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INTRODUCTION ..3 PRICING INTRODUCTION 3 IMPORTANCE OF PRICING .4 SOME OF THE MORE COMMON OBJECTIVES OF PRICING..5 FACTORES EFFECTING DEMAND. 6 SETTING PRICING POLICY 6 PRICING INFLUENCES ON PRICING POLICY.. 10 PRODUCT PRICING STRATEGY 11 NEW PRODUCT PRICING STRATEGIES .. 12 PRODUCT MIX PRICING STRATEGIES 14 PRICE ADJUSTMENT STRATEGIES . 14 SETTING THE PRICE . 16 FACTORES EFFECTING PRICING DECISION ..17 INITIATING AND RESPONDING TO PRICE CHANGES .19 PRICING STRATEGY OF SURF EXCEL..20 PRICING STRATEGY OF JAZZ.21 PRICING STRATEGY OF PEPSI22 REFRENCES 23
INTRODUCTION
Narrowly, price is the amount of money charged for a product or service. Broadly, price is the sum of all the values that consumers exchange for the benefits of having or using the
product or service.
Dynamic Pricing: charging different prices depending on individual customers and situations.
Price is the one element of the marketing mix that produce revenue ; the other element produce cost, prices are the easiest marketing mix element to adjust ; product features, channels and even promotion take more time .price also communicating to the market the companys intended value positioning of its product or brand. Today companies are wrestling with a number of difficult pricing tasks How to respect to aggressive price cutters How to price the same product when it goes through different channels How to price the same product in different countries How to price on improved product while still selling the previous version Many companies do not handle pricing well. They make these common mistakes; price is to costoriented ; price is not revised often enough to capitalize on market changes; price is set independent of the rest of the marketing mix rather than as an intrinsic element of marketing positioning strategy; and price is not varied enough for different product item ,market segmentation , distribution channels, and purchase occasions. Companies do their pricing in a variety of ways. In small companies, price is often set by the boss. In larger companies, pricing is handling by division and product line managers. Even here, top management sets general objectives and policies and often approve the prices proposed by lower level of management.
PRICING-INTRODUCTION
Setting the right price is an important part of effective marketing. It is the only part of the marketing mix that generates revenue (product, promotion and place are all about marketing costs). Price is also the marketing variable that can be changed most quickly, perhaps in response to a competitor price change. Put simply, price is the amount of money or goods for which a thing is bought or sold. The price of a product may be seen as a financial expression of the value of that product. For a consumer, price is the monetary expression of the value to be enjoyed/benefits of purchasing a product, as compared with other available items. The concept of value can therefore be expressed as: (Perceived) VALUE = (perceived) BENEFITS (perceived) COSTS A customers motivation to purchase a product comes firstly from a need and a want: e.g. Need: "I need to eat
Want: I would like to go out for a meal tonight") The second motivation comes from a perception of the value of a product in satisfying that need/want (e.g. "I really fancy a McDonalds"). The perception of the value of a product varies from customer to customer, because perceptions of benefits and costs vary. Perceived benefits are often largely dependent on personal taste (e.g. spicy versus sweet, or green versus blue). In order to obtain the maximum possible value from the available market, businesses try to segment the market that is to divide up the market into groups of consumers whose preferences are broadly similar and to adapt their products to attract these customers. In general, a products perceived value may be increased in one of two ways either by: (1) Increasing the benefits that the product will deliver, or, (2) Reducing the cost. For consumers, the PRICE of a product is the most obvious indicator of cost - hence the need to get product pricing right.
IMPORTANCE OF PRICING
When marketers talk about what they do as part of their responsibilities for marketing products, the tasks associated with setting price are often not at the top of the list. Marketers are much more likely to discuss their activities related to promotion, product development, market research and other tasks that are viewed as the more interesting and exciting parts of the job. Yet pricing decisions can have important consequences for the marketing organization and the attention given by the marketer to pricing is just as important as the attention given to more recognizable marketing activities. Some reasons pricing is important include: Most Flexible Marketing Mix Variable For marketers price is the most adjustable of all marketing decisions. Unlike product and distribution decisions, which can take months or years to change, or some forms of promotion which can be time consuming to alter (e.g., television advertisement), price can be changed very rapidly. The flexibility of pricing decisions is particularly important in times when the marketer seeks to quickly stimulate demand or respond to competitor price actions. For instance, a marketer can agree to a field salespersons request to lower price for a potential prospect during a phone conversation. Likewise a marketer in charge of online operations can raise prices on hot selling products with the click of a few website buttons. Setting the Right Price Pricing decisions made hastily without sufficient research, analysis, and strategic evaluation can lead to the marketing organization losing revenue. Prices set too low may mean the company is missing out on additional profits that could be earned if the target market is willing to spend more to acquire the product. Additionally, attempts to raise an initially low priced product to a higher price may be met by customer resistance as they may feel the marketer is attempting to take advantage of their customers. Prices set too high can also impact revenue as it prevents interested customers from purchasing the product. Setting the right price level often takes considerable market knowledge and, especially with new products, testing of different pricing options.
Trigger of First Impressions - Often times customers perception of a product is formed as soon as they learn the price, such as when a product is first seen when walking down the aisle of a store. While the final decision to make a purchase may be based on the value offered by the entire marketing offering (i.e., entire product), it is possible the customer will not evaluate a marketers product at all based on price alone. It is important for marketers to know if customers are more likely to dismiss a product when all they know is its price. If so, pricing may become the most important of all marketing decisions if it can be shown that customers are avoiding learning more about the product because of the price. Important Part of Sales Promotion Many times price adjustments is part of sales promotions that lower price for a short term to stimulate interest in the product. However, as we noted in our discussion of promotional pricing in Part: 15: Sales Promotion tutorial, marketers must guard against the temptation to adjust prices too frequently since continually increasing and decreasing price can lead customers to be conditioned to anticipate price reductions and, consequently, withhold purchase until the price reduction occurs again.
Many companies try to set prices that will maximize current profits. They estimate the demand and costs associated with alternative prices and choose the price that produces maximum current profit, cash flow, or Rate of return on investment. This strategy assumes that the firm has knowledge of its demand and cost functions; in reality, these are difficult to estimate. In emphasizing current performance, a company may sacrifice long run performance by ignoring the effects of other marketing mix variables, competitors reactions, and legal restraints on price. Some companies want to maximize their market share. They believe that a higher sales volume will lead to lower cost and higher long run profit they set the lowest price assuming the market is price sensitive. It often happens that companies unwilling a new technology favor setting high prices to skim the market. Sony is a frequent practitioner of market skimming pricing. When Sony introduced the worlds first high definition television (HD-TV) to the Japanese market in 1990, the high-tech sales cost $43000.This television were purchased by customers who could afford to pay a high price for the new technology. Sony rapidly reduced the price over the next three years to attract new buyers, and by 1993a 28-inch H-D tv cost Japanese buyers just over $6000.In 2001 a customer cold buy a 40-inch H-D TV for about $2000.A price many could afford. In this way, Sony skimmed the maximum amount of revenue from the various segments of the markets.
A companys costs take two firms, fixed and variable. Fixed costs (also known as over head) are costs that do not vary with production or sales revenue. Accompany must pay bills each month for rent , heat, and trust, salaries, and so on , regardless of output . Variable costs vary directly with the level of production. For example, each hand calculator produced by Texas Instruments involves a cost of plastic, macro-processing chips, packaging, and the like. These costs tend to be constant per unit produced; they are called variable because their total varies with the number of unit produced. Total cost consists of the sum of the fixed and variable costs for any given level of production. Average costs is the cost per unit at that level of production; if is equal to total cost divided by production. Management wants to charge a price that will at least cover a total production cost at a given level of production. ACCUMULATED PRODUCTION: Suppose TI runs a plant that produces three thousand hand calculators per day. As TI gains experience producing hand calculators, its methods improve. Workers learn shortcuts, materials flow more smoothly, and procurement costs falls. The result shows, in that average cost falls with the accumulated production experience. DIFFERENTIATED MARKETING OFFERS: Todays companies try to adopt their offers and terms to different buyers. Thus a manufacturer will negotiate different terms with different retail chains. One retailer may want daily delivery (to keep stock lower) while an other may accept twice a week delivery in order to get a lower price. The manufacturers costs will differ with each chain, and so will its profits. TARGET COSTING Costs change with production sale and experience. They can also change as a result of concentrated efforts by designers, engineers and purchasing agents to reduce them.
MARK-UP PRICING: The most elementary pricing method is to add a standard mark-up to the products cost. Construction companies submit job bids by estimating the total project cost and adding a standard mark-up for profit. Suppose a toaster manufacture has a following cost and sale expectation Variable cost per unit .. Fixed cost . Expected unit sales . The manufacturers unit cost is given by: Unit cost= variable cost + fixed cost =$10+ $300,000 =$16 Unit sales 50,000 Now assume the manufacturer wants to earn a 20 % markup on sales. The manufacturers markup price is given by: Markup price = unit cost (1-desired return on sales) = $16 1-0.2 =$20 $10 300,000 50,000
TARGET-RETURN PRICING: In target return pricing the firm determines the price that would yield its target rate of return on investment (ROI). Target pricing is used to general motors, which price its automobiles to achieve a 15-20 percent ROI. PERCIVED-VALUE PRICING: In increasing number of companies based their price on the customers perceived value. They must deliver the value promised by their value proposition, and the customer must perceived this value. They use the other marketing mix elements, such as advertising and sales force, to communicate and enhance perceive value in buyers mind. VALUE-PRICING: In recent years, several companies have adopted value pricing, in which they win loyal customers by charging a fairly low price for a high quality offering. Among the best practitioners of value pricing are WALL-MART, IKEA, and SOUTH-WEST airlines. GOING RATE-PRICING: In going rate pricing, the firm basis its price largely on competitors prices. The firm might charge the same, more, or less than major competitors. In oligopolistic industries that sell a commodity such as steel, paper, or fertilizers, firms normally charge the same price. ACTION TYPE PRICING: Is growing more popular, especially with the growth of the internet. There are over 2000 electronic market places selling everything from pigs to use vehicles to cargo to chemicals. One major use of actions is to dispose of excess inventories or to use good. Company needs to be aware of the three major types of actions and their separate pricing procedures *ENGLISH ACTIONS (ascending bids)
GROUP PRICING: The internet is facilitating methods where by consumers are business buyers can join groups to buy at a lower price. Consumer can go to volumebuy.com to buy electronics, computers, subscriptions, and another item.
Costs
In order to make a profit, a business should ensure that its products are priced above their total average cost. In the short-term, it may be acceptable to price below total cost if this price exceeds the marginal cost of production so that the sale still produces a positive contribution to fixed costs.
(2) Competitors
If the business is a monopolist, then it can set any price. At the other extreme, if a firm operates under conditions of perfect competition, it has no choice and must accept the market price. The reality is usually somewhere in between. In such cases the chosen price needs to be very carefully considered relative to those of close competitors.
(3) Customers
Consideration of customer expectations about price must be addressed. Ideally, a business should attempt to quantify its demand curve to estimate what volume of sales will be achieved at given prices
1. Costs. Focus on your current and future, not historical, costs to determine the cost basis for your
pricing strategy.
2. Price Sensitivity. The price sensitivities of buyers shift based on a number of factors and your
pricing strategy must shift with them.
3. Competition. Pay attention to them, but don't copy them . . . when it comes to pricing strategy
they may have no idea what they're doing.
4. Product Lifecycle. How you price, and what value you provide for that price, will change as you
move through the product lifecycle.
1 ) Market-skimming pricing
The practice of price skimming involves charging a relatively high price for a short time where a new, innovative, or much-improved product is launched onto a market.
The objective with skimming is to skim off customers who are willing to pay more to have the product sooner; prices are lowered later when demand from the early adopters falls. The success of a price-skimming strategy is largely dependent on the inelasticity of demand for the product either by the market as a whole, or by certain market segments. High prices can be enjoyed in the short term where demand is relatively inelastic. In the short term the supplier benefits from monopoly profits, but as profitability increases, competing suppliers are likely to be attracted to the market (depending on the barriers to entry in the market) and the price will fall as competition increases. The main objective of employing a price-skimming strategy is, therefore, to benefit from high short-term profits (due to the newness of the product) and from effective market segmentation. There are several advantages of price skimming Where a highly innovative product is launched, research and development costs are likely to be high, as are the costs of introducing the product to the market via promotion, advertising etc. In such cases, the practice of price-skimming allows for some return on the set-up costs By charging high prices initially, a company can build a high-quality image for its product. Charging initial high prices allows the firm the luxury of reducing them when the threat of competition arrives. By contrast, a lower initial price would be difficult to increase without risking the loss of sales volume Skimming can be an effective strategy in segmenting the market. A firm can divide the market into a number of segments and reduce the price at different stages in each, thus acquiring maximum profit from each segment Where a product is distributed via dealers, the practice of price-skimming is very popular, since high prices for the supplier are translated into high mark-ups for the dealer For conspicuous or prestige goods, the practice of price skimming can be particularly successful, since the buyer tends to be more prestige conscious than price conscious. Similarly, where the quality differences between competing brands is perceived to be large, or for offerings where such differences are not easily judged, the skimming strategy can work well. An example of the latter would be for the manufacturers of designer-label clothing.
2) Market-Penetration pricing
Penetration pricing involves the setting of lower, rather than higher prices in order to achieve a large, if not dominant market share. This strategy is most often used businesses wishing to enter a new market or build on a relatively small market share. This will only be possible where demand for the product is believed to be highly elastic, i.e. demand is price-sensitive and either new buyer will be attracted, or existing buyers will buy more of the product as a result of a low price.
A successful penetration pricing strategy may lead to large sales volumes/market shares and therefore lower costs per unit. The effects of economies of both scale and experience lead to lower production costs, which justify the use of penetration pricing strategies to gain market share. Penetration strategies are often used by businesses that need to use up spare resources (e.g. factory capacity). A penetration pricing strategy may also promote complimentary and captive products. The main product may be priced with a low mark-up to attract sales (it may even be a loss-leader). Customers are then sold accessories (which often only fit the manufacturers main product) which are sold at higher mark-ups. Before implementing a penetration pricing strategy, a supplier must be certain that it has the production and distribution capabilities to meet the anticipated increase in demand. The most obvious potential disadvantage of implementing a penetration pricing strategy is the likelihood of competing suppliers following suit by reducing their prices also, thus nullifying any advantage of the reduced price (if prices are sufficiently differentiated the impact of this disadvantage may be diminished). A second potential disadvantage is the impact of the reduced price on the image of the offering, particularly where buyers associate price with quality.
1) Discount & Allowance: reduced prices to reward customer responses such as paying early or
promoting the product. (For example. Different seasonal or occasional offers of Nike or Chen one offering certain discount on different range of shopping)
2) Discriminatory: adjusting prices to allow for differences in customers, products, and locations (for
example. Price of Pepsi in Pearl Continental Hotel as it is much higher than its actual value in the hotel just because of the segment and environmental change in this case the cost is the same but according to the segment pricing is different)
3) Psychological: adjusting prices for psychological effects. Ex: $299 vs. $300 (for example. English
toothpaste reduced its prices from 12 to 10 just to attract their customers and increase their sales in this way they implemented physiological pricing strategy besides that different offers in the market pricing like just 99 rupees or 999 rupees in various stores is also physiological pricing strategy.)
4) Value: adjusting prices to offer the right combination of quality and service at a fair price. (For
example a person shopping in Zainab market might seek value and quality at fair price. This process helps to deliver value and satisfaction to customers.)
5) Promotional: temporarily reducing prices to increase short-run sales. (For example. Pepsi reduces its
prices during the month of Ramadan and also offers different schemes and similarly Warid Zem offers nights free offers to their customers)
6) Geographical: adjusting prices to account for geographic location of customer. (For example. DHL
charges different rates according to the destination) *FOB Origin Pricing: Geographical pricing strategy in which goods are placed free on board a career, the customer pays the freight from the factory to the destination. (For example. A person buying a compact disc from abroad in which he have to pay the transport expense for bringing it in access) *Uniform Delivered Pricing: A geographical pricing strategy in which the company charges the same price plus frightened to all customers, regardless of their location.( for example . every customer have to pay a similar and specified amount of money to Nike if they are transacting from abroad) *Zone Pricing: A geographical pricing strategy in which the company sets up to or more zones. All customers within a zone pay the same total price; the more distant zone, the higher the price.( for example. If Adidas is transacting with its customers from abroad regions then they will charge freight according to the distance of the region and as the distance will increase freight charges will also increase.) *Basing Point Pricing: A geographical pricing strategy in which the seller designs some city as a basing point and charges all customers the freight cost from that city to the customer. ( for example. Dell computers established their basing point in India and then delivers their products in the Asian regions charging freight from that region)
7) International: adjusting prices in international markets. (For example. Prices of Levis or Nike might not be same in dolmen mall and in international storesit will be definitely differ according to the environmental offerings.)
contract work. The firm must decide where to position its product on quality and price. In some markets, such as the auto markets, as many as eight price points can be found.
SEGMENT
Ultimate Gold standard Luxury Special need Middle Price alone
EXAMPLE
Rolls-Royce Mercedes Benz Audi Volvo Buick Kia
Figure 16.1 shows nine price quality strategies. The diagonal strategies 1,5,and 9 can all co-exit in the same market; that is , one firm offer a high quality product at a high price , another offers an average quality product at an average price and still another offers a low quality product at a low price. All three competitors can co-exit as long as the market consists of three groups of buyers: those who insist on quality, those who insist on price, and those who balance the too. Strategies 2,3and 6 are ways to attack the diagonal positions. Strategy to says Our product has the same high quality as product 1 but we charge less. Strategy 3 says the same thing and offers and even greater saving. If quality-sensitive customers believe these competitors, they will sensibly buy from them and save money (unless firm earns 1s product has acquirable snob appeal. Positioning strategies 4,7and 8 amount to over-pricing the product in relation to its quality. The customer will feel taken and will probably complain or spread bad words of mouth about the company.
1. PREMIUM STRATEGY
2.HIGH-VALUE STRATEGY
5.MEDIUM-VALUE STRATEGY
6. GOOD-VALUE STRATEGY
8. FALSE-ECONOMY STRATEGY
9.ECONOMY-STRATEGY
HIGH
MEDIUM
LOW
(not to mention be costly) and will not translate into lower price products for a considerable period of time. External Factors - There are a number of influencing factors which are not controlled by the company but will impact pricing decisions. Understanding these factors requires the marketer conduct research to monitor what is happening in each market the company serves since the effect of these factors can vary by market.
Pure Competition:
Many buyers and sellers where each has little effect on the going market price
Monopolistic Competition:
Many buyers and sellers who trade over a range of prices
Oligopolistic Competition:
Few sellers who are sensitive to each others pricing/marketing strategies
Pure Monopoly:
Market consists of a single seller
Cost-Plus Pricing
Adding a standard markup to the cost of the product. Popular because: Sellers more certain about cost than demand Simplifies pricing When all sellers use, prices are similar and competition is minimized Some feel it is more fair to both buyers and sellers
Sealed-Bid Pricing:
Firm bases its price on how it thinks competitors will price rather than on its own costs or on demand.
*Shallow-pocket trap: The higher price competitors may cut their prices and may have longer staying power because of deeper cash reserves.
It targets upper class of consumers and markets and its segmentation if or high and potential markets. It is a product of Unilever. It is available in different sizes and quantities in the market for different prices. Its competitors in its upper-class segments are Ariel which is a product of P&G and Brite Total which is a product of Colgate-Palmolive (Laksons group). Its market-oriented statement is Daagh NHI to seekhna NHI The company has offered 1kg of Surf excel in the market for 120 rupees. Besides that it is also available in the market in sachets pricing from 5-10 rupees and in kg for about 70 rupees. It is a quality oriented product providing value to their customers. In 2005 Unilever adopted one of the price-adjustment strategies which was discount & allowance pricing as they offered 1kg of Surf Excel for 105 rupees. Through this strategy promotional pricing strategy also came in progress as their product was promoted through it and the sales increased rapidly. But as its competitors also reacted for this change through customizing their offerings and price cuts Surf Excel was finally focused towards price increases. Besides that Surf Excel pricing strategy have also been to provide value and recently the company improvised their strategy as they focused toward more promotion through campaigns. Beside that the company has also implemented product line pricing strategy as their offerings are in different quantities along with different prices in the market for Surf Excel. Several offers have also been introduced by Ariel and Brite in the market using Promotional, discount, and psychological pricing strategies and for that Surf Excel have also responded efficiently through its strategies.
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RATES NETWORKS
JAZZ TO JAZZ JAZZ TO OTHER NETWORK JAZZ TO JAZZ JAZZ TO OTHER NETWORK
It is well known brand of Mobilink. Previously Mobilink was offering Jazz connection for about 3000 rupees 5 years ago. Its market oriented statement is Aur Sunao But through the passage of time \now Mobilink is offering Jazz connections for about 100 rupees. In 2002 Ufone which is one of the leading competitor of Jazz introduced its prepay connection for about 2500 rupees. In 2005 Telenor came into existence in Pakistani market and offered its connections for about 500 rupees. Then in 2005 Warid also entered the market offering its connections for 250 rupees. In this way price war started between these telecom brands in the market. Previously it was Jazzs oligopoly as they offered their prices. In 2005 Jazz offered a cellphone+connection+prepaid card implementing a product-bundle pricing strategy for creating more attention and attraction. The major shift in the pricing strategy came in when they started 30.second operations using the promotional pricing strategy. In the early days Jazz was offering its sim-cards for a high-price using captive-product pricing strategy as its sim-card is a main product that must be used along with the cell phone. Initially Jazzs call rates and sms charges were also reduced using discount and allowance strategy and initially directing towards promotional strategy as the competition between cellular brands in the market grew faster. Recently Jazz introduced its offerings of 0.99 per minute call rates in their happy hour package which represents their operations with the promotional as well as psychological pricing of their services. Through its happy hour package they are also operating with promotional strategy as they are engaged in continuous promotion through their offerings. Besides that Jazz adopted segmented pricing strategy as they were charging different call rated from one city to another but its competitors have emerged tremendously they have responded efficiently towards their actions through cutting their pricing mainly applying promotional and psychological strategy. As Ufone, Telenor and Zem are offering great offers of call rates and sms rates, day by day Jazz in also responding efficiently through its strategic pricing offers.
In Pakistan Pepsi cola is being operated by Pakistan Beverages. Pepsi is available in the majority of stores, outlets, restaurants, and hotels. It has a huge market of customers. Basically it is segmented for the younger generation of Pakistan but because of its customized offerings it is being consumed by different age groups in our society. The company has offered Pepsi in different quantities and prices in our market. Its market oriented statement is Dare for more
In our society Pepsi often reduces its prices during the holy month of Ramadan and at the time of Eid. In this way they adopt promotional pricing strategy. Even if you notice on their offerings they are using product-line pricing strategy as they are offering different quantities with different amount of money. In different sectors Pepsi have also adopted segmented pricing strategy as its prices are much higher in luxurious hotels and other sectors. Its main competitor is Coca-cola when it comes to soft-drinks. Coca-cola have also made various efforts through different pricing strategies and offerings but Pepsi have also responded effectively towards their actions through initiating price cuts at the right time for example. In the month of Ramadan whenever Coca-cola reduces their prices Pepsi also responds through price cuts and then eventually after that period it rises its prices. However buyers reactions have not been much affected the company in the long-run. Pepsi have always operated their sales through promotional and phsycologilical pricing strategy and the great example for this can be their recently offered deal which is 2.25 litre of pepsi in 55rupees.
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