Price is the amount of money charged for a product or service It is the sum of all the values that consumers give up in order to gain the benefits of having or using a product or service Price ID: 737706
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Slide1
Pricing:
Understanding and Capturing Customer ValueSlide2
Price
is the amount of money charged for a product or service. It is the sum of all the values that consumers give up in order to gain the benefits of having or using a product or service.Price is the only element in the marketing mix that produces revenue; all other elements represent costs
What Is a Price?Slide3
Factors to Consider When
Setting PricesCustomer Perceptions of ValueSlide4
Customer Perceptions of Value
Value-based pricing
uses the buyers’ perceptions of value, not the sellers’ cost, as the key to pricing. Price is considered before the marketing program is set.
Value-based pricing is customer driven
Cost-based pricing is product drivenSlide5
Customer Perceptions of ValueSlide6
Is “Good Value” same as “Lower Price” Slide7
Customer Perceptions of Value
Good-value pricing offers the right combination of quality and good service at a fair price . Mc Donalds value menus , Armani Exchange Fashion line , Tata
Nano
, Levi
s
Existing brands are being redesigned to offer more quality for a given price or the same quality for a lower price.
Tata Indigo CS , No frill Airlines
-
Everyday low pricing (EDLP)
involves charging a constant everyday low price with few or no temporary price discounts
- High-low pricing
involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected itSlide8
Customer Perceptions of Value
Value-added pricing attaches value-added features and services to differentiate offers, support higher prices, and build pricing powerPricing power is the ability to escape price competition and to justify higher prices and margins without losing market shareSlide9
Company and Product Costs
Cost-based pricing involves setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for its effort and riskCost-based pricing adds a standard markup to the cost of the productSlide10
Costs at Different Levels of Production
Diseconomies of scale:
too many workers to manage
Plant becomes inefficient Slide11
Costs as a Function of Production Experience
Experience or learning curve is when average cost falls as production increases because fixed costs are spread over more units
Gains Experience
Learn how to do it better
Work becomes better organized
Better equipment and production
process
This drop in AC with accumulated production experience is called the experience cur
ve Slide12
Cost Based Pricing
Cost-plus pricing adds a standard markup to the cost of the product(Construction companies, Lawyers , Software Consultants , accountants )Variable cost : Rs.10Fixed Cost : Rs. 300,000Expected unit sales : 50,000
Unit cost : Variable cost + Fixed Cost
------------- = Rs 16
Unit Sales
Mark up price = Unit cost
--------------- = Rs. 20
1- Desired Return on sales
Does standard mark ups to set prices make sense ?Slide13
Cost Based Pricing
Break-even pricing is the price at which total costs are equal to total revenue and there is no profit
Target profit pricing
is the price at which the firm will break even or make the profit it’s seeking.
GM in US (15% to 20% profit on InvestmentSlide14
Cost Based Pricing
Break-Even Analysis and Target Profit PricingSlide15
Public Policy and Pricing
Price competition is a core element of our free-market economy. In setting prices, companies usually are not free to charge whatever prices they wish. Many laws govern the rules of fair play in pricing.
The Monopolies and Restrictive Trade Practices (MRTP) Act, 1969
The Competition Act, 2002Slide16
Public Policy and Pricing
Salient features of the MRTP Act:Under the MRTP Act, acts such as misleading consumers about the prices at which goods and services are available in the market and false offers of bargain prices are considered to be unfair trade practices
The
Consumer Protection Act
, 1986 (amended in 2002), also safeguards the interests of consumersSlide17
Public Policy and Pricing
Salient features of the Competition Act:anti-competitive agreementsprohibition of abuse of dominant positions by an enterprise
regulation of combinations such as acquisitions, mergers, joint ventures, takeovers, and amalgamationsSlide18
Public Policy and Pricing
Predatory pricing, or selling and providing services with the intention of reducing competition or eliminating competitors, is not permissible under the MRTP Act or the Competition Act.
Microsoft – have been accused of predatory pricing strategies in offering ‘free’ software as part of their operating system – Internet Explorer and Windows Media Player - forcing competitors like Netscape and Real Player out of the market.
Title: Bill Gates speaks at UNIX convention. Copyright: Getty Images, available from Education Image Gallery