DEVELOPING PRICING STRATEGIES AND PROGRAMS

When should a company initiate price change?

INITIATING PRICE CUTS

Why are price cuts required?

Due to excess plant capacity To dominate market

TRAPS due to price cutting strategy

. competitors respond by lowering their prices, triggering a price war

Price war trap

Fragile market trap- a low price buys market share but not market loyalty

Lower quality trap- consumers assume price is low

INITIATING PRICE INCREASES

DO YOU KNOW ?

If a company’s profit margin is 3% of sales,

a 1% price increase will increase

profits by 33% if the volume is unaffected.

Why prices increase?

Cost inflation (increase) Over demand

How To increase prices?

Delayed quotation Escalator clauses- Unbundling Reduction of discounts

Alternative approaches that avoid increasing prices

Shrinking the amount of product

Substituting less-expensive ingredients

Many candy bar companies substituted synthetic chocolate for the real

chocolate to fight cocoa price increase

Reducing product features

Reducing product services

Such as installation or free delivery

Using less expensive packaging

Creating new economy brands

TATA introduced Titan for high class people and sonata for middle class

people

LET’S RECAP

Initiating price cutsInitiating price riseAlternatives to price rise

Created by :Tanvi Maheshwari

Lady Shri Ram College for Women,

during an internship by Prof. Sameer Mathur,

IIM Lucknow