UNIT – 5B

PRICING DECISIONS

Internal and External factors affecting pricing

decisions
Pricing Objectives
Pricing Approaches
New product Pricing Approaches
Setting the Price and Managing the Price
Changes
What is Price ?
It is the most decisive component of the
marketing mix element
It is the determination of value of a product or
service in monetary components
The value of a product is determined in terms of
its capacity to satisfy the its need
Price is also dependent on the ratio of demand
and supply
Price are in general guided and govern by the
market condition
In monopoly the prices are not dependent on the
market condition and exist for a limited time span
 Internal and External Factors
Affecting Pricing Decisions
Internal Factors
► Organizational factors – Overall
pricing strategy and individual
product strategies
► Marketing Mix – Production,
Promotion and Distribution cost
► Product Differentiation –
Characteristics of the product
(USP and Benchmark)
► Product Cost – Production cost,
Demand supply ratio, Level of
competition, Extent of need
► Marketing Objective – ► Nature of competition – Monopoly
maximization of market share,
sales revenue, image creation,
customer volume, to maintain
stable price structure
External Factors
► Nature of demand – Number and
size of market segment, competitors,
perspective buyers & their preferences
► Economic condition – The inflation
and deflation tendency of the market,
recessions
► Government regulations –
Legislations and various laws
► Buyer’s behaviour – Their
purchasing pattern, credit , cash etc.
► Price of the raw materials,
equipment and machinery
or oligopolistic nature
► Perceived product quality - How
Product regarded and accepted by the
audience
 Pricing Objectives
►Profit Maximization
►Stability in Price - No fluctuation
►Level of Competition – To face the competitive situation
►To Achieve Target Return – To fix a certain rate of return
on investment over time
►To Capture the Big Market Share
►Ability to Pay – Purchasing power of the customer for
whom the product is made
►Profit Sharing of the Intermediaries – Number of market
intermediaries engaged in the process
►Resource Mobilization – To accumulate sufficient
resources for expansion
►Organization’s Mission and Objective – Must be in
interest of the firm, Trust formation etc.
 Pricing Approaches
Pricing Policy
Existing
Product

Customer
Cost Competition Other Pricing
Demand Oriented Methods
Oriented Oriented
● Mark up or ● What the ● Product Parity ● Value based
Cost Plus traffic can bear or Going rate pricing
Pricing pricing pricing ● Affordability
● Full Cost or ● Skimming ● Discount based Pricing
Absorption cost based Pricing Pricing ● Prestige
Pricing ● Penetration ● Premium Pricing
● Marginal cost based Pricing Pricing ● Market or
or Incremental ● Tender or demand based
cost Pricing Competitive bid pricing
● Break Even pricing ● Cycle pricing
Pricing
● Rate of return
or Target Pricing
 Pricing Approaches
New Product
Pricing
Approaches

Market Market Promotional Discriminatory

Penetration Skimming Pricing Pricing
● When the ● To utilize the ● Complementary ● Customer
Product is new opportunities in Pricing segment pricing
in market the market ● Loss leader ● Image based
● To reap the strategy
● Relatively low Pricing
benefit of high ● Odd or even
Pricing ● Location
sales volume, pricing
● To secure a increased profit based pricing
large market ● Reference ● Time based
etc.
share ● Where is pricing pricing
● In highly price competition is ● Prestige
sensitive market very low pricing
● Interest ● Consumer feels ● Psychological
remain in growth costly goods pricing
rather profit means premium
quality
 Setting and Managing Price Change
Setting and Managing
Price Change

Product Line Optional Captive By Product Premium

Bundle Pricing
Pricing Feature Pricing Product Pricing Pricing Pricing
● Product line is ● Marketers ● Products ● Certain ● Marketers ● This is for
essential to cater offers Optional that are not product often bundles its similarity in
all segments of products, production product to gain
complete product utility
market features and process yields competitive
● Well without advantages but different in
services along accessories by products product
established price ● The price of
with the core ● If the by
range for the ● Product bundle product is functions
product in their
product products have less than that of
price remains ● TV with and
product line ● Car with got value they individual
power steering, low but the should be without
● Customer may products
Power window price for priced of its remote
associate with ● This is an
low, average and or even an accessories perceived value effective tool for ● The price is
premium quality extended remains high ● The benefit of product varies with the
of product warranty ● Price of a Income earned promotion extent of
● Marketer need ● Vital to shaving razor is on by products ● Most added features
to establish decide what to low that of goes to the applicable in ● More
perceived quality offer as generic main product retail sector
razor blade features more
differences to and what as an ● Production of ● It can be price
justify the price ● Mobile and benefit or premiums in
option its service steel, petroleum product price
difference product benefit