Lecture – 6

Parveen Sharma

Marketing of
Financial
Products

1 1
MoFP for

TKW’s
 Contents

Marketing Mix: Price

 The Concept
 Objective of Pricing
 Factors Affecting Pricing
 Pricing Strategies
 Pricing Strategy & PLC
 Relationship Pricing
 Break-even Analysis

MoFP for

TKW’s
2 2
NN
Marketing Mix: Price

"Price is what you pay. Value is what you get."

- Warren Buffett

Pricing decisions need to balance a business’s need to make a profit,

with the market’s value perception (i.e. what the market is prepared to
pay).

If the price is too high, customers won’t buy the products; if the price
is too low, there is a risk that the business will not be able to generate
enough profit to breakeven.

3 MoFP for

TKW’s
NN
Marketing Mix: Price

 “P” in marketing mix generating revenue

 Product
 Place = Cost  Price = Revenue
 Promotion

 Complex process determine value consumers will exchange for offering

 Price of financial services is generally expressed in terms of interest

rates, fees, brokerages, commissions and premiums.

4 MoFP for

TKW’s
NN
Marketing Mix: Price

Pricing of Insurance products

The formulation of pricing strategies
becomes significant with the viewpoint of
influencing the target market or prospects. To
be more specific in the Indian context where
the disposable income in the hands of
prospects is found low due to inflation, it is
pertinent that the insurance organizations
adopt such a strategy for pricing that makes it
a motivational tool & paves the ways for
increasing the insurance business. Of course,
a motivational pricing strategy is required to
be given due weightage.

5 MoFP for

TKW’s
NN
Marketing Mix: Price

 Price is very important part of Marketing Mix as it affects…

…whether people can afford the product and how quickly sales will
grow
…how competitively it is priced compared to rival products
…the product’s image – high price can mean high quality

Price = Cost + Perceived Value

 In addition to price of financial services consumers might also be

motivated by other factors such as security, piece of mind, prestige and
wealth.

6 MoFP for

TKW’s
NN
Marketing Mix: Price

7 MoFP for

TKW’s
NN
Marketing Mix: Price

Objective of Pricing

 Profit
 Survival
 Market Share
 Cash Flow
 Status Quo
 Product Quality
 Communicating Image

8 MoFP for

TKW’s
NN
Marketing Mix - Price

Factors affecting pricing

Internal Factors External Factors

Company Objective Share holders

Component of Marketing Mix Consumers

Pricing
Costs Competition

Risks Legal & Regulatory

9 MoFP for

TKW’s
NN
Pricing Strategies

 Discriminating Pricing

First degree
different prices to each customer depending upon their
intensity of demand

Second degree
Lower prices for buyers/investor of a larger volume

Third degree
 Customer groups – student, senior citizen
 Image pricing
 Channel
 Location
 Time

10 MoFP for

TKW’s
NN
Pricing Strategies

 Product-mix pricing

Product line pricing – Setting price steps between various products

in a product line

Captive-product pricing – main product at lower price, ancillary

product at higher price

Two-part pricing – split into fixed and variable component

By-product pricing – by-products obtained in production of other

products

Product-bundling pricing

11 MoFP for

TKW’s
NN
Pricing Strategies

 Product-Bundling pricing

Reliance SIP Insure provides free life

insurance cover to investors at no
extra cost.

In the unfortunate event of the

demise of an investor during the
tenure of the SIP, the insurance cover
will take care of the unpaid
installments

12 MoFP for

TKW’s
NN
Pricing Strategies

Pricing will depend on type of market i.e.

if the market is exclusive or advanced , the consumers may expect
high prices
Price Skimming is common

if it is mass market where similar products are sold to large number
of customers then a low or Penetration Pricing might be used

Penetration Pricing: Setting a price at Price Skimming: Setting price higher

lower level to gain greater market share initially to create higher image

13 MoFP for

TKW’s
NN
Pricing Strategies

If the market is very competitive and business is to grow by increasing

sales, prices may have to be reduced

Prices may need to be equal or below competitors selling very similar

products

This is called Competitive Pricing

14 MoFP for

TKW’s
NN
Pricing Strategies

 Growing business needs profits to invests back into the business

 Prices of products have to cover all costs if profits are to be made

 Adding a profit mark up to the unit costs will achieve this

 This is called Cost-plus Pricing

Cost-plus Pricing: Setting price at the

unit cost plus a percentage mark up

15 MoFP for

TKW’s
NN
Pricing Strategies

Loss Leader Pricing

Making a deliberate loss on a product which will be cancelled out by

profit made on other items

It is widely used in two ways

Selling vanila products at lower cost
Attract customers to buy these products
And then cross-sell

Loss Leader Pricing: Setting price below

/at hoping to gain other profitable sales

16 MoFP for

TKW’s
NN
Pricing Strategies

17 MoFP for

TKW’s
NN
Pricing Strategy & Product Life Cycle

Introduction Growth Maturity Decline

Sales Low sales Rapidly Rising Peak Sales Declining sales

Costs High Average Low cost Low cost

Profits Negative Increasing High & declining Declining profits

Marketing Increasing Increase Market Inc profit, Reduce costs &

Objective Awareness share defending share Milk brand
Price Penetration/ Penetration if Competition Reduce
Strategy Skimming new pricing Prices

Promotion/ Heavy Awareness & Differences & For customer

Ads promotions Interest benefits retention

18 MoFP for

TKW’s
NN
Pricing – Relationship Pricing

Retaining your customers is a lot less expensive than getting new

ones. So, how do you keep them coming back for more?

 Relationship Pricing: Often products are priced so that customers are

encouraged to much of their business with one institution.

Relationship pricing also involves building extras into the product to add
value to the customer and differentiate

Lot of Small & big industrial customers are influenced by FI’s having
expertise in developing relationship.

LGD Marketing
Lunch
Golf
Dinner
19 MoFP for

TKW’s
NN
Break-even Analysis

 Breakeven analysis is an aid in making pricing decisions.

 Break-even Volume = Fixed cost/(Price – Variable cost)

Break-even chart for determining Target Return Price and Break-even volume

Price per unit = Rs 100 AVC = Rs 60 Fixed cost = Rs 120000

BEP(in units) = 120000/(100 – 60) = 3000 units

20 MoFP for

TKW’s
NN

Q
? ueries
Contact me @ +91-9050050288
or
Email to parveen_72@yahoo.in

21 21 MoFP for

TKW’s
NN
Term for the Lecture

 Mark up Pricing
 Absorption cost Pricing
 Target Return Pricing
 Marginal cost Pricing
 Perceived Value Pricing
 Value Pricing
 Going Rate Pricing
 Auction Type Pricing
 Group Pricing

22 22 MoFP for

TKW’s
 Thank
You
23 23 MoFP for

TKW’s