This document discusses pricing strategies and factors that affect pricing decisions. It explains that pricing is the process of determining the revenue a company will receive for its products. Pricing must achieve financial goals, fit market realities, and support product positioning. Factors like costs, customers, competition, and other variables influence pricing. Common pricing strategies include penetration pricing, skimming pricing, competition pricing, product line pricing, bundle pricing, psychological pricing, premium pricing, and optional pricing. The document also outlines basic pricing guidelines and different types of price discounts.
2. What is Pricing?
Is the process of determining what a company
will receive in exchange for its products.
3. Two Views
Buyers’ View – For those making a purchase,
such as final customers, price refers to what
must be given up to obtain benefits.
Sellers’ View - To sellers in a transaction, price
reflects the revenue generated for each
product sold and, thus, is an important factor
in determining profit.
4. Common Questions
Are they getting their money’s worth?
Can they afford that certain product?
Can I have a discount?
Why is it so expensive?
5.
6. What a Price should do!
• Achieve the financial goals of the company.
(e.g., profitability)
• Fit the realities of the marketplace. (Will
customers buy at that price?)
• Support a product's market positioning.
7. Factors that affects Pricing
Cost Customer Competition Other Factors
•Supplier's prices •Growth in •perfect •Role of Middle
customer's income competition Man
•Price inflation
•Perception about •Imperfect
•Exchange rate future prices Competition
movements
•Quality perception
• Quality
• Demand
8. Pricing Strategies
Penetration pricing
• Here the organization sets a low price to
increase sales and market share. Once market
share has been captured the firm may well
then increase their price.
9. Pricing Strategies
Skimming pricing
• The organization sets an initial high price and
then slowly lowers the price to make the
product available to a wider market. The
objective is to skim profits of the market layer
by layer.
10. Pricing Strategies
Competition pricing
• Setting a price in comparison with
competitors. Really a firm has three options
and these are to price lower, price the same
or price higher.
11. Pricing Strategies
Product Line Pricing
• Pricing different products within the same
product range at different price points.
16. Basic Guidelines
• Your price must be enough higher than costs
to cover reasonable variations in sales
volume.
• You have to make a living.
• Your price should almost never be lower than
your costs or higher than what most
consumers consider "fair"
17. Price Discounts
Quantity discount - offered to customers who
purchase in large quantities.
Cumulative quantity discount - a discount that
increases as the cumulative quantity
increases.
18. Price Discounts
Seasonal discount - based on the time that the
purchase is made and designed to reduce
seasonal variation in sales.
Cash discount - extended to customers who pay
their bill before a specified date.
19. Price Discounts
Trade discount - a functional discount offered to
channel members for performing their roles.
Promotional discount - a short-term discounted
price offered to stimulate sales.
describes markets such that no participants are large enough to have the market power to set the price of a homogeneous product.
If your sales forecast is inaccurate, how far off can you be and still be profitable? Ideally, you want to be able to be off by a factor of two or more (your sales are half of your forecast) and still be profitable.Have you figured salary for yourself in your costs? If not, your profit has to be enough for you to live on and still have money to reinvest in the company. This may seem obvious, but many entrepreneurs seem to miss this simple concept, either by miscalculating costs or by inadequate market research to determine fair pricing. Simply put, if people won't readily pay enough more than your cost to make you a fair profit, you need to reconsider your business model entirely. How can you cut your costs substantially? Or change your product positioning to justify higher pricing?
Cumulative discounts may be offered to resellers who purchase large quantities over time but who do not wish to place large individual orders.
For example, the travel industry offers much lower off-season rates. Such discounts do not have to be based on time of the year; they also can be based on day of the week or time of the day, such as pricing offered by long distance and wireless service providers.