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Pricing Policy

The document discusses three key factors in pricing: costs, demand, and competition. It notes that pricing to cover costs alone may not be profitable, nor will pricing solely to gain market share or meet customer demands. The optimal price balances these three dimensions and is set within a range bounded by costs and customer perceived value. Pricing strategies can aim for either maximum market share through low initial pricing or market skimming through high initial pricing for prestige brands.

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Amit Digra
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151 views7 pages

Pricing Policy

The document discusses three key factors in pricing: costs, demand, and competition. It notes that pricing to cover costs alone may not be profitable, nor will pricing solely to gain market share or meet customer demands. The optimal price balances these three dimensions and is set within a range bounded by costs and customer perceived value. Pricing strategies can aim for either maximum market share through low initial pricing or market skimming through high initial pricing for prestige brands.

Uploaded by

Amit Digra
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd

COMMON NOTIONS ON PRICING

• Pricing our products to cover full costs will


make us profitable. True or False?
• Pricing our products to grow market share
will make us profitable. True or false?
• Pricing our products to meet customer
demands will make us profitable. True or
False?
THREE DIMENSIONS OF PRICING

COMPETITION

DEMAND COST
THE RANGE OF PRICING OPTIONS
HIGH PRICE

Ceiling Price
Customer
Perceived value

Reference Point
Competition

Costs
Floor Price

LOW PRICE
DEMAND DRIVERS

Demand Curve, Price Sensitivity, Total Cost of Ownership (TCO)

Inelastic Demand Elastic Demand


Price 

Price 

Quantity Demanded  Quantity Demanded 


Demand elasticity depends on the magnitude and direction of
the price change
COST DRIVERS
Total Cost = Fixed Cost + Variable Cost

Levels of Production Accumulated Production


Cost per Unit

Cost per Unit 


*
* *
* *
* *

Quantity Produced per Day  Accumulated Quantity 

Experience Curve or
Learning Curve
DEVELOPING PRICING POLICIES

SET PRICING ESTIMATE ESTIMATE


OBJECTIVE DEMAND COST

•SKIMMING •DEMAND CURVE •TYPE


•PROFIT •PRICE SENSITIVITY •VOLUME
•MARKET SHARE •ELASTICITY •EXPERIENCE
•SURVIVAL •ABC
•TARGET

SELECT A ANALYZE
SELECT THE
FINAL PRICE PRICING COMPETITION
METHOD
• MARKUP
• TARGET-RETURN
• PERCEIVED-VALUE
• VALUE
• GOING RATE
• AUCTION
TWO DIFFERING PRICING OBJECTIVES

• Max Market Share • Market Skimming


– Price sensitive market – Adequate demand
– Low price => growth – Low production
– Cost falls w/ exprnc. volume is feasible
– low price => – High price => image
competitive edge – High price =>
– Electronic Goods from competitive edge
TI – HDTV from SONY

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