Least understood of all financial decisions Influenced by front line people Considerable discretion at lower levels Monitor behaviour using technology Tailormade quotations based on past purchase behaviour Special Prices to designated customers Demand Supply Competitor Offerings Marketing Mix Factors Environmental Considerations Price Bands Reference Prices Price Quality Inferences Price Cues Special Offers Survival Maximum Current Profit Maximum Market Share Maximum Market Skimming Product-Quality Leadership
Purchase is infrequent No substitute products from competitors Do not readily notice the higher price Slow to change buying habits Think higher prices are justified Price a small part of total cost of obtaining, operating and servicing the product Product is more distinctive Buyers are less aware of substitutes Buyers cannot compare options easily Expenditure a small part of buyers income Expenditure a small part of total purchase Part of the cost borne by another party Used in conjunction with another product previously bought
Reduction in price causes marginal increase in demand- Inelastic Demand Reduction in price causes substantial increase in demand- Elastic Demand Two Way Elasticity Rs. 15 Rs. 10 100 # 105 # Rs. 15 Rs. 10 100 # 150 # Quantity Demanded Per Period Elastic Demand Inelastic Demand Fixed vs. Variable Costs Learning Curve Plant Capacity vs Cost Curves Activity Based Costs Target Costs Rs. 100 100,000 200,000 Accumulated Production Rs. 80 Rs. 60 300,000 400,000 Price Value Features Price Change New Offering New Features Enhanced Advertising Distribution Channel Modification Markup Pricing Target Return Pricing Perceived Value Pricing Value Pricing Going Rate Pricing Auction Type Pricing English Auction- One Seller, Many buyer Ascending Bids by Buyers Dutch Auction 1- One Seller, Many Buyers, Descending Bids by Seller Dutch Auction 2- One Buyer- Many Sellers- Descending Bid by Sellers Products at several price points with differing Value Proposition Prevents competitor from entering Matches Competitor Offering at different value points Impact of Other Marketing Activities Company Pricing Policies Gain and Risk Share Pricing Impact of Pricing on Other Parties EDLP: Perception of low price High Low Pricing: Perception of occasional high value Purchase Volume Purchase Location Distribution Channel State of Demand Inventory Levels Seasonality/ Time of Day Consumer Promotions Trade Promotions Volume Long Term Contract Favourable Payment Terms Additional Services by Intermediary or Customer Loss Leader Pricing Cash Rebates Low Interest Financing Longer Repayment Terms Warranties and Service Cost Psychological Discounting Customer Segment Pricing Product Form Pricing Image Pricing Channel Pricing Location Pricing Time Pricing Perception of lower quality Encouraging Mercenary Attitudes Trigger Price Wars Competitor Reaction Price Escalation Clause Withdrawal of standard discounts Unbundling services Shrinking quantity Lower cost ingredients Removing product features Economy brands at marginally lower prices