Price

III.
Creating and Managing

the Marketing Mix
PRICE
⮚ is the amount of money and/ or goods needed to acquire
some combination of another good and its
accompanying services.
Names of Prices
1. Education 1. Tuition Fee
2. Transportation 2. Fare
3. Apartments 3. Rental
4. Hotels 4. Bills
5. Banks 5. Interest charges
6. Government Purchase 6. Bid or Quotation
7. Restaurants 7. Costs /Chit/ Bills
8. Movie House 8. Tickets
9. Highways 9. Toll Fee
10. Work/Job 10. Salary/Wages
11. Lawyer’s Service 11. Retainer’s Fee
12.Guest Speaker 12.Honorarium
13. Government 13. Subsidy /Allowance
Assistance
Importance of Price
In the Economy
▪ Price is a basic regulator of the economic system because it influences
the allocation of the factors of production.
In the Individual Firm

▪ Product’s price is a major determinant of the market demand for it.
In the Consumer’s Mind

▪ Typically, the higher the price, the better the quality is perceived to be.
Importance of Price
❖ Where the rest of the elements of the
marketing mix are cost generators, price is
a source of income and profits.
❖ Through pricing, the organization manages

to support the cost of production, the cost
of distribution, and the cost of promotion.
PRICING OBJECTIVES
PRICING OBJECTIVES
1. Profit Maximization: Keeping in mind revenue and costs, a company

may want to maximize profits. Profit maximization objectives should be
long term and not focus only on the short term.
2. Revenue Maximization: With less focus on profits, a company may

focus on increasing revenues in order to increase market share and
lower costs in the long term.
PRICING OBJECTIVES
3. Maximize Quantity: A company may want to sell a specific number of

items to decrease long term costs.
4. Maximize Profit Margin: Another objective may be to increase the

profit margin for each unit and not focus on the total number of units
sold.
PRICING OBJECTIVES
5. Quality Leader: A company may want to use price to signal high

quality and establish itself as the quality leader.
6. Partial Cost Recovery: If an organization has multiple revenue

streams, it may not be too focused on recovering a hundred percent of
its costs.
PRICING OBJECTIVES
7. Survival: Sometimes, the best a company may want to do is to cover

costs and to remain in the market. If the market is in decline or there are
too many competitors, survival may take temporary priority over profit.
8. Status Quo: There may be a need to avoid price wars with

competitors. So a company may maintain a stable price to continue a
stable profit level.
TYPES OF PRICING STRATEGIES
PRICING STRATEGIES
Penetration Pricing
A low price is set by the company to build up sales and market share. This
may be done to establish position in a market with preexisting similar
products on offer. Once a position is created, the prices may be raised.
❖ A satellite channel provider may offer an introductory price and then

increase as business grows.
PRICING STRATEGIES
Skimming Pricing
Here, the initial price is set high and may slowly be brought down. This will
allow the company to introduce the product step by step to different layers of
the market.
❖ Electronic and tech gadgets often start at a very high price which is
subsequently lowered with the lowest point reached right before a new
model is launched.
PRICING STRATEGIES
Competition Pricing
When trying to go head to head with competitors offering similar benefits, a

company may decide to:
a. price higher to create a higher quality perception or to target a niche
market
b. price the same to show more benefits for the same price
c. price lower to try to gain a wider customer base
PRICING STRATEGIES
Product Line Pricing
Here, different products in the same range may be set at different prices.
❖ Television sets are priced differently depending on whether they are HD

or not, whether they have wifi features of not and whether they are 3D or
not.
PRICING STRATEGIES
Bundle Pricing
A group of products may be bundled together and sold at a

reduced price.
❖ Supermarkets often use this method through their ‘buy one get
one free’ offers.
PRICING STRATEGIES
Psychological Pricing
Often a company will make small changes to prices to make a

customer think the item is priced lower than it is. This is often seen in
prices ending in 99.
❖ For example, an item priced at 199 will be perceived as closer in

price to 100 than 200.
PRICING STRATEGIES
Premium Pricing
A high price is set to establish an exclusive product of high quality.
❖ Designer cars and premium brand stores are a good example of

this type of pricing.
PRICING STRATEGIES
Optional Pricing
A company may add optional extra items within the price to increase a
product’s attractiveness.
❖ Car sellers may offer car insurance for the first year for example.
PRICING STRATEGIES
Cost Based Pricing
Simply, a company may determine the exact cost of producing and selling an
objective, add a markup that may be desirable for profits and price
accordingly.
❖ This method may be used in a changing industry where even costs of

production are unpredictable.
PRICING STRATEGIES
Cost Plus Pricing
A percentage is added to the costs as a profit margin to determine final price.

Basic Pricing Process
1. Develop Marketing Strategy
A detailed market analysis acts as a logical starting point for pricing
decisions. A business follows up a market analysis with a division and
definition of the market into segments each with its distinct requirements
and needs. After this, a decision needs to be made regarding the desired
segments to be targeted. The product and brand positioning is then based
on these identified segments.
2. Make Marketing Mix Decisions
Once the segments and positioning is somewhat in place, the marketing

mix planning comes into effect. Here the product, distribution, and
promotional elements are decisions to focus upon and to finalize.
3. Estimate Demand Curve
Another market analysis needs to be conducted at this point. In

this one, there needs to be specific information gathered about
how the price affects the quantity of the product demanded.
4. Calculate Costs
A company can now get an accurate assessment of the total fixed

and variable costs associated with the product. These are a
necessary inputs for pricing decisions as the final price needs to at
least cover these costs.
5. Assess Environment
Another vital element that feeds into pricing is the environment.

This means an understanding of the competitor’s strategies, their
product and its value as well as an understanding of any industry
or legal constraints.
6. Set Pricing Objectives
As detailed above, there are several objectives that a company

can have from its pricing strategy. This is the point in the process
that those objectives need to be discussed and agreed upon.
7. Determine Price
Using all the information collected and analyzed till this point, a
company is now in a good position to set the best price for its
products. A pricing method and structure can be formulated along
with any possible sales promotions or discounts.
FACTORS THAT AFFECT PRICE
▪ Internal Factors
⮚ These are those elements that are under the control of the organization.
❖ Fixed and variable Costs

❖ Company objectives and strategies
❖ Market segments, targeting and positioning decisions
FACTORS THAT AFFECT PRICE
▪ External Factors
⮚ Those factors which have a significant impact on pricing decisions

but are not completely controllable by the company are known as
external factors.
❖ Competitors
❖ Target market behavior and willingness to pay
❖ Industry trends
❖ Industry or legal Constraints
Marketing Debate
III. Creating and Managing the Marketing Mix

Marketing Debate: Take a Position!
✔ Is the right price a fair price?
1. Prices should reflect the value that

consumers are willing to pay.
or
2. Prices should primarily just reflect the cost
involved in making a product.
Marketing Discussion
✔ Think of all the pricing strategies you have learned.
✔ As a consumer, which pricing strategy

do you personally prefer to deal with?
✔ Why?

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III.

Creating and Managing

In the Individual Firm

In the Consumer’s Mind

❖ Through pricing, the organization manages

1. Profit Maximization: Keeping in mind revenue and costs, a company

2. Revenue Maximization: With less focus on profits, a company may

3. Maximize Quantity: A company may want to sell a specific number of

4. Maximize Profit Margin: Another objective may be to increase the

5. Quality Leader: A company may want to use price to signal high

6. Partial Cost Recovery: If an organization has multiple revenue

7. Survival: Sometimes, the best a company may want to do is to cover

8. Status Quo: There may be a need to avoid price wars with

❖ A satellite channel provider may offer an introductory price and then

When trying to go head to head with competitors offering similar benefits, a

❖ Television sets are priced differently depending on whether they are HD

A group of products may be bundled together and sold at a

Often a company will make small changes to prices to make a

❖ For example, an item priced at 199 will be perceived as closer in

A high price is set to establish an exclusive product of high quality.

❖ Designer cars and premium brand stores are a good example of

❖ This method may be used in a changing industry where even costs of

A percentage is added to the costs as a profit margin to determine final price.

Once the segments and positioning is somewhat in place, the marketing

Another market analysis needs to be conducted at this point. In

A company can now get an accurate assessment of the total fixed

Another vital element that feeds into pricing is the environment.

As detailed above, there are several objectives that a company

❖ Fixed and variable Costs

⮚ Those factors which have a significant impact on pricing decisions

III. Creating and Managing the Marketing Mix

✔ Is the right price a fair price?

1. Prices should reflect the value that

✔ As a consumer, which pricing strategy

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