Pricing Siddhant Gupta

08/04/2023Indian Institute of Management Raipur

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Pricing

Adarsh Chowdhury (12PGP058)Anurag Rai (12PGP064)Nikhil Garge (12PGP070)Siddhant Gupta (12PGP096)Shubham Singh (12FPM004)


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What is a PRICE ?

Price is defined as the monetary value of a product.

It can also be defined as everything that a customer has to give up in order to acquire a product or service.


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Role of Pricing

Role of Pricing

Marketing Strategy

Demand Regulator

Revenue Generator

Positioning of Product

Input to Decision Making

Competitive Weapon


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Marketing Strategy• Skimming Pricing

• Setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price.

• Appropriate for a distinctly new product, provides the firm with an opportunity to profitably reach market segment that are not sensitive to the high initial price


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Apple has priced Mac Laptops, iPhone iPod all at a high premium


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Sony launched HDTV Bravia at a high premium


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Penetration Pricing

•Setting a low price for a new product in order to attract a large number of buyers and a large market share.

•Appropriate when there is high price elasticity of demand, strong threat of imminent competition, and opportunity for a substantial reduction in production costs as volume expands


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Karbon, Micromax, Intex, iball etc. are certain examples where companies resort to penetrative pricing


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Maybelline’s use of Penetrative Pricing


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Role of Pricing

Role of Pricing

Marketing Strategy

Demand Regulator

Revenue Generator



Competitive tool


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Demand Regulator


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PVR & Cinemax changing prices to control demand


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Role of Pricing

Role of Pricing

Marketing Strategy

Demand Regulator

Revenue Generator



Competitive Tool


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Revenue Generator


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Royal Stag & IKEA’s pricing act as revenue generator


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Role of Pricing

Role of Pricing

Marketing Strategy

Demand Regulator

Revenue Generator



Competitive Tool


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Pricing as a Positioning tool

•Firms use pricing as a tool to position their products & services in the different market segments.


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Positioning of a Product


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Pricing as low end positioning


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Competitive Tool

Role of Pricing

Marketing Strategy

Demand Regulator

Revenue Generator



Competitive Tool


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Factors that affect Pricing


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Common objectives of the company are

1. Survival in the market

2. Profit maximization

3. Market share leadership

4. Product quality leadership.

Marketing Objectives

Cost

Marketing Mix Strategy

The Market Demand

Competition

Other External Factors

Internal Factors

External Factors


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Survival in marketDue to intense competitionSetting low price


Cost


The Market Demand

Competition


Internal Factors

External Factors

Tata DOCOMO- Per Second Billing on STD and Roaming - YouTube.flv


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Profit maximization

Prefer financial results to long run performance.


Cost


The Market Demand

Competition


Internal Factors

External Factors


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Market Share Leadership

Conditions are• Highly price sensitive market• Low price affect potential buyers• Economics of scale


Cost


The Market Demand

Competition


Internal Factors

External Factors

Market share 17.3%

Market Share 16.9%

TV COMMERCIAL - YouTube.MP4


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Product Quality Leadership

The company set high prices and provide high quality products in the market.


Cost


The Market Demand

Competition


Internal Factors

External Factors

Boman Israni in Ambuja cement - Hindi Commercial Ad - on www.modelspoint.com - israni - YouTube.FLV


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Cost

Cost is related closely with price because to select the price it will include cost of distribution, production and all the other costs on product.


Cost


The Market Demand

Competition


Internal Factors

External Factors


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Cost


The Market Demand

Competition


Internal Factors

External Factors

Rising prices of petrol due to rising costs of imports


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In India McDonalds classifies its products into 2 categories namely the branded affordability (BA) and branded core value products (BCV). The BCV products mainly include the McVeggie and McChicken burgers that cost Rs 50-60 and the BA products include McAloo tikki and Chicken McGrill burgers which cost Rs20-3 This has been done to satisfy consumers which different price perceptions.


Cost


The Market Demand

Competition


Internal Factors

External Factors


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To set the price the marketers should take into consideration the market demand


Cost


The Market Demand

Competition


Internal Factors

External Factors

Hafte Ka Sabse Sasta Din”


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Cost


The Market Demand

Competition


Internal Factors

External Factors


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Government policies.

Inflation/deflation and interest rate affect selling price because they affect cost of production and consumer perceptions related product price


Cost


The Market Demand

Competition


Internal Factors

External Factors


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Price Sensitivity


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Price Sensitivity

•The degree to which price affects consumer purchasing behaviour

•Input to Marketers

•Popularly measured using “Price Sensitivity Meter” developed by P V Westerdorp▫Capture the extent to which a product has

an inherent value denoted by price


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Types of Price Sensitivity

•Reference Price Effect•Difficult Comparison Effect•Switching Costs Effect•Price-Quality Effect•Expenditure Effect•End-Benefit Effect•Shared-cost Effect•Fairness Effect•The Framing Effect


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Types of Pricing Sensitivity

•Reference Price Effect The higher the product’s price to perceived alternatives the greater is the price sensitivity

• Buyer segment, occasions, and many other factors impact sensitivity


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•Difficult Comparison Effect Sensitivity of buyers with respect to price gets reduced if the product price is difficult to compare with other products or if the product is by a reputed manufacturer


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•Switching Costs Effect Some products involve switching costs while opting for substitutes, buyers are in this case willing to abide by manufacturers price instead of switching


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•Price-Quality Effect Price sensitivity of buyers is lower if high price means high quality

•This effect is especially applicable for following type of products: image products, exclusive products, and products with minimal cues for quality.


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•Expenditure Effect As the ratio of the price of the product to the buyer’s income increases, price sensitivity increases


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•End-Benefit Effect This effect is divided into two sub-parts. It primarily deals with the overall benefit of the product to user:

•A. Derived demand: Price sensitivity towards spare parts & components is higher if the price sensitivity towards end product is high


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•B. Price proportion cost: The price proportion cost refers to the ratio of the cost of the component to the price of the end product (e.g., think CPU and PCs). Buyers are less sensitive to a components cost if it is a small part of the overall product price


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•Shared-cost Effect Buyer will be less cost sensitive if the price of the product is shared amongst a group and an individual has to pay less


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•Fairness Effect Price sensitivity of the buyer increases if the product price is perceived to be greater than the “reasonable” price range for the specific product


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•The Framing Effect Bundled products have less price sensitivity and also if a product gets priced as a loss to customer, it will lead to buyer sensitivity as opposed to customer viewing a product having “opportunity” cost


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PRICING STRATEGY

Penetration Pricing

Geographical Pricing

Predatory Pricing

Psychological Pricing

Perceived Value PricingPremium Pricing

Competitive Pricing

Product Form Pricing

Promotional Pricing


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PRICING STRATEGY

Penetration Pricing


Predatory Pricing



Competitive Pricing


Promotional Pricing


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Penetration pricing

• Pricing technique of setting a relatively low initial entry price, often lower than the eventual market price, to attract new customers.

• The strategy works on the expectation that customers will switch to the new brand because of the lower price.

• Penetration pricing is most commonly associated with a marketing objective of increasing market share or sales volume, rather than to make profit in the short term.


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TATA Sky

TATA Sky (A joint venture of TATA And Sky TV) gained market leadership having the first mover advantage. Soon they had mighty rivals like DISH TV, AIRTEL DIGITAL TV etc. So have an edge, they launched various price cuts giving benefits like:

Budget packsRegional packs


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Add on and A La Carte PacksTwice an year subscription holiday

Tata Sky - Poochne Mein Kya Jaata Hai - Bank TVC - YouTube.FLV


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•Ghadi Detergent: Ghadi Detergent (Rohit Surfactants) did to Nirma (Karsan Bhai Patel group) what Nirma had done to wheel.


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Ghadi did extensive soil testing and improved on its ability to work in hard water in UP region. They targeted the mass and soon became famous. In turn Everyone else in the market had to lower down prices to counter attack.

TV COMMERCIAL - YouTube.MP4


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Chik Shampoo: Chik Shampoo ( Cavin Kare) used penetration pricing by changing the whole game altogether by launching a completely new SKU ( sachets) into the Indian market.


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Sachets were present before Chik came to market but they were not present for all FMCG product. With Chik’s sachets. Cavin Kare group targeted the lower level of the pyramid successfully. In response to the attack, the global giants like Unilever, Garnier, P&G etc. had to come out with sachets which they were used to give free of cost as samples in rest of the world.

Chik Shampoo India - YouTube.MP4


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•Parle G: Parle used price penetration owing to their strong distribution network. They had a very wide reach and they used this advantage to the fullest.


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They prices their products competitively and when they faced pressure from their competitors, a new SKU (Parle g in 2 rupees packet) was launched and that prevented Tiger ( glucose biscuit brand from Britannia) from getting hold of the market. Tiger was then gradually rolled back from a major part of the market.

Parle G TV Commercial - Rainy Day - YouTube.MP4


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LG Television: LG entered the market when the Indian market was dominated by local players like Videocon, Onida and BPL. For multinationals, only SONY had left a mark. LG used the mass production method and thus reduced the price more and more and in turn attracted more and more buyers.


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LGGoldenEye School (Tagore Berry).mpg - YouTube.MP4


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China Mobile Phones in India


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China Mobile Phones in India

• Penetration Pricing

• Intention to maximize the market share

• Higher sales volume leads to lower unit costs &

higher long-run profit

• Problem: Consumers have a low quality perception.

• However, well suited to certain group of people.


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PRICING STRATEGY

Penetration Pricing


Predatory Pricing



Competitive Pricing


Promotional Pricing


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Text Books (Special Indian/ South Asian

Edition) Geographical Pricing


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•Pricing Strategy to gain market share by volume & not by value.


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PRICING STRATEGY

Penetration Pricing


Predatory Pricing



Competitive Pricing


Promotional Pricing


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Predatory Pricing

• Predatory pricing is the practice of selling a product or service at a very low price, intending to drive competitors out of the market, or create barriers to entry for potential new competitors.

• The predatory merchant then has fewer competitors or is even a de facto monopoly, and purportedly could then raise prices above what the market would otherwise bear


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Walmart: The third largest public corporation by revenue, this firm has literally conquered the retail market because of its predatory pricing. They sell in bulk and give huge discounts to customers and thus could capture the market well. They own huge stores and they are well known to take feedback to understand market sentiments from petty truck drivers and other petty staff members. Walmart's Low Price Guarantee - YouTube.MP4


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Big Bazar

Big Bazaar latest ad - Brands India - YouTube.flv


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Best Price: Best Price is a Bharti & Walmart joint venture in India. They have opened a chain of stores on the lines of the large Walmart stores across the globe. As FDI in retail had limitations, they opened it for shopkeepers and institutional sales, but the relaxed norms let them reach a wider audience. They have priced everything very low and they are using Wal-Mart's forte here in India as well.


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Reliance’s Rs. 500/- Mobile


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Predatory Pricing – Reliance Mobile

•Both handsets along with connections

were available for Rs. 500/-.

• Intention to wipe out the competition.


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PRICING STRATEGY

Penetration Pricing


Predatory Pricing



Competitive Pricing


Promotional Pricing


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•Based on the theory that certain prices have a psychological impact.

•“According to a 1997 study published in the Marketing Bulletin,

•60% of prices ended in the digit 9.•30% ended in the digit 5.•7% ended in the digit 0. •remaining seven digits combined

accounted for only slightly over 3% of prices.”


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MOTOYUVA - W156


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•MOTOYUVA - W156 prices at Rs. 1,099/-Samsung Guru- Rs. 2,999/-

•Psychological Pricing

•This is done to make the customer believe that product is priced cheaply or some cases just break the price barrier that customer has in his mind.


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Psychological Pricing - Playstation


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Psychological Pricing - Playstation• In 2006 Sony released the Playstation 3 (PS3). The price

for the 60gb model was an astronomical $699 and the

20gb model was $499.

• Price was very high for a gaming console and the

alternatives (Xbox 360 and Nintendo Wii) were much

cheaper.

• Consequently, the company issued price cuts when it

introduced two models, the 80gb and 40gb, and phasing

out the 60gb and 20gb.


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PRICING STRATEGY

Penetration Pricing


Predatory Pricing



Competitive Pricing


Promotional Pricing


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Perceived Value Pricing• PVP is an open line pricing technique where

respondents estimate the price of a new product compared to those who are already in the market.

• This method can be used with concepts or real products. The technique is used with face to face interviews. It is a preferred approach if the client has little idea about the price level of the new product.


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It can used in the following cases:• For new products you can identify price

expectations• Identify the willingness to pay• Make rough assessments of price elasticity• For line extensions you can• Assess expected relativities within the product

range• For re-launches you can• See if price perceptions in relation to

competitors change as new features or additional information is added to product description

• For existing products you can• Explore perceived differences in relative values


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Vertu: Vertu is an expensive mobile phone brand owned by Nokia. The phones in the Vertu series are not very high tech but still they come at a huge price. The Vertu with very basic features comes with precious stones and metals and comes a t a starting price of approx Rs. 200000/-. This product works solely on customer perception as this brand commands commendable premium as far as brand value is concerned.


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Vertu Signature S - YouTube.MP4


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Sony LCD & LED TV’s: Sony earned huge revenues by using skimming pricing technique for their LCD and LED display panels. They were prices at INR 21 Lakhs almost a decade ago and now they are priced at 43 Lakhs for a similarly sized better featured model. Sony has a premium brand reputation in consumer electronics model and they encashed on it. When they started facing the heat of the competition, they came up with ‘Monolithic Design Bravia’ and tried to retain their market share.


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Designer Branded Clothes : The price of designer clothes runs into thousands on Euros and the brands like D&G , Versace, Armani etc. are able to sell clothes at such high prices because these clothes are perceived as fashion accessories rather than basic clothes.

As the are held very high in public perception so they come at a premium pricing. The denims for Armani, for example start at whooping 15000 INR.

Megan Fox in -The Tip- Armani [Full Version HD] - YouTube.MP4


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Omega: Premium Swiss watches sell at a huge price premium. Omega is one amongst them. It’s a brand of the swatch group company. These watches are often made up of precious metals and stones. Also, Swatch has the credit of having the thinnest chrono to its name. But the biggest factor for the huge price tags that these watches carry is the positive mass appeal and perception.


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Rolls Royce: This is another Example of a brand that works on perceived value pricing. Rolls Rocye sells its cars only to the elitist class and is available for sale on the sole discretion of the company. As this is found only with the elites, this brand comes at a huge price. The prices of Rolls Royce Phantom and Ghost run into crores of INR and they do not have any real competitor due to the perceived brand image which is enjoyed by just them.


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Apple Products: The “i” products also rank very high on perceived pricing strategy. This is evident from the fact that Apple makes all the launches a huge event and public flock in in large numbers to get the products on priority basis. No doubt, that the products are very sophisticated and technically sound, but Apple has still carved out a market for itself which is happy paying a huge price premium for their products.


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The perceived pricing strategy works here because Apple priced its latest iphone at a 25% price premium than the nearest competitor from Samsung (Galaxy S3)


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IPhone

• The Iphone from Apple is offered in price

range of Rs. 31,000/- to Rs. 42,500/-.

• Comparable NSeries Nokia & Sony Mobile

Phones are offered in the price range of Rs.

28,000/--31,000/-.

• Pricing is done based on the customer’s

perception about the company and its

product.


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PRICING STRATEGY

Penetration Pricing


Predatory Pricing



Competitive Pricing


Promotional Pricing


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Value Pricing

•The setting of a product or service's price, based on the benefits it provides to consumers. By contrast, cost-plus pricing is based on the amount of money it takes to produce the product. Companies that offer unique or highly valuable features or services are better positioned to take advantage of value-based pricing, than companies whose products are services are relatively indistinguishable from those of their competitors.


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Nike Studio Wrap – Premium Pricing


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Nike Studio Wrap – Premium Pricing

•A footwear product targeted at women who favor studio workouts like yoga and pilates

•Priced at $110 a pair.•Priced with a strategy to target up-market

people doing workouts like yoga and gain profit by value.


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Dove – High price to indicate premium quality


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Dove – High price to indicate premium quality

•Company aims to be product quality leader in the market.

•Priced higher than its competitors.


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Tata Aria – Premium pricing(failure )


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Tata Aria – Premium pricing(failure)

•Tata Aria was launched with an expensive price tag of Rs 12 -15.5 Lakh

•Priced with an expectation to create a new market and a new image for TATA Motors.

•It did not perform as expected•Company is planning to launch a Mini-

Aria with a reduced price to take advantage of the mini-SUV / MPV market.


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TAG Heuer


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TAG Heur – Premium pricing

Swiss watchmaker TAG Heuer raised average price of its watches from $250 to $1000

&

Sales volume increased sevenfold!

Basis of Pricing:-

•Price affects perception of quality

•Price affects consumer perceptions of prestige


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Premium Pricing – Chevy Cruze


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Premium Pricing – Chevy Cruze

• The Cruze was launched at $16,995—well beyond what

GM has ever charged for a compact and more than the

$15,655 Honda asks for its base Civic sedan!

• Getting customers to pay more is central to GM's ability to

become profitable over the long term.

• GM had reason to believe its higher-price strategy for the

Cruze will work based on its experience with the Chevy

Malibu sedan, whose 2007 redesign was well-received by

critics and the public.


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PRICING STRATEGY

Penetration Pricing


Predatory Pricing



Competitive Pricing


Promotional Pricing


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Competitive Pricing(An Example of Pricing Failure)


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Competitive Pricing(An Example of Pricing Failure)

•Back in 2007-08, Anheuser-Busch had lowered the price of its brand ‘Budwieser’ so as to match the price level of its competitors.

•However, this aggressive pricing strategy was short lived.

•Within a few months, the prices were increased to cut down the losses.


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Competitive PricingSurf Excel


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The price strategy of Surf Excel has always been in accordance with it competitors


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Honda City – Competitive Pricing


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•Back in July 2011, Honda had slashed the price of its product City.

•It was done in response to the growing sales of new rivals like the VW Vento and Hyundai’s new Verna.


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Kodak - Competitive Pricing


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Kodak

•In 1994, Kodak’s market share of the US film market was 70% but was declining

•Flagship product Kodak Gold sold at 17% over Fuji

•Kodak launched ‘funtime’ film at a price lower than that of Fuji


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PRICING STRATEGY

Penetration Pricing


Predatory Pricing



Competitive Pricing


Promotional Pricing


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Product Form Pricing• One of the variants of price discrimination

where the seller charges two different prices for different versions of the product not in proportion to their respective costs. This is quite a common practice where a company adds new feature and increases the price more than the cost difference it incurred in adding new feature. Here all the features bit one is kept constant and that feature becomes the price determining factor.


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Maruti WagonR and Maruti Zen Estillo:

Both these vehicles are powered by the same K10 engine from Suzuki and are basically of the same form factor (hatchbacks). Also the model to model specification is the same (LX,Lxi,Vxi). Only the external shape is different and so the price is different. The model to model variation in features is also the same. Even the gear shift mechanism and other mechanical and electrical equipments are the same.


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Nokia Cell phones


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Nokia phones-Product Form Pricing• Different versions of the same product are priced

differently.

• Nokia-5000 is priced at Rs. 4,300/- Whereas,

Nokia-7210C-Supernova is priced at Rs. 4,800/-

offers almost the same features.

The reason for difference in pricing is to demand

premium for the sleek structure of Nokia-7210C.


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PRICING STRATEGY

Penetration Pricing


Predatory Pricing



Competitive Pricing


Promotional Pricing


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Promotional Pricing• Promotional pricing is a sales and marketing

technique. It involves reducing the price of a product or service to attract customers. This technique can be effectively used across numerous industries including food services, cosmetics, and household cleaning supplies.

• Promotional pricing often involves reducing prices to unsustainably low levels. In some cases, products and services may be sold at or below cost. A buy one get one free scheme may even be used. When this is done, interest in goods can be greatly increased, meaning sales are also likely to increase dramatically.


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Types of Promotional Pricing

1. Special Event Pricing: One of the Promotional pricing techniques in which, the marketers establish special prices in certain seasons to draw more customers and sales.Example: Promotional Pricing for Diwali by Honda Siel Cars India: Honda had slashed the prices of its entire product range by giving loyalty discounts, free insurance etc.


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SAMSUNG Omnia


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Promotional Pricing• In Diwali season of 2009 Samsung offered

discounts on Samsung Omnia mobile phone. Their market price at that time was Rs. 33,990/- whereas their discounted price for Diwali was Rs. Rs. 31,990/-

• Promtional Pricing • In this case special prices are offered during

special occasions like festivals to increase the sales.


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2. Low Interest Financing: Companies may decide to provide low interest rates for financing their products. Example: This Diwali Season Hero MotoCorp (that is trying to set its foot firm after its separation from its Japanese counterpart, Honda) had provided discounted interest rate of 6.99% for its entire range of two wheelers. They were trying their level best using these tactics as profits were under pressure from high production costs and slow growing economy meant sluggish sales figures.


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• In 2009, Nokia piloted a scheme in two Indian states where it sold handsets on a weekly installment of 100 rupees ($2) over 25 weeks period.

• Low-Interest financing

•To reduce the burden of initial cost to the customer.


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Food Industry Pricing – Multi Price Point Game


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Food Industry Pricing – Mass Consumption Products•Low priced, plain vanilla products•Available at price points as low as 2 INR•Price was not changed•Net weight of package was reduced to account

for increase in raw material prices


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Food Industry Pricing – Mass Consumption Products•Britannia Tiger biscuits•Britannia’s Tiger is available in packs priced at

Rs.2, 4 and 10•Tiger Banana biscuits (new product) are also

available in pouches of Rs.2 and 4


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Food Industry Pricing

•Net weight of package was reduced to account for increase in raw material prices

•Parle G Glucose Biscuits


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Food Industry Pricing – Refined Products•Marie biscuits – as the name suggests thin,

crispy biscuits•Positioned as a product to be consumed by

family together•Britannia Marie Biscuit – minimum price is Rs.10


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Food Industry Pricing – Refined Products•Salty biscuits are also part of this strategy•Refined, mid-high income product•Parle Nimkin positioned as an accompaniment

for tea•Minimum price starts at Rs.5


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Food Industry Pricing – Light & Digestive Biscuits•Sunfeast Marie Light Original

▫Priced at Rs.20 per 250 gm•Sunfeast Marie Light Orange

▫Priced at Rs.10 per 110 gm•Sunfeast Marie Light Oats

▫Priced at Rs.25 per 250 gm


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Food Industry Pricing – Cream Biscuit

•Biscuits available at different price points•Parle Kreams•Packs priced at Rs.2 , Rs. 5 and Rs. 10 •Britannia Treat Fruit Creams•Rs. 5/- smuggle-in-your-pocket pack, a Rs.

12 hide-under-the-pillow pack or a Rs. 25/- share-with-everyone Family pack


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•Kreams Gold – Image Pricing strategy•Packs priced at Rs 5, Rs 10 and Rs 18


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•ITC Dark Fantasy pursuing premium, niche segment or long tail

•ITC Dark Fantasy Chocofills priced at Rs.30 for 84 g pack


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Food Industry Pricing – Penetration Pricing •ITC Glucose biscuit•Priced competitively at Rs.2 and Rs.4

packs


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Food Industry Pricing – Penetration Pricing •Cadbury Oreo - India was expecting Oreo

to be launched as a competitor to Pure Magic (Britannia), Dark Fantasy (ITC) and Hide N’ Seek Milano (Parle)

•Kraft priced it at Rs 5 for a pack of three biscuits, Rs 10 for a pack of seven, and Rs 20 for 14


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Thank You !!!

Pricing Siddhant Gupta

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