PRICE MIX

PRICING DECISIONS
PRICE:
Price is the exchange value of a goods and
services expressed in terms of money.

It is the perceived value of the product or

service including warranty, guarantee,
delivery of products, disc, etc. that are the
part of the conditions of sale and are not paid
for separately.

To the buyer : a package of expectations and

satisfaction

To the seller : source of revenue

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OBJECTIVES OF PRICING:

To earn proper To earn profits

To bring price To face the
return on by maximizing
stability competition
investment sales

To determine
To attract new
the prices of
To increase customers, Long life of the
products as per
market share distributors company
the capacity of
and agents
consumers

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SIGNIFICANCE OF
PRICING:
Products Value
Product Cut-throat
entering perceived
differentiat competitio
maturity by the
ion n in market
stage customers
Reflects
Determina Develops
Competitiv the quality
nt of brand
e weapon of a
profitability loyalty
product

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 Nature of demand

FACTOR Price elasticity of demand

• When the product is unique or high in quality , buyers are less

S price sensitive and vice versa.

Market structure :

INFLUEN • Pure competition/pure monopoly

CING Cost of the product:

• Fixed and variable cost

PRICE Competitors strategies and policies

OF A • Similar products and available substitutes

PRODUC
Overall marketing strategy designed by the
company based on market positioning

T Other marketing mix elements

External factors such as economic conditions,

government , margins to resellers

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Cost oriented pricing methods
:
Cost plus/mark up pricing
Target rate of return pricing
Demand oriented pricing
methods:
Differential pricing
Perceived value pricing
Competition oriented pricing
method

PRICING METHODS:
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COST PLUS /MARK UP PRICING :
The cost-plus pricing method is a straightforward approach to pricing goods and services where a business
determines the price by adding a markup to the cost of producing the product. This method ensures that all costs
are covered, and a profit margin is included.

Key Components:

Cost of Production: Includes all direct and indirect costs:

• Direct costs: Raw materials, labor, and other expenses directly tied to production.
• Indirect costs: Overhead expenses like utilities, rent, and equipment depreciation.

Markup Percentage: A percentage added to the total cost to ensure profit. This percentage is determined
based on factors like desired profit, market conditions, and competition.

Final Price: Calculated using the formula: Selling Price=Total Cost+(Total Cost× Markup Percentage)

Example: If the total production cost of a product is Rs. 100 and the business decides on a 20% markup:

Selling Price=100+(100×0.20)=100+20=120
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TARGET RETURN PRICING:
Target return pricing is a pricing strategy used by businesses to achieve a specific return
on investment (ROI) or a predefined profit target. This method ensures that the price of a
product or service is set to generate enough revenue to meet the company's financial
objectives.
Formula: The target return price is calculated using the formula:
Target Return Price=Total Costs+(Target ROI× Investment) / units sold

Where: Total Costs: Includes all fixed and variable costs.

Target ROI: Desired return on investment (expressed as a percentage).

Investment: Capital invested in the production or business.

Units Sold: Estimated number of units expected to be sold.

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TARGET RETURN PRICING:
Example: A company invests Rs.50,000 in production and has total costs of Rs.100,000.
The company wants a 20% ROI and expects to sell 10,000 units.
Target Return Price=100,000+(0.20×50,000)/10,000

The price per unit should be Rs. 11 to achieve the target ROI.

Advantages:

Goal-Oriented: Ensures pricing aligns with business financial goals.

Predictable Returns: Provides a clear framework to achieve a desired profit.

Applicable to Investment Decisions: Useful when evaluating whether an investment is
worth pursuing.
Disadvantages:

Demand Sensitivity: Doesn't consider customer willingness to pay.

Market Competition: Ignores competitor pricing, which could lead to overpricing or
underpricing.
Assumptions: Based on estimated units sold, which may not always be accurate .
DEMAND ORIENTED PRICING
METHODS :
PERCEIVED
Perceived value pricing is VALUE PRICING
a customer-focused pricing strategy where the price of a
product or service is based on the customer’s perceived value rather than the actual cost
of production. The goal is to align the price with the benefits and value the customer
believes they are receiving.
Key Components:

Customer Perception: Price is influenced by how customers evaluate the benefits of the
product (e.g., quality, brand reputation, emotional appeal) compared to alternatives.

Value Proposition: Includes tangible benefits (e.g., features, performance) and intangible
benefits (e.g., brand prestige, customer experience).

Market Research: Understanding customer preferences, willingness to pay, and

competitors’ offerings is critical to setting a perceived value price.

The key to perceived value pricing is to deliver more unique value to the buyers than the
competitors.
DEMAND Th companies charge a fairly
low price for a high quality
ORIENTE to win and value conscious
and loyal customers.
D
PRICING e. Gillette launched “the
best shave on the planet” by

METHOD reducing prices and offering

high quality products.

S:
VALUE
The producer company
attempts to be a low-cost

PRICING
producer without
compromising quality.
COMPETITION ORIENTED
PRICING METHOD:
Competition-oriented pricing methods are strategies where
a business sets its prices based primarily on competitors' pricing,
rather than focusing on costs or customer perceptions. These
methods are especially useful in competitive markets where
pricing is a key factor influencing customer decisions.

Common Competition-Oriented Pricing Methods:

Pricing Below Competition: Setting prices lower than

competitors to attract price-sensitive customers and gain
market share.

Pricing at Parity (Competitive Pricing): Setting prices

equal to competitors to maintain a level playing field.

3. Pricing Above Competition (Premium Pricing): Setting

prices higher than competitors to signal superior quality,
exclusivity, or added value.
COMPETITION ORIENTED
PRICING METHOD:
Examples:

Pricing Below Competition: A budget airline

offering tickets at 20% lower prices than rivals to
attract more travelers.

Pricing at Parity: A coffee chain matching prices

with a nearby competitor for similar drinks.

Pricing Above Competition: A luxury car brand

pricing vehicles higher to emphasize superior quality
and exclusivity.
the successful competition-oriented pricing requires
balancing competitors' insights with the company’s
unique value propositions.
NEW PRODUCT PRICING METHODS:
SKIMMING PRICING
Setting a relatively high price for a new product is referred to as market skimming pricing.
The market skimming pricing may be used if there are quite a few customers willing to
pay a higher price for a product which offers some unique benefits.

Market skimming is suitable under the following conditions:

The new product has distinctive features strongly desired by buyers for unique products.

Enough buyers have high current demand.

Skimming pricing is primarily used to recover research and development costs through healthy profit
margins as quickly as possible.

E.g. luxury brands, smart phones, high end bikes and cars (Niche marketing strategy)
NEW PRODUCT PRICING METHODS:
PENETRATING PRICING
A relatively low initial price is stablished for a new product. The aim is to penetrate the
mass market immediately and generate substantial sales volume and large market share.

Market Penetration is suitable under the following conditions:

A large market exists for the product.

The market is highly price sensitive, where low price stimulates market growth.

Unit cost of production falls due to large scale of production.

E.g. Patanjali, Dell (Mass marketing strategy)

 1. Discuss the significance of
pricing in marketing mix .

2. Write short notes on :

QUESTIO • Objectives of pricing

• Skimming pricing

NS:
• Penetrating pricing

3. What factors are considered

while determining the price of
a product?

4. Elaborate various pricing

methods by giving suitable
examples.