How should a company set prices initially for products or services
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The document outlines key objectives for developing pricing strategies, including maximizing profit, market share, and ensuring product quality. It discusses factors influencing pricing such as demand sensitivity, cost structures, and competitive features, as well as various pricing methods like markup and perceived value pricing. Additionally, it emphasizes the importance of considering marketing activities and external factors when setting final prices.
How should a company set prices initially for products or services
- 1. DEVELOPING PRICING STRATEGY AND PROGRAMS Part 2
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- 5. 5MAJOR OBJECTIVES ARE Survival Max. Profit Max. Market Share Max. Market Skimming Product Quality Leadership
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- 7. PRICE Demand
- 8. Price Sensitivity Price elasticity of demand Estimation Demand curve
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- 10. Demand sets a ceiling on the price the company can charge for its product where costs set the floor Companies charge a price that will at least cover all production costs
- 11. Type of costs and level of production Variable cost Fixed cost Total cost Average cost Rent, Bills Electricity, Salaries Based on units Produced Sum of all costs Cost per unit of production
- 12. Accumulation Product Target Costing Higher the production lower the per unit cost Costs change with production Scale and experience, Bring down costs so that cost remain in target range
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- 14. If the firm’s offer contains features not offered by the nearest competitor, firm should evaluate their worth to the customer and add that to competitor’s price If the competitor’s offer contains some features not offered by the firm, the firm should subtract their value from its own price
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- 16. Markup Pricing Target Return Pricing the firm determines the price that yield its target rate of return on investment Add a standard markup to the product’s cost for profit
- 17. Perceived Value Pricing Value Pricing on customer’s perceived value i.e. product performance, Warranty quality, customer support, trust and esteem Charging a fairly low price for a high quality product by inventing and reengineering low cost products without affecting quality
- 18. Going Rate Pricing Auction type pricing Specially on online servicers
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- 20. Impact of other marketing activities Company pricing policies Gain and risk sharing pricing Impact of price on other parties In selecting Final Price company must consider additional factors
- 22. Created by Khemendra Raj Pingoliya, IIT Kanpur during an internship by Prof. Sameer Mathur, IIM Lucknow. www.IIMInternship.com