1. PRICING
PRICING AND SALES VOLUME DECIDE THE
REVENUE FOR ANY BUSINESS
THE PROCESS OF PRICING INVOLVES
--Setting Price Objectives
--Determining The demand
--Estimating the cost of production
--Analyzing competition
--Selecting a suitable method of pricing
-- Deciding the final price
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2. Setting the Price Objective
--Survival
-- Profit
--Return on investment
--Market Share
--Cash Flow
--Status Quo
--Product quality

3. DEMAND ESTIMATION
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PRICE SENSTIVITY
Unique Value Effect
-Substitute Effect
-Comparison Difficult
-Total Expenditure Effect
-End Benefit Effect
Shared Cost Effect
Sunk Investment
High Quality
Cannot be inventoried

4. DEMAND ESTIMATION Contd/-Demand Curves
--
Demand can be estimated by analysis of past sales and
prices
--Using different prices in similar regions to gauge sales
--Ask the buyers of their likely demand at various prices

5. DEMAND ESTIMATION Contd/
PRICE ELASTICITY Of DEMAND
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Change in demand as a response to change in price
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Calculated by dividing the percentage change in demand by
percentage change in prices
If very little change in demand due to price, the demand is
inelastic
If considerable change in demand due to price change, it is
called elastic

6. DEMAND ESTIMATION Contd/
Demand elasticity is likely to be low when
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--Very few substitutes or competitors
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--Buyers do not notice the price change
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--Consumer reaction is likely to be slow to price change
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--Consumers attribute price rise to external factors like
inflation, scarcity etc

7. ACCUMALATED PRODUCTION
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ACCUMALATED PRODUCTION
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Average costs decline with accumulated experience.
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STANDARD COSTING
ACTIVITY BASED COSTING
TARGET COSTING

8. ANALYSING COMPETITION
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A CHANGE IN YOUR PRICING MAY
SHIFT THE CONSUMERS TO
COMPETITION
MARGINAL ANALYSIS
--Fixed Costs- Costs that do not change with volume
-- Variable costs- Costs that vary with volume
Avg cost=Avg fxd costs+Avg variable cost
Marginal cost is the cost incurred in producing an extra unit
Avg total cost decreases if marginal cost<avg cost
Avg total cost increases if marginal cost>avg cost
Marginal revenue therefore must be>than avg revenue

9. ANALYSING COMPETITION
Contd/--Break even analysis
Break-even is that volume of sales where the co does not
make any profit or losses
--The co must determine the breakeven volumes for different
levels of pricing
The major assumption in break even analysis is that demand
is usually fixed and the major objective is to recover costs
Pricing decisions are made keeping in mind competitive
situations

10. PRICE COMPETITION
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A co must be a low cost seller of products
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Low cost producers usually market standard goods
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They frequently change their prices in response to mkt
conditions
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Face danger of undercutting by competitors
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Can result in chronic price wars

11. NON PRICE COMPETITION
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A non price producer competes on other attributes eg
quality, service, packaging, brand equity
Attempts to build loyalty
The buyers should not only see the difference but consider
it significant
The distinguishing and differentiating features should be
difficult for competition for competition to copy
The co promotes and highlights the differentiating features

12. PRICING MEHTODS
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The major price setting methods are
--Mark Up pricing
--Target return pricing
--Perceived value pricing
-- Value pricing
--Going rate pricing
--Sealed bid pricing

13. PRICING METHODS
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MARK UP PRICING
A mark up is given to the total cost
Generally, higher for seasonal products, in-elastic products,
slow moving items
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TARGET RETURN PRICING
This method is used when a pre-determined rate of return
is desired and thr price is set accordingly.
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PERCEIVED VALUE PRICING
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Price is based on the buyers perception of the value of the
product which is built up by the cos thru promotions, advt
etc

14. PRICING METHODS Contd/
VALUE PRICING
The manufacturer charges fairly low prices for high quality product
or services
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The price should represent a high value to the customer
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Does not mean that prices are just lowered; rather, the entire
process is re-engineered to give a better product at a lower price.
GOING RATE PRICES
The cos set the prices on the basis of prevailing rate. Generally
used in oligpolistic situations

15. PRICE ADAPTATION
 GOODS CAN OFTEN HAVE DIFFERENT PRICES DEPENDING
ON A HOST OF FACTORS
 The pricing structure has to reflect and account for factor like
geographical spread, purchase timings, segment
requirement, service contract, order level ,frequency of
purchase, delivery schedule etc

16. DISCOUNTS
&ALLOWANCES
 TRADE DISCOUNT
 QUANTITY DISCOUNT
 CASH DISCOUNT
 SEASONAL DISCOUNT
 ALLOWANCES

17. PROMOTIONAL
PRICING
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LOSS LEADER PRICING
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SPECIAL EVENT PRICING
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PSYCHOLOGICAL DISCOUNTING
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CASH REBATE
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LOW INTEREST FINANCING
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LONGER PAYMENT TERMS
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WARRANTIES AND SERVICE CONDITIONS

18. EXPERIENCE CURVE
PRICING
 A company ,by virtue of experience, gains the required level of
skills higher than prevalent in the industry. This enhances their
productivity and thus it acquires a competitive edge.
 The co must, however, acquire a leading market share during the
early stages of the product life cycle to be in a position to take
advantage of experience curve pricing

19. DISCRIMATORY
PRICING
 CUSTOMER SEGMENT PRICING
 PRODUCT FORM PRICING
 IMAGE PRICING
 LOCATION PRICING
 TIME PRICING

20. PRODUCT MIX PRICING
 PRODUCT LINE PRICING
 OPTIONAL FEATURE PRICING
 CAPTIVE PRODUCT PRICING
 TWO PART PRICING
 BY-PRODUCT PRICING
 PRODUCT BUNDLING PRICING