MODULE 3

PRICE MIX
 Pricing
refers to the process of determining the amount of money that a
customer must pay to purchase a product or service.

According to W.J. Stanon,” Pricing is the function of determining the

products value in monetary terms
Objectives of Pricing
[Link] Centered Objectives

[Link] centered Objectives

[Link] share

[Link] Survival

[Link] Oriented Objectives

[Link]
 Role of Pricing
[Link] of Profit

[Link] Weapon

[Link] Control

[Link] of sales Volume

[Link] share

[Link] Positioning

[Link] status
actors Effecting Pricing Decision
Organizational objectives
• Pricing Objectives

Cost of Production
• Government Rules and Regulations

Nature of th Product
• Size of the Market

Price of the competitors

• Product Life cycle

Distribution channel
Process of Pricing
UNDERSTANDING THE ORGANISATIONAL
OBJECTIVES
SELECTING THE PRICING OBJECTIVE

DETERMING DEMAND

ESTIMATION OF COSTS

ANALYSING THE COMPETITOR’S PRICE

CHOOSING OF A SUITABLE PRICING METHOD

SETTING THE FINAL PRICE

EVALUATION OF THE PRICE

Types of Pricing Methods
1. Cost oriented
Pricing Policy
pricing strategy where the price of a product

or service is determined primarily by its

production cost, with an added margin for

profit. This approach ensures that the

company covers all its costs while achieving

a desired profit margin.

 Types Cost oriented
Pricing
1. Cost Plus Pricing

The business calculates the total cost of

producing the product (which includes both
fixed and variable costs) and then adds a
fixed percentage as profit, called the
markup.
2. Target Pricing

The selling price of the product is calculated

to produce a particular rate of return.
 Types Cost oriented
Pricing
3. Break even Pricing

company sets the price of a product or

service to cover its costs without making a
profit. This price is calculated to ensure that
the total revenue from sales equals the total
costs
4. Marginal Cost Pricing

product or service is set equal to the

marginal cost of producing one more unit of
output. The marginal cost is the additional
cost incurred by producing one extra unit of
a product
2. Value based Pricing
Policy
pricing strategy where a product or service is priced based on the
perceived value it offers to the customer, rather than simply on the cost of
production or competitor prices. This approach focuses on what the
customer is willing to pay for the value they believe they are receiving from
the product, which could be a combination of tangible and intangible
benefits.
Cost Based Pricing V/s Value Based
Cost based Pricing
Value Based

Cost factors Value factors

Focuses on companys Focuses on customer

situation

Lower Prices Higher prices

Non Branded Products Branded Products

Easier Complex
 3. Demand Oriented Pricing
Policy
pricing strategy where the price of a product or service is determined
primarily by the level of demand for that product or service in the
market.
Eg: Pricing of Airline Tickets
4. Competition Oriented Pricing
Policy
pricing strategy where a business sets its prices primarily based on the
prices charged by its competitors. This approach involves analyzing the
pricing structures of rival companies in the same market and adjusting
prices accordingly to remain competitive.
Types of Competition Oriented
Pricing
one firm, usually the dominant or largest
Price Leadership company in the industry, sets the price for a
product or service, and other competitors
follow suit

Follow the Crowd The company sets its prices at the same level
as its competitors.

Quotations are invited from suppliers and a

Sealed- Bid Pricing
quotation with lowest price will be accepted.

This is an illegal strategy where a company

Predatory Pricing sets very low prices to drive competitors out
of the market, with the intention of raising
prices once competition is eliminated
 Pricing Strategies

1. New Product pricing strategies

company initially sets a high price for a new
Price skimming
product or service, and then gradually lowers the
price over time. Eg: iPhones

company introduces a product or service at a low

Penetration Pricing
price to quickly attract customers and gain
market share.
Once the product has established a strong
customer base or market position, the company
may gradually raise prices.
Eg: Jio
 Pricing Strategies

2. Product Line pricing strategies

company sets a low price for the main product
but charges higher prices for the complementary
Captive pricing
or "captive" products that are necessary for the
main product to function
Eg: Printer and Ink catridge

company advertises a product at a very low price

Bait Pricing to attract customers, but when they come to
purchase it, the product is either unavailable, or
the salespeople try to upsell them to a more
expensive product.
Eg: Furniture
 Pricing Strategies
3. Psychological pricing strategies

psychological pricing strategy where prices are

Charm pricing set just below a round number to make them
seem cheaper to consumers Eg: 299

pricing strategy where prices are set at odd

Odd Pricing numbers, often just below a round number, Eg:
149 instead of 150

price based on the perceived value and image of

Image Pricing the brand rather than on the actual cost of
production or market competition Eg: Gucci or
Rolex
 Pricing Strategies
3. Psychological pricing strategies
promotional pricing strategy where customers
Buy one Get One receive an additional product for free when they
Free purchase one at the regular price.

prices based on the prices of similar products

Comparative Pricing offered by competitors
 Pricing Strategies
4. Promotional pricing strategies
company sets the price of a product significantly
Loss leader pricing lower than its usual price or below cost to attract
customers.

setting specific prices for products or services

Special event Pricing during particular events or occasions, such as
holidays, seasonal sales, or promotional events
Eg: Aadi sale
 Pricing Strategies
5. Differential pricing strategies
company sets different prices for the same
Geographical Pricing product or service based on the geographical
location of the buyer Eg: Sea food

final price of a product or service is determined

Negotiated Pricing through discussions and agreements between
the buyer and the seller
 Pricing Strategies
6. Price Adjustment strategies
reducing the original selling price of a product or
Discount and service through various forms of discounts and
Allowance Pricing allowances. 20% discount

prices are adjusted in real-time based on various

Dynamic Pricing factors such as demand, supply, competitor
pricing, customer behavior, and market
conditions.
Eg: Uber Rides
 Pricing Strategies
7. Some Other Pricing strategies
company sets its prices significantly higher than its
Premium pricing competitors to create a perception of high quality,
exclusivity, or luxury
company sets its prices low to attract price-sensitive
Economy Pricing customers, typically by minimizing marketing and production
costs.
Eg: Grocery
Administered Pricing Price is fixed by a legal statute or by a regulatory body
formed by the Government Eg: Electricity

multiple products or services are sold together

Bundle Pricing at a combined price that is lower than the total
price of purchasing each item individually Eg:
Combos
 Pricing Strategies
7. Some Other Pricing strategies
company sets the price of a product or service based on the
Reference pricing prices of similar products or services in the market or a
predetermined reference point
company sets different prices for the same product or
Segmented Pricing service based on specific customer segments Eg: Airlines
Pricing Methods V/s Pricing Strategies

Pricing methods Pricing strategies

Ways to calculate the price Approaches to price a product

Find the actual cost of the Achieve goals like profit

product

Emphasis on cost and demand Performance of competitors

short-term Long-term

More technical More strategic

 Resale Price Maintenance (RPM)
pricing policy where manufacturers or suppliers set a fixed or minimum price
below which retailers or distributors are not allowed to sell the product. This
practice is designed to control the price at which goods are sold to consumers
across various retail channels. RPM is often seen in industries where brand value,
product quality, and customer experience are highly prioritized.

Objectives
1. Fair pricing of the product
2. Price stability
3. Avoid unfair trading
4. Exercise control
 Types of Resale Price Maintenance

Collective Resale Price The Producers of different brands of a same product

Maintenance arrive at an agreement regarding its resale. Eg:
Pharmaceutical Industry

Individual Resale Price refers to a situation where a single

Maintenance manufacturer or supplier sets a specific
minimum or fixed price at which retailers
must sell their products Eg: Luxury Goods