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Pricing

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Sunanda K. Chavan
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Pricing - November 2nd, 2011

Pricing is one of the four p's of the marketing mix. The other three aspects are product management, promotion, and place. It is also a key variable in microeconomic price allocation theory

Pricing is the manual or automatic process of applying prices to purchase and sales orders, based on factors such as: a fixed amount, quantity break, promotion or sales campaign, specific vendor quote, price prevailing on entry, shipment or invoice date, combination of multiple orders or lines, and many others. Automated systems require more setup and maintenance but may prevent pricing errors

A well chosen price should do three things:

Achieve the financial goals of the firm (eg.: profitability)
Fit the realities of the marketplace (will customers buy at that price?)
Support a product's positioning and be consistent with the other variables in the marketing mix
Price is influenced by the type of distribution channel used, the type of promotions used, and the quality of the product
Price will usually need to be relatively high if manufacturing is expensive, distribution is exclusive, and the product is supported by extensive advertising and promotional campaigns
A low price can be a viable substitute for product quality, effective promotions, or an energetic selling effort by distributors
Pricing Strategies Matrix

Premium Pricing:Use a high price where there is a uniqueness about the product or service. This approach is used where a a substantial competitive advantage exists. Such high prices are charge for luxuries such as Cunard Cruises, Savoy Hotel rooms, and Concorde flights
Penetration Pricing:The price charged for products and services is set artificially low in order to gain market share. Once this is achieved, the price is increased. This approach was used by France Telecom in order to attract new corporate clients

Economy Pricing:This is a no frills low price. The cost of marketing and manufacture are kept at a minimum. Supermarkets often have economy brands for soups, spaghetti, etc
Price Skimming:Charge a high price because you have a substantial competitive advantage. However, the advantage is not sustainable. The high price tends to attract new competitors into the market, and the price inevitably falls due to increased supply. Manufacturers of digital watches used a skimming approach in the 1970s. Once other manufacturers were tempted into the market and the watches were produced at a lower unit cost, other marketing strategies and pricing approaches are implemented

Premium pricing, penetration pricing, economy pricing, and price skimming are the four main pricing policies/strategies. They form the bases for the exercise. However there are other important approaches to pricing

Psychological Pricing:This approach is used when the marketer wants the consumer to respond on an emotional, rather than rational basis. For example 'price point perspective' 99 cents not one dollar
Product Line Pricing:Where there is a range of product or services the pricing reflect the benefits of parts of the range. For example car washes. Basic wash could be $2, wash and wax $4, and the whole package $6

Optional Product Pricing:Companies will attempt to increase the amount customer spend once they start to buy. Optional 'extras' increase the overall price of the product or service. For example airlines will charge for optional extras such as guaranteeing a window seat or reserving a row of seats next to each other

Captive Product Pricing:Where products have complements, companies will charge a premium price where the consumer is captured. For example a razor manufacturer will charge a low price and recoup its margin (and more) from the sale of the only design of blades which fit the razor
Product Bundle Pricing:Here sellers combine several products in the same package. This also serves to move old stock. Videos and CDs are often sold using the bundle approach
Promotional Pricing:Pricing to promote a product is a very common application.

There are many examples of promotional pricing including approaches such as BOGOF (Buy One Get One Free)

Geographical Pricing:Geographical pricing is evident where there are variations in price in different parts of the world. For example rarity value, or where shipping costs increase price
Value Pricing:This approach is used where external factors such as recession or increased competition force companies to provide 'value' products and services to retain sales e.g. value meals at McDonalds
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Jitendra Mazee
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Re: Pricing - 1 Week Ago

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Originally Posted by sunandaC View Post
Pricing is one of the four p's of the marketing mix. The other three aspects are product management, promotion, and place. It is also a key variable in microeconomic price allocation theory

Pricing is the manual or automatic process of applying prices to purchase and sales orders, based on factors such as: a fixed amount, quantity break, promotion or sales campaign, specific vendor quote, price prevailing on entry, shipment or invoice date, combination of multiple orders or lines, and many others. Automated systems require more setup and maintenance but may prevent pricing errors

A well chosen price should do three things:

Achieve the financial goals of the firm (eg.: profitability)
Fit the realities of the marketplace (will customers buy at that price?)
Support a product's positioning and be consistent with the other variables in the marketing mix
Price is influenced by the type of distribution channel used, the type of promotions used, and the quality of the product
Price will usually need to be relatively high if manufacturing is expensive, distribution is exclusive, and the product is supported by extensive advertising and promotional campaigns
A low price can be a viable substitute for product quality, effective promotions, or an energetic selling effort by distributors
Pricing Strategies Matrix

Premium Pricing:Use a high price where there is a uniqueness about the product or service. This approach is used where a a substantial competitive advantage exists. Such high prices are charge for luxuries such as Cunard Cruises, Savoy Hotel rooms, and Concorde flights
Penetration Pricing:The price charged for products and services is set artificially low in order to gain market share. Once this is achieved, the price is increased. This approach was used by France Telecom in order to attract new corporate clients

Economy Pricing:This is a no frills low price. The cost of marketing and manufacture are kept at a minimum. Supermarkets often have economy brands for soups, spaghetti, etc
Price Skimming:Charge a high price because you have a substantial competitive advantage. However, the advantage is not sustainable. The high price tends to attract new competitors into the market, and the price inevitably falls due to increased supply. Manufacturers of digital watches used a skimming approach in the 1970s. Once other manufacturers were tempted into the market and the watches were produced at a lower unit cost, other marketing strategies and pricing approaches are implemented

Premium pricing, penetration pricing, economy pricing, and price skimming are the four main pricing policies/strategies. They form the bases for the exercise. However there are other important approaches to pricing

Psychological Pricing:This approach is used when the marketer wants the consumer to respond on an emotional, rather than rational basis. For example 'price point perspective' 99 cents not one dollar
Product Line Pricing:Where there is a range of product or services the pricing reflect the benefits of parts of the range. For example car washes. Basic wash could be $2, wash and wax $4, and the whole package $6

Optional Product Pricing:Companies will attempt to increase the amount customer spend once they start to buy. Optional 'extras' increase the overall price of the product or service. For example airlines will charge for optional extras such as guaranteeing a window seat or reserving a row of seats next to each other

Captive Product Pricing:Where products have complements, companies will charge a premium price where the consumer is captured. For example a razor manufacturer will charge a low price and recoup its margin (and more) from the sale of the only design of blades which fit the razor
Product Bundle Pricing:Here sellers combine several products in the same package. This also serves to move old stock. Videos and CDs are often sold using the bundle approach
Promotional Pricing:Pricing to promote a product is a very common application.

There are many examples of promotional pricing including approaches such as BOGOF (Buy One Get One Free)

Geographical Pricing:Geographical pricing is evident where there are variations in price in different parts of the world. For example rarity value, or where shipping costs increase price
Value Pricing:This approach is used where external factors such as recession or increased competition force companies to provide 'value' products and services to retain sales e.g. value meals at McDonalds
Hey, thanks for your help and sharing the information on Pricing. Well, i have also a document and uploading it where you would get more information on Pricing.
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