1. PRODUCT PRICING

2. Product Cost
Product cost is the cost of direct labour, direct materials, and manufacturing overhead that are consumed to create a product. Product cost can also be considered the cost of the labour required to deliver a service to a customer.
Product cost can be recorded as an inventory asset if the product has not yet been sold. It is charged to the cost of goods sold as soon as the product is sold (see the Matching Principle), and appears as an expense on the income statement.

3. Value of a product
The value product (VP) is an economic concept formulated by Karl Marx 
Its annual monetary value is approximately equal to the netted sum of six flows of income generated by production:
Wages & salaries of employees.
Profit including distributed and undistributed profit.
Interest paid by producing enterprises from current gross income
Rent paid by producing enterprises from current gross income, including land rents.
Tax on the production of new value, including income tax and indirect tax on producers.
fees paid by producing enterprises from current gross income, including royalties, certain honorariums and corporate officers' fees, and certain leasing fees incurred in production and paid from current gross income.

4. Demand
Demand is defined as desire backed by willingness and ability to pay.
Individual demand: Single entity’s demand
Market demand: Sum total of individual demand function

5. Law of Demand The demand for a commodity increases when its price
decreases and falls when falls when its price rises , other
things remaining constant
Factors behind the law of demand
Substitution effect
Income effect

6. supply
Supply during a period of time means the quantities of goods which are offered for sale at particular prices.
It may be defined as the amount of that commodity which the producer are willing to offer for sale at a particular price during a certain period of time.

7. Price sensitivity Price elasticity of demand :
Price Elastic products: personal care like soaps, shampoos etc
Price inelastic products : daily food items, medicines

8. 5/25/2018
PRICING DECISION

9. To a customer, it represents a monetary sacrifice.
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What is Pricing – To a manufacturer – pricing represents the quantity of money, received by the firm or seller for its product.
To a customer, it represents a monetary sacrifice.
Quantity of money received by the seller
PRICE =
Quantity of goods & services received by buyer
In this equation both the parts are important for price decisions.

10. Changing paradigms….
Traditional view negotiation between seller & buyer
Setting one price for all relatively new concept
Role of Internet
Price a major determinant of the buyers choice
More access to information

11. Common pricing mistakes
Too cost oriented
Price is not revised often
Price is seen as independent of the other elements of marketing mix
Price is not varied enough.

12. How companies price Small companies- Person in charge
Large companies- Division & product line managers which is in sink with the pricing objectives set by the top management.
Industries where pricing is key factor (petroleum, aerospace etc) – Pricing department

13. Factors influencing pricing
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Factors influencing pricing
Internal factors Corporate objective The image sought Nature of the product Stage in the plc Usage pattern Cost of manufacturing Extent of differentiation Other elements of the marketing mix

14. Factors influencing pricing
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Factors influencing pricing
External factors
Market characteristics
Price elasticity of the demand
Buying behavior of the customer
Bargaining power of supplier/customer
Competitors pricing
Government control
Price cartels

15. Pricing Framework Demand Government policy Corporate objective Price
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Pricing Framework
Demand
Government policy
Corporate objective
Price
Competitor reactions
Barriers in industry
like technology
Exit barrier
Costs

16. Pricing Methods Cost based pricing Mark up pricing
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Pricing Methods
Cost based pricing
Mark up pricing
Absorption cost pricing
Target rate of return pricing
Marginal cost pricing
2) Demand based pricing
What the traffic can bear pricing
Skimming pricing
Penetration pricing

17. Pricing Methods 3) Competition oriented pricing Premium pricing
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Pricing Methods
3) Competition oriented pricing
Premium pricing
Discount pricing
Going rate pricing
4) Tender pricing
5) Affordability pricing
6) Differentiated pricing

18. Selecting a Pricing Methods
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Selecting a Pricing Methods
Mark up pricing – the total cost of production is estimated & a mark up or the margin that the firm wants is further added:
Unit cost = Variable cost + Fixed Cost
Unit Sales
Mark up price = Unit cost
(1- Desired return on sales )
Easy to determine the cost
Price tends to be similar
Fair to both seller & buyer

19. Selecting a Pricing Methods
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Selecting a Pricing Methods
Target return Pricing – Determining the price which would yield the target return on investment : Target return price = Unit cost + Desired return * Invested capital Unit Sales

20. Customer-oriented or perceived value pricing
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Customer-oriented or perceived value pricing
(i) Acquisition value and
(ii) Transaction value
Acquisition value of a product:
Transaction value determined by comparing buyer’s reference price to actual price
To measure perceived value, a marketer may use any of the following methods:
Direct price rating method
Direct perceived value rating
Diagnostic method
Economic value to the customer
Perceived benefits
Perceived sacrifice

21. Pharma pricing

22. THANK YOU -PHARMA STREET