R.HARIHARAN AP/EEE

 Price: the exchange value of a good or service Manage demand Manage demand Adapt to competitive environment Adapt to competitive environment Psychology of the consumer Psychology of the consumer BOTTOMLINE issues BOTTOMLINE issues

Profits = Total Revenues - Total Costs or Profits =(Price x Quantity Sold) - Total Costs

Steps in Setting the Right Price Results lead to the right price Fine tune with pricing tactics Choose a price strategy Estimate demand, costs, and profits Establish pricing objectives

Pricing Objectives  Profit Maximization:  Target-Return Objectives: achieving a specified return on either sales or investment Profitability

Pricing Objectives  Sales maximization:  Market-share objectives:for controlling a portion of the market Profitability Volume

Pricing Objectives  Value Pricing Meeting Competition Profitability Volume

Pricing Objectives  Prestige Objectives: set at a relatively high level Meeting Competition Prestige Profitability Volume

Four Market Structures  Market structure characterized by homogeneous products in which there are so many buyers and sellers that none has a significant influence on price Pure Competition Pure Competition Agricultural products; STRESS Availability

Four Market Structures  Market structure involving a heterogeneous product and product differentiation among competing suppliers, allowing the marketer some degree of control over prices Pure Competition Monopolistic Competition Monopolistic Competition Focus on Retailing; Price

Four Market Structures  Market structure involving relatively few sellers and barriers to new competitors due to high start-up costs Pure Competition Monopolistic Competition Oligopoly sensitive to other’s prices; PROMOTION is KEY

Four Market Structures Pure Competition Monopolistic Competition Oligopoly Monopoly  Market structure involving only one seller of a good or service for which no close substitutes exist  Anti-trust legislation has eliminated nearly all monopolies  Government regulated monopolies do exist in certain areas, such as public utilities

Competitive Environment Number of sellers Product differences Importance of market mix Large number of sellers Similar products Distribution is important Large number of sellers Unique but substitutable Pricing is important- Differentiated products A few large competitors Similar products Promotion is key to achieve perceived product differences Single producer Unique and unsubstitutable Unimportant BASIS OF COMPARISON PURE COMPETITION MONOPOLISTIC COMPETITION OLIGOPOLYMONOPOLY Number of sellers ManyOne

PRICE DETERMINATION IN ECONOMIC THEORY  Demand: schedule of the amounts of a firm’s good or service that consumers purchase at different prices during a specified period  Supply: schedule of the amounts of a good or service that firms will offer for sale at different prices during a specified time period.

Price Discrimination

 Charging a different price for the same good/service in different markets  Requires each market to be impenetrable  Requires different price elasticity of demand in each market Prices for rail travel differ for the same journey at different times of the day

Pricing Objectives Meet Business Objectives Volume Sales Maximization Market Share Profitability Profit-M a x i mization Target Return Goals Other Pricing Objectives  Status Quo  Image  Social & Ethical Considerations

Price Strategies for New Products PRICE Skimming  Penetration Penetration Pricing Skimming Pricing Low price  establish product in the market High price/Prestige pricing  appeal to early adopters; recover high R&D costs Lower price over time  Move inventory, stimulate D, extend product life

Marketing Strategy Over the Product Life Cycle INTRODUCTIONGROWTH MATURITY DECLINE Marketing strategy Market developmentIncrease market Defend market Maintain efficiency in emphasis share share exploiting product Promotion Mount sales Appeal to Emphasize Reinforce loyal Strategy promotion for mass market brand differences, customers; reduce product awareness benefits & loyalty promotion costs Place strategy Distribute throughBuild intensive Enlarge Be selective in selective outletsnetwork of distribution distribution, trim outlets network unprofitable outlets Pricing High price/uniqueLower price Price at or below Set price to strategy product / cover over time competition remain profitable production costs or reduce to Low price/gain liquidate market share

Pricing Tactics nPrice Lining Price points: Setting a limited number of prices for certain categories of products nPsychological Pricing Odd-even nDiscounting Quantity discounts Cash discounts (2/10 net 30) Web programs: free!