PRICING STRATEGIESPRICING STRATEGIES(Philip Kotler)(Philip Kotler)

By:Shailja Pathak

PRICE DISCOUNTS AND PRICE DISCOUNTS AND ALLOWANCESALLOWANCES

Many companies give price discounts and adjust list prices in order to encourage early payments , volume purchases and off season purchasing. E.g. 2/10, net 30

Various Discounts are  1. PRICE DISCOUNTS2. QUANTITY DISCOUNTS3. FUNCTIONAL DISCOUNTS4. SEASONAL DISCOUNTS5. ALLOWANCES 

Some product categories tend to self destruct themselves by always being on sale . Quick discounts often given by the salesperson to close a sale . This gives not a very favourable image of the company. Customers think that the company's list price is SOFT, and discounting becomes the norm.

  THE DISCOUNT UNDERMINE THE VALUE

PERCEPTION OF THE OFFERINGS.

PROMOTIONALPROMOTIONAL PRICINGPRICING  Companies use several pricing

techniques to stimulate early purchase. Promotional pricing strategies are often ZERO-SUM GAME. If they work competitors copy them and they lose their effectiveness. If they do not work then they waste money that could have been put into other marketing tools.

 

TYPES OF PROMOTIONAL TYPES OF PROMOTIONAL PRICINGPRICING

1. Loss-leader pricing e.g. rice2. Special event pricing e.g. Back to

school sales3. Cash rebates e.g. By Auto

manufacturers4. Low-interest financing e.g. Air

conditioners5. Longer payment terms e.g.

Mortgage banks6. Warranties and service contracts

e.g. Personal computers7. Psychological discounting e.g.

“Was rs. 359, now rs. 299”. 

DIFFERENTIATED PRICINGDIFFERENTIATED PRICING

  Companies often adjust their

price to accommodate differences in customers, products, locations and so on. 

PRICE DISCRIMINATION: it occurs when a company sells a product or service at two or more prices that do not reflect a proportional difference in costs.

DEGREES OF PRICE DISCRIMINATIONDEGREES OF PRICE DISCRIMINATION

  1st Degree: intensity of the

DEMAND 2nd Degree: as per the VOLUME 3rd Degree: as per the CLASS of

the buyer. 

TYPES OF 3TYPES OF 3rdrd DEGREE PRICE DEGREE PRICE DISCRIMINATION:-DISCRIMINATION:-  Customer-segment pricing Product-form pricing Image pricing Channel pricing Location pricing Time pricing  **Airlines and Hospitality industries use yield management systems

and yield pricing is by which they offer discounts.

The phenomenon of offering different prices to different customers and adjusting prices is EXPLODING.

Constant price variation may prove tricky where consumer relation ship are concerned.

MARKETING MEMOMARKETING MEMO Pricing for rural markets. A large proportion of rural

consumers have a low and seasonal income.

KHATA SYSTEM “Break the bulk” e.g. tea, edible

oil, wheat flour “Low-unit pricing”: small pack of

products e.g. Shampoos, soaps, “Chota-

Coke”

POSSIBLE TRAPS OF PRICE POSSIBLE TRAPS OF PRICE CUT STRATEGYCUT STRATEGY

Low quality trap Fragile-market-share trap Shallow pockets trap Price-war trap

REASONS OF INITIATION REASONS OF INITIATION PRICE INCREASESPRICE INCREASES

Cost Inflation: prices are increased due to inflation in costs but proportionality of price to cost increase is higher.

Anticipatory Pricing: price hike is due to

Expected government pricing controls. Over demand: increase of demand

of product or service may encourage the

firm to increase the prices.

INITIATING PRICE INITIATING PRICE INCREASESINCREASES

Delayed Quotation Pricing: in the long run, a company does not set the final price until the goods are being delivered.

Escalator Clauses: the present prices and the price increase before delivery are charged in total.

Unbundling: basic price are charged as well as the price of additional services and earlier promotional offers are being charged.

Reduction of discounts: earlier promotional strategies such as discounts or sales offers.

ALTERNATIVE APPROACHES OF THE PRICE INCREASEALTERNATIVE APPROACHES OF THE PRICE INCREASE

Product amount shrinkage Substituting the expensive inputs by

low ones. Reducing or removing a certain

product or service features. Using less expensive packaging. Reducing the number of sizes and

models of product. Creating new economy brands.

Responding to Competitors’ Price ChangesResponding to Competitors’ Price Changes

The firm facing a competitor's price change must try to understand the competitor's intent and the likely duration of the change.

Strategy often depends on whether a firm is producing homogeneous or non-homogeneous products.

Market leaders frequently face aggressive price-cutting by smaller firms trying to build market share.

Responding to Competitors’ Price ChangesResponding to Competitors’ Price Changes

The firm facing a competitor's price change must try to understand the competitor's intent and the likely duration of the change.

Strategy often depends on whether a firm is producing homogeneous or non-homogeneous products.

Market leaders frequently face aggressive price-cutting by smaller firms trying to build market share.

Marketing MemoThree Conditions For Determining the success of

differentiation

1. Companies must not use differentiation tactics in isolation

2. Companies must be able to persuade consumers to pay for added benefits

3. Companies must bring costs and benefits in line.

SOME FEATURES ARE

1.Design cool products2.Continually innovate3.Offer unique product mix4.Brand a community5.Sell experiences

LEGAL ASPECTS AND LEGAL ASPECTS AND ETHICS OF PRICINGETHICS OF PRICING

Controlling market in terms of product quality or advertising, by engaging in pricing practices that can unfairly reduce competition or harm consumers directly, through fraud and deception.

© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Legal Aspects and Ethics of Pricing

Pricefixing

Pricefixing

Pricediscrimination

Pricediscrimination

Predatorypricing

Predatorypricing

Deceptive orillegal priceadvertising

Deceptive orillegal priceadvertising

Legal Aspectsand Ethics

of Pricing

Legal Aspectsand Ethics

of Pricing

DECEPTIVE OR ILLEGAL DECEPTIVE OR ILLEGAL PRICE ADVERTISINGPRICE ADVERTISING

Puffery: e.g. Best deals in town Deceptive Advertising: e.g.The

lowest prices, guaranteed Deceptive Reference Prices: INFORMATIVE ADVERTISING DECEPTIVE ADVERTISING REGULAR PRICE: The price at

which at least 50% of the sales have occurred.

DECEPTIVE OR ILLEGAL DECEPTIVE OR ILLEGAL PRICE ADVERTISINGPRICE ADVERTISING

LEADER PRICING: A legitimate attempt to build store traffic by pricing a regularly purchased item aggresively but still above the store’s cost.

BAIT AND SWITCH

PREDATORY PRICINGPREDATORY PRICING Firm sets a very low price for one

or more of its products to drive its competition out of business.

SHERMAN AND THE FEDERAL TRADE COMMISSION ACT (predatory pricing is illegal)

Oligopoly

Predation is difficult to prove because of two reasons.

PRICE DISCRIMINATIONPRICE DISCRIMINATION Firms sell same product to

different resellers( wholesellers, distributors, retailers)at different prices.

CLAYTON ACT AND THE ROBINSON-PATMAN ACT ( Forms of price discrimination).

Quantity Discounts. Ethical Dilemma.

PRICE FIXINGPRICE FIXING

Horizontal Price Fixing

Vertical Price Fixing

Example :- Universal Music,Sony Music,Warner Music, BMG Music, and EMI

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