pricing function is to provide
adequate return on investment. A large no. of
internal and external variables must be
studied systematically before price can be set.
A price strategist must know how much
flexibility a competitor has in further lowering
the price and knowledge of his cost structure.
Basically, a marketer needs to review four
factors to arrive at a price. Pricing objectives,
cost, competition, and demand.