Session 20

Pricing Objective
  Questions involved in pricing
Pricing involves asking questions like:

► How much to charge for a product or service?

► What are the pricing objectives?
► Do we use profit maximization pricing?
► How to set the price?
(cost-plus pricing, value-based pricing,

rate of return pricing, or competitor indexing)

► Should there be a single price or multiple
pricing?
► Should prices change in various geographical
areas, referred to as zone pricing?
► Should there be quantity discounts?
► What prices are competitors charging?
► Do you use a price skimming strategy or a
penetration pricing strategy?
► What image do you want the price to convey?
► Do you use psychological pricing?
► How important are customer price
sensitivity (e.g. "sticker shock") and
elasticity issues?
► Can real-time pricing be used?
► Is price discrimination or yield management
appropriate?
► Are there legal restrictions on retail
price maintenance, price collusion, or
price discrimination?
► Do price points already exist for the
product category


 Pricing Objectives:
► Profit Maximization in the Short term.
► Profit Optimization in the long term.
► A minimum return on Investment.
► A minimum return on sales turnover.
► Achieving a particular sales volume.
► Achieving particular market share.
► Deeper penetration of the market.
► Entering new markets.
►


► Target profit on the entire product

line, irrespective of profit level in
individual products.
► Keeping competition out, or keeping it
under check.
► Keeping parity with competition.
► Fast turnaround and early cash recovery.
► Stabilizing prices and margins in the
market.
► Providing the commodities at prices
affordable by weaker sections.
► Providing the commodities/services at
prices that will stimulate economic
development.
►


Firms use Pricing for objectives:



► Asian Paints pricing to protect market

share.
► British Airways pricing to Enhance
Profitability.
► LG shifts its pricing objectives to
profitability from volume/Market
share.


Factors influencing Pricing



 Internal Factors :
► Corporate and marketing objectives of
the firm.
► The image sought by the firm through
pricing.
► The characteristics of the product.
► Price elasticity of demand of the
product.
► The stage of the product in its life
cycle.


► Use pattern and turnaround rate of the

product.
► Costs of manufacturing and marketing.
► Extent of distinctiveness of the product
and extent of differentiation
practiced.
► Other elements of the marketing mix of
the firm and their interaction with
pricing.
► Composition of the product line of the
firm.


External Factors:


► Market characteristics (relate to demand,

customer and competition)
► Buyer behaviour in respect of the product.
► Bargaining power of major customers.
► Bargaining power of major suppliers.
► Competitor’s pricing policy.
► Government controls/regulation on pricing
► Societal considerations
►
•
•
