Pricing Strategies & Tactics

8/3/2019 Pricing Strategies & Tactics

1/19

PRICING

STRATEGIES

&

TACTICS


2/19

PRICE STRATEGY

It refers to producers plan or art or discretion

of price fixation or price variation in a manner

such that he may successfully achieve his

stipulated target of profit maximization or

sales maximization.


3/19

MAIN PRICING TACTICS

Cost Oriented Pricing

Competition Oriented

Pricing

Pricing based on othereconomic conditions.


4/19

COST ORIENTED PRICING

Cost Plus Pricing or Full

Cost pricing

Marginal or Incremental

Cost Pricing

Target pricing or Rate ofReturn pricing


5/19

Cost Plus Pricing

Means addition of certain percentage of costs

as profits to cost of production to arrive at a

price.

Also known asMark Up Pricing.

whereAV

C=A

verageV

ariable CostGPM= Gross Profit margin

P= AVC + GPM


6/19

Cost plus

Price

Full cost

Allocated

fixed cost

Variable

Cost

Mark Up

on price


7/19

Advantages

Easy & convenient to adopt Reduces cost of decision making

Fulfills objective of profit maximization

Disadvantages

Market demand is not considered

Does not take account of competitive forces

Ignores future costing


8/19

Marginal Cost Pricing

Fixed costs are ignored & prices are

determined on basis of marginal cost.

Used in- Presence of unutilized capacity

- Introducing product in new method

- Stiff competition in market


9/19

Advantages

Aggressive pricing policy Useful for pricing over life cycle of product.

Price never uncompetitive.

Disadvantages

Cannot be applied in practice

Frequent price changes

Cut throat competition


10/19

Target pricing or Rate of Return

Pricing

Where firm expects to earn a planned or

target rate of return on its investment, price is

fixed to achieve the objective.


11/19

COMPETITON ORIENTED PRICING

Going Rate Pricing

Loss Leader Pricing

Trade Association Pricing

Customary Pricing system

Price Leadership System

Cycling Pricing System

Initiative Pricing system


12/19

PRICING BASED ON ECONOMIC

CONDITIONS ADMINISTERED PRICING SYSTEM

Minimum Support Pricing

Dual Pricing System

Retention pricing


13/19

DIFFERENTIAL PRICING SYSTEM

Time Price differential

- Clock Time Price differential- Calendar Time Price Differential

Use Price Differential

Quality Price Differential

Geographic Price Differential- Uniform delivered PricingMethod

Postage Stamp Pricing

Zone pricing

- Base point PricingSingle Base point pricing

Multiple Base point pricing

Freight Equalisation pricing


14/19

PRICING STRATEGIES

Stay Out

Pricing

Price Lining

Strategy

Psychological

or Odd

Number &Round Number

Pricing

Limit Pricing

Strategy


15/19

PRICING STRATEGY FOR NEW PRODUCT

Skimming Price Policy

Penetration Price Policy


16/19

PRICING STRATEGY IN LARGE

ENTERPRISES

Pricing to achieve a target return on investment

Stabilization of pricing & margin

Pricing to improve or maintain position

Pricing to meet or follow competition Pricing related to Product Differentiation

Image of fairness

Emphasis on full cost pricing

Price leadership Price with variable mark up

Pricing not to exploit the market conditions


17/19

PRICING STRATEGIES IN SMALL

BUSINESS

Does not always follow full cost pricing

Not to aim at target rate of profit

Concerned about image

Different mark up for different products

Simply match the price

Trial & error


18/19

PRICING PROCESS

Individuals affected by pricing decisions

Multi stage process

Determining a target groupDecision about firms image

Selection of sales strategy

Choice of pricing policy

Choosing a price strategy

Setting specific prices


19/19

Certain price considerations

Consideration of image vis--vis price change

Consideration of rival price strategies

Impact of price change on entry of new rivals

Impact of price change in a product on product line

Coordination of pricing policy with overall corporate goals &with other policies of firm

Pricing Strategies & Tactics

Documents

Transcript of Pricing Strategies & Tactics