Developing price strategies and programs

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Developing price strategies and programs:

Developing price strategies and programs By George Jophin Febin Dhinu Krishna prasad Jasith

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Price is one of the element of marketing mix that produces revenue; Prices are the easiest marketing mix element to adjust Price also communicates to the market, the company’s indented value positioning of its product or brand

Today companies are wrestling with a number of difficult pricing tasks:- :

Today companies are wrestling with a number of difficult pricing tasks:- How to respond to aggressive price cutters How to price the same product when it goes through different channels How to price the same products in different countries How to price different components of an offering when the customers want to make his own choice of components

Setting the price :

Setting the price A firm set a price for the first time:- 1.A new product is developed 2.When it introduce its regular product into a new distribution channel 3.When it enters bids on a new contract work

For e.g.:

For e.g. In auto market as many as eight price point can be found:- * Segment example *Ultimate R olls Royce *Gold standard Mercedes Benz *Luxury Audi *Special needs Volvo *Middle Buick *Ease and convenience ford *Me too but cheaper Hyundai *Price alone Kia

Setting the pricing policy:

Setting the pricing policy Setting the pricing objective Determining the demand Estimating cost Analyzing competitors cost, price and offers Selecting a pricing method Selecting the final price

Step -1 Setting the price objective:

Step -1 Setting the price objective A company can pursue any five major objective through pricing :- Survival Maximum current profit Maximum market share Maximum market skimming Product quality leadership

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Non profit and public organizations may adopt other pricing objectives:- A university – partial cost recovery A non profit hospital - full cost recovery in its pricing A non profit theatre company - may price its production to fill the maximum number of seats

Step 2. determining demand:

Step 2. determining demand Each price will lead to a different demand and therefore have a different impact on a companies marketing objectives . Price sensitivity : the first step in estimating demand to understand what affects demand and the price , part of the total cost of obtaining , operating and servicing the product over its life time. A seller can charge a higher price than competitor and still get the business if the company can convince the customer that it offer the lowest total cost of ownership

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The product is more distinctive Buyer are less aware of substitutes Buyer cannot easily compare the quality of substitutes The expenditure is a smaller part of the buyer’s total income The expenditure is small compared to the total cost of the end product Part of the cost is borne by another party Buyer cannot store the product

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Estimating demand curves : most companies makes some attempt to measure their demand curves. They can use different method . first: statistically analyzing past price, quantities sold, and other factors to estimate their relationships. second: conduct price experiments third: ask buyers to state how many units they would buy at different proposed price, but buyer might understate their purchase intention at higher prices to discourage the company from setting higher price.

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Price elasticity of demand : marketers need to know how responsive, or elastic demand would be to a change in price if demand hardly changes with a small change in price we say demand as inelastic if the demand changes considerably, demand is elastic. the higher the elasticity, the greater the volume growth with a one percent price reduction

Step 3: estimating cost :

Step 3: estimating cost Demand sets a ceiling on the price of their company can charge for its product . The company wants to charge a price that cover its cost of producing, distributing and selling the product , including a fair return for its effort and risk

Types of cost and levels of production :

Types of cost and levels of production Fixed cost Variable cost Total cost Average cost

Step4: analyzing competitors’ cost, price, and offers:

Step4: analyzing competitors’ cost, price, and offers The firm should first consider the nearest competitor’s price . If the firm’s offer contain positive differentiation features not offered by the nearest competitor, their worth to the customer should be evaluated and added to the competitor’s price . It the competition offer contain some features not offered by the firm, their worth to the customer should evaluated and subtracted from the firm’s price

Step :5 selecting a pricing method :

Step :5 selecting a pricing method Markup pricing Target return pricing Perceived- value pricing Value pricing Going rate pricing Auction – type pricing and group pricing

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Markup pricing : The most elementary pricing method is to add a standard margin to the product’s cost. Construction companies submit job bids by estimating the project cost and adding a standard markup for profit The manufacturer’s unit is given by: unit cost= variable cost + fixed cost unit sales

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Target return pricing In target- return pricing, the firm determines the price that would yield its target rate of return on investment. The target- return price is given by the formula: Target return price= unit cost+ desired return * invested capital unit sales

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Perceived- value pricing : perceived value is made up of several element, such as the buyer’s image product performance, the channel deliverables, the warranty quality, customer support and softer attributes such as the suppliers reputation, trustworthiness etc.. Value pricing : charging a fairly low price for a high quality offering . 2 important types are everyday low pricing and high-low pricing

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Going rate pricing : prices largely based on competitors’ prices the firm might charge same, more or less than the major competitors

Step 6: selecting the final price:

Step 6: selecting the final price Psychological pricing Gain and risk sharing pricing

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