Principles of
Marketing
Lecture-25
Summary
of
Lecture-24
Factors
Affecting Price
Decisions
Internal Factors
Positioning
Objectives
Pricing
Decisions
External Factors
Target
Market
Today’s Topics
Setting
Pricing Policy
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
Pricing Objectives
ProfitOriented
SalesOriented
Status
Quo
Pricing Objectives
Profit
Oriented
Pricing
Objectives
Target
Return
Maximize
Profits
Pricing Objectives
Profit
Oriented
Pricing
Objectives
Sales
Oriented
Target
Return
Maximize
Profits
Dollar or Unit
Sales Growth
Growth in
Market Share
Pricing Objectives
Profit
Oriented
Pricing
Objectives
Sales
Oriented
Status Quo
Oriented
Target
Return
Maximize
Profits
Dollar or Unit
Sales Growth
Growth in
Market Share
Meeting
Competition
Nonprice
Competition
General Pricing
Approaches
Cost-based Pricing
Value-based Pricing
Competition-based
Pricing
Cost-based
pricing
 Cost plus pricing
–add a standard
mark up to cost
Break even pricing
total costs = total
revenue
Break-even…for
Determining Target
Return Price and Breakeven Volume
1000
Total cost
Rupees (in thousands)
1200
Total revenue
Target profit
800
Break-even point
600
400
Fixed cost
200
0
10
20
30
40
50
Sales volume in units (thousands)
Fixed Cost
Break-even Volume = --------------Price - Variable Cost
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 marketingmix variables before the
marketing program is set.
Cost-Based Pricing
Value-Based Pricing
Product
Customer
Cost
Value
Price
Price
Value
Cost
Customers
Product
Competition-based
pricing
Setting Prices
Going-Rate
Company Sets Prices Based on What
Competitors Are Charging.
Sealed-Bid
?
Company Sets Prices Based on
What They Think Competitors
Will Charge.
New Product Pricing
Strategies
•Market Skimming
•Market Penetration
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
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.
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
Use Under These Conditions
Market must be highly pricesensitive 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.
Product Mix Pricing
Strategies
Product Line Pricing
Optional-Product Pricing
Product
Mix
Pricing
Strategies
Captive-Product Pricing
By-Product Pricing
Product-Bundle Pricing
Product Line Pricing
Setting Price Steps
Between Product Line
Items
i.e. Rs. 299, Rs. 399
Optional-Product
Pricing
Pricing Optional or
Accessory Products
Sold With The Main Product
i.e. Car Options
Captive-Product Pricing
Pricing Products That Must Be
Used With The Main Product
i.e. Razor Blades, Film,
Software
By-Product Pricing
Pricing low-value ByProducts to get rid of
them
Product-Bundle Pricing
Pricing bundles of products
sold together
i.e. Season tickets,
Computer makers
Enough for
today. . .
Summary
Setting
Pricing Policy
General Pricing
Approaches
New Product Pricing
Strategies
•Market Skimming
•Market Penetration
Product Mix Pricing
Strategies
Product Line Pricing
Optional-Product Pricing
Product
Mix
Pricing
Strategies
Captive-Product Pricing
By-Product Pricing
Product-Bundle Pricing
Next….
Pricing (cont..)
Principles of
Marketing
Lecture-25