1. MGT301 Principles of Marketing
Lecture-25

2. Summary of Lecture-24

4. Factors Affecting Price Decisions

5. Internal Factors Pricing Decisions External Factors
Factors to Consider When Setting Prices
This CTR corresponds to Figure 10-1 on p. 303 and relates to the discussion on pp
Pricing
Decisions
Positioning Objectives
Target Market
External Factors

6. Setting Pricing Policy
Today’s Topics
Setting Pricing Policy

7. 1. Selecting the pricing objective
2. Determining demand
3. Estimating costs
4. Analyzing competitors’
costs, prices, and offers
5. Selecting a pricing method
6. Selecting final price 3 3 3

8. Pricing Objectives
Profit-
Oriented
Sales-
Oriented
Status
Quo

9. Pricing Objectives Profit Oriented Pricing Objectives Target Return
Maximize
Profits
Pricing
Objectives

10. Profit Oriented Pricing Objectives Sales Oriented
Target
Return
Profit
Oriented
Maximize
Profits
Pricing
Objectives
Sales
Oriented
Dollar or Unit
Sales Growth
Growth in
Market Share

11. Profit Oriented Pricing Objectives Sales Oriented Status Quo Oriented
Target
Return
Profit
Oriented
Maximize
Profits
Dollar or Unit
Sales Growth
Pricing
Objectives
Sales
Oriented
Growth in
Market Share
Status Quo
Oriented
Meeting
Competition
Nonprice

12. General Pricing Approaches
Cost-based Pricing
Value-based Pricing
Competition-based Pricing

13. Cost-based pricing
Cost plus pricing
add a standard mark up to cost

14. Break-even…for Determining Target Return Price and Break-even Volume
Break even pricing
total costs = total revenue
Break-even…for Determining Target Return Price and Break-even Volume

15. Sales volume in units (thousands)
Total revenue
1200
Target profit
Total cost
1000
Break-even point
800
600
Rupees (in thousands)
400
Fixed cost
200 10 20 30 40 50
Sales volume in units (thousands) 4 7 7 7

16. Fixed Cost
Price - Variable Cost
Break-even Volume =

17. Value-Based Pricing
Uses buyer’s perceptions of value not the seller’s cost as the basis for pricing.
Price is considered along with the other marketing-mix variables before the marketing program is set.

18. Cost-Based Pricing Value-Based Pricing
This CTR corresponds to Figure 10-7 on p. 316 and relates to the discussion on pp
Cost-Based Pricing
Value-Based Pricing
Customer
Value
Price
Cost
Product
Product
Cost
Price
Value
Customers
Buyer-Based Approach
Value-Based Pricing . This approach uses the buyer's perception of value as the key to pricing. Strategy under this approach utilizes non price mix variables to help set perceived value in the buyer's mind. As illustrated on the CTR, this approach is the reverse of the cost-based approach to pricing. The key is that the marketer must have an accurate view of what benefits and features consumer want and are willing to pay for in setting a specific value-pricing goal.
Discussion Note: Toyota Motor company used a value-based approach on its lower end cars like the Tercel and the Corolla in the early 1980s. Once the value price was determined and profit per car objectives set, engineers and designers were challenged with the task of making the cost of production support those goals.

19. Competition-based pricing

20. ? Setting Prices Going-Rate Company Sets Prices Based on What
Competition-Based Pricing
This CTR relates to the discussion on pp
Going-Rate
Company Sets Prices Based on What
Competitors Are Charging.
Sealed-Bid
Company Sets Prices Based on
What They Think Competitors
Will Charge.
Competition-Based Approach
Going-Rate Pricing. This approach bases price largely on what competitors charge for their products. This approach is popular in markets where demand elasticity is difficult to measure.
Sealed-Bid Pricing. This approach involves competition between sellers attempting to under price each other while still covering costs. Winning a sealed bid contract requires careful estimation of competitor's costs and likely profit margins to bid successfully. This approach is common in bidding for government contracts.
Teaching Tip: You might consider giving students an out of class assignment to obtain bids on one or more projects from cooperating vendors in your area. For example, a two-car garage pricing might vary by 100% among three contractors in a sealed bid. ?

21. New Product Pricing Strategies
Market Skimming
Market Penetration

22. Market-Skimming
Setting a High Price for a New Product to “Skim” Maximum Revenues from the Target Market.
Results in Fewer, But More Profitable Sales.
I.e. Intel

23. Use Under These Conditions
Product’s quality and image must support its higher price.
Costs can’t be so high that they cancel the advantage of charging more.
Competitors shouldn’t be able to enter market easily and undercut the high price.

24. Market Penetration
Setting a Low Price for a New Product in Order to “Penetrate” the Market Quickly and Deeply.
Attract a Large Number of Buyers and Win a Larger Market Share.
I.e. Dell

25. Use Under These Conditions
Market must be highly price-sensitive so a low price produces more market growth.
Production/distribution costs must fall as sales volume increases.
Must keep out competition & maintain its low price position or benefits may only be temporary.

26. Product Mix Pricing Strategies
Product Line Pricing
Optional-Product Pricing
Product-Mix Pricing Strategies
This CTR corresponds to Table 11-1 on p. 331 and the relates to the material on pp
Product Mix Pricing Strategies
Captive-Product Pricing
By-Product Pricing
Product
Mix
Pricing
Strategies
Product-Mix Pricing Strategies
Product Line Pricing. Companies usually develop product lines rather than single products. In product line pricing, management must decide on the price steps to set between each product in the line. Companies often use price points to target distinctive combinations of product features and value represented by a particular price.
Optional-Product Pricing. Under this strategy, the company offers a base product and prices differently for each combination of additional features or options added to the base product as desired by the customer. Automobile pricing is famous -- or infamous -- for this practice. But many manufacturers use optional-product pricing, such as personal computer makers.
Captive-Product Pricing. Under this strategy, producers price products that must be used with a main product. The text describes razor blades as an example. The razor is priced low while high markups are attached to the price of the blades.
Discussion Note: Students should distinguish captive pricing from optional pricing on the basis of need versus convenience. When Apple Computer prices its keyboards separately from its computers, it is practicing captive-product pricing. When it offers additional RAM beyond the included board memory, it is practicing optional-product pricing.
By-Product Pricing. Waste from production and distribution may be marketable as by-products. Selling by-products allows producers to lower prices and costs on their main products. Otherwise, the prices of main products must cover the disposable or storage of by- products.
Product-Bundle Pricing. This strategy combines several products and offers them at a reduced price from the cost of each product purchased separately. Season tickets and group rates are examples.
Product-Bundle Pricing

27. Product Line Pricing Setting Price Steps Between Product Line Items
i.e. Rs. 299, Rs. 399

28. Optional-Product Pricing
Pricing Optional or Accessory Products
Sold With The Main Product
i.e. Car Options

29. Captive-Product Pricing
Pricing Products That Must Be Used With The Main Product
i.e. Razor Blades, Film, Software

30. By-Product Pricing
Pricing low-value By-Products to get rid of them

31. Product-Bundle Pricing
Pricing bundles of products sold together
i.e. Season tickets, Computer makers

32. Enough for today. . .

33. Setting Pricing Policy
Summary
Setting Pricing Policy

34. General Pricing Approaches
New Product Pricing Strategies
Market Skimming
Market Penetration
Product Mix Pricing Strategies

35. Optional-Product Pricing
Product Line Pricing
Optional-Product Pricing
Product-Mix Pricing Strategies
This CTR corresponds to Table 11-1 on p. 331 and the relates to the material on pp
Captive-Product Pricing
By-Product Pricing
Product
Mix
Pricing
Strategies
Product-Mix Pricing Strategies
Product Line Pricing. Companies usually develop product lines rather than single products. In product line pricing, management must decide on the price steps to set between each product in the line. Companies often use price points to target distinctive combinations of product features and value represented by a particular price.
Optional-Product Pricing. Under this strategy, the company offers a base product and prices differently for each combination of additional features or options added to the base product as desired by the customer. Automobile pricing is famous -- or infamous -- for this practice. But many manufacturers use optional-product pricing, such as personal computer makers.
Captive-Product Pricing. Under this strategy, producers price products that must be used with a main product. The text describes razor blades as an example. The razor is priced low while high markups are attached to the price of the blades.
Discussion Note: Students should distinguish captive pricing from optional pricing on the basis of need versus convenience. When Apple Computer prices its keyboards separately from its computers, it is practicing captive-product pricing. When it offers additional RAM beyond the included board memory, it is practicing optional-product pricing.
By-Product Pricing. Waste from production and distribution may be marketable as by-products. Selling by-products allows producers to lower prices and costs on their main products. Otherwise, the prices of main products must cover the disposable or storage of by- products.
Product-Bundle Pricing. This strategy combines several products and offers them at a reduced price from the cost of each product purchased separately. Season tickets and group rates are examples.
Product-Bundle Pricing

36. Next….
Pricing (cont..)

37. MGT301 Principles of Marketing
Lecture-25