Global Pricing

Dmytro Pustovalov
Tariq Aziz
Kirillos Fiodorov

02/05/2012
 Agenda

Factors to consider in setting a

price

Pricing Methods

Pricing Strategies

Pricing Tactics
Factors to consider in setting a price
 Price
• The amount of
money charged for a
product, or the sum
of the values that
consumers exchange
for the benefits of
having/using the
product or service.
Price is
…main element to produce revenues ….most flexible element
…a tool of competition ….can be changed quickly
Factors to consider in setting a price

Company
Objectives
Customer
Economic
Needs and
Conditions
Characteristics

Pricing
Cost of the
Product
Policy and Competition
Decision
 Four views of price

Economists view Price is set by the forces of supply and

demand
Accountant’s Price should cover costs so that a
view profit can be made
Customer’s view Price has to represent good value
Marketer’s view Pricing is an opportunity to gain a
competitive advantage
Factors to Consider in Setting Price
Internal Factors
• Marketing objectives
• Marketing mix strategies
• Costs
• Organizational
considerations
• Market positioning influences
pricing strategy
• Other pricing objectives:
– Survival
– Current profit maximization
– Market share leadership
– Product quality leadership
• Not-for-profit objectives:
– Partial or full cost recovery
– Social pricing
Factors to Consider in Setting Price (contd.)
Internal Factors
• Marketing objectives
• Marketing mix strategies
• Costs
• Organizational
considerations
• Pricing must be carefully
coordinated with the other
marketing mix elements
• Target costing is often used to
support product positioning
strategies based on price
• Non-price positioning can also
be used
Factors to Consider in Setting Price (contd.)

Internal Factors • Types of costs:

– Variable
– Fixed
• Marketing objectives
– Total costs
• Marketing mix strategies
• Costs • How costs vary at different
production levels will influence
• Organizational price setting
considerations
• Experience (learning) curve
effects on price
Factors to Consider in Setting Price (contd.)

Internal Factors • Who sets the price?

– In Small companies: CEO or
top management
• Marketing objectives – In Large companies: Divisional
• Marketing mix strategies or product line managers

• Costs • Price negotiation is common in

industrial settings
• Organizational
considerations • Some industries have pricing
departments
Factors to Consider in Setting Price (contd.)

External • Types of markets

Factors – Pure competition
– Monopolistic competition
• Nature of market and – Oligopolistic competition
demand – Pure monopoly
• Competitors’ costs, prices,
• Consumer perceptions of price
and offers and value
• Other environmental
elements • Price-demand relationship
– Demand curve
– Price elasticity of demand
Factors to Consider in Setting Price (contd.)

• Consider competitors’ costs, prices,

External and possible reactions when
Factors developing a pricing strategy

• Pricing strategy influences the

• Nature of market and nature of competition
– Low-price low-margin strategies
demand inhibit competition
• Competitors’ costs, prices, – High-price high-margin strategies
and offers attract competition

• Other environmental • Benchmarking costs against the

elements competition is recommended
Factors to Consider in Setting Price (contd.)

External
• Economic conditions
Factors – Affect production costs
– Affect buyer perceptions of
price and value
• Nature of market and
demand • Reseller reactions to prices
must be considered
• Competitors’ costs, prices,
and offers • Government may restrict or
limit pricing options
• Other environmental
• Social considerations may be
elements taken into account
Pricing Methods
 Pricing Method

Cost-Oriented Method
• Focus on cost, not market condition

Market-Oriented Method
• Focus on both – market conditions and costs
 Cost-Oriented Method

Markup pricing – Standard pricing - Target return pricing -

adding markup to charging the same setting a target rate
unit cost of product price in all countries or return
• Information • Drawbacks: lacks • Information
needed: fixed cost, marketing needed: total
variable cost, orientation, difficult investment, desired
expected sales, to implement target return, unit
markup • Advantage: firm cost, expected sales
• Appeal is simplicity won’t be blamed for • Drawbacks: lacks
• Risks: overpricing price discrimination marketing
and underpricing orientation, sales
and cost estimates
must be accurate
 Market-Oriented Method

• - may attract accusations of

Market- unfair pricing and encourage
based the practice of gray marketing
pricing (buying in low-price countries, selling in high-price
countries)

• setting minimum standard

Strategic price while giving local
pricing managers freedom to
charge more
Pricing Strategies
Penetration Pricing
 Penetration Pricing
• Price set to ‘penetrate the market’

• ‘Low’ price to secure high volumes

• Typical in mass market products – chocolate bars,

food stuffs, household goods, etc.

• Suitable for products with long anticipated life

cycles
• May be useful if launching into a new market
Market Skimming
 Market Skimming

High price, Low volumes

Skim the profit from the market

Suitable for products that have short life cycles or which

will face competition at some point in the future (e.g.
after a patent runs out)

Examples include: iPhone, PlayStation, jewellery,

digital technology, new DVDs, etc.
Value Pricing
 Value Pricing
• Price set in accordance
with customer
perceptions about the
value of the product /
service

• Examples include status Companies may be able to set

products/exclusive prices according to perceived
value.
products
Tender Pricing
 Tender Pricing
• Many contracts awarded on a
tender basis

• Firm (or firms) submit their

price for carrying out the
work

• Purchaser then chooses

which represents best value

• Most government contracts

Price Discrimination
 Price Discrimination
• Charging a different price
for the same good/service
in different markets

• Requires different price

elasticity of demand in each
market
• Air/rail
– First class
– Business class
– Economy class
Prices for the flight differ for the same
journey at different class
Marginal Cost Pricing
 Marginal Cost Pricing

• Marginal cost – the cost of producing ONE extra or ONE

fewer item of production
• MC pricing – allows flexibility
• Particularly relevant in transport where fixed costs may be
relatively high

• Allows variable pricing structure – e.g. on a flight from

London to New York – providing the cost of the extra
passenger is covered, the price could be varied, a good
deal to attract customers and fill the aircraft.
• Get one extra student and get fees discount.
Target Pricing
 Target Pricing
• Setting price to ‘target’ a specified
profit level
• Estimates of the cost and potential
revenue at different prices, and thus
the break-even have to be made, to
determine the mark-up
• Mark-up = Profit/Cost x 100

• This strategy is used by many clothes

retailers where they can add upto 60%
mark-up on the basic cost of the
clothes. So even with a 50% sales
offer they still make a profit!
Pricing tactics
 Pricing tactics

Unlike pricing strategies, these refer to the

short run
Predatory
Loss leaders
pricing (illegal)
Price wars
Promotional
Psychological pricing and
pricing discounts
 Predatory pricing

• Predatory pricing occurs when

a dominant company incurs
losses with the purpose of
removing a competitor and/or
deterring other potential
competition
• This anti- competitive practice
Microsoft – have been accused of
is used when competitors
predatory pricing strategies in offering threaten to reduce market
‘free’ software as part of their operating
system – Internet Explorer and share and profitability
Windows Media Player - forcing
competitors like Netscape and Real
Player out of the market
• Illegal if it can be proved
Price wars

Competitive price reductions by firms in a

competitive industry

Each seeks to increase market share by price

reduction but the result is destroying a price level

The process continues until weaker firms go out of

business

Price wars might be seen as good for customers in the

short run but it is harmful in the long run if
competition is reduced
 Psychological pricing
• In this case
consideration is given
to the psychology of
prices and not simply
the economics of
pricing
• Charging at a price
which ends in 99p is a
way of deceiving people
into believing that the
product is cheaper
than it really is
 Psychological pricing
• Prestige Pricing – sets a higher than average
price to suggest status
 Psychological pricing
• Multiple-Unit Pricing – 3 for $.99
• Suggests a bargain and helps increase sales
volume.
• Better than selling the same items at $.33 each.
 Psychological pricing

• Everyday Low Prices (EDLP) – set on a consistent

basis
Loss leaders
• A loss leader is a product
prominently displayed and
advertised and price below the
normal price and even below cost
to the seller
• A product which is sold at a low
(even loss making) price in order to
encourage customers to buy other
full price products from the
business along with the loss leader
product
• Loss leaders are widely used by
supermarkets to draw in customers
from competitors
• The aim is to encourage people to
buy complementary goods at full
price
 Promotional pricing and
discounts
Type of Who for?
discount
Cash For those who pay cash
Quantity For customers who buy large volumes
(bulk buying)
Trade Intermediaries in the trade
Seasonal For buying off peak or out of season
Promotional Temporary pricing of products below
list price to increase short run sales