Pricing Strategies [notes / case study]

Pricing is an important element of the marketing mix, as it determines the value of the product. Businesses adopt various pricing strategies depending on its goals / objectives.

Product Pricing

How to become a “Market Leader” in a particular industry is always a challenge for the companies who are “Market Challengers” or “Market Followers” or those who work in niche markets.

Introduction to Product Pricing

• Stages of setting the Product Price
• Price sensitivity – what type of buyer my product has?
• Price and Costs
• Dimensions of the quality of the product/service and its impact on the price
• Breakeven Analysis
• Introduction to the Product Pricing Strategies
• Understanding Price and Quality Matrix –Premium Pricing, Penetration Pricing, Economy Pricing & Price Skimming
• Price and Distribution Matrix – Market Leader, Market Challenger, Niche Marketer & Market Follower
• Strategy to become a Market Leader
• Strategies to initiate Price Cuts
• Strategies to Price Increase

Pricing is what marketing is all about. The whole point of the practice of marketing is to ensure the long-term survival of the company and survival will only be assured if the company is profitable in the long-term. However, pricing is more than a scorecard, the better the company’s marketing, the higher the profit (in the long-term at least). Pricing is also a dynamic element of the marketing mix. Price can affect the way customers behave and because “price” is perceived as being the single largest indicator of value, it will impact on their perceptions of the company’s offering versus that of the competition.

Setting the right price is always a challenge. If the product is sold at a premium price, profitability increases but its volume of sale decreases. If the product is sold economically, it might result in a higher sale but the margins shrink. Therefore, setting the right price is a perennial challenge. This programme will help the participants to address this challenge.

• Various stages in setting a price of the product, advantages and disadvantages of different pricing methods;
• Calculate prices using different approaches;
• How to choose the correct pricing strategy to fit a firm’s overall objectives;
• Economic theories underlying the marketer’s view of price and value.

Commonly used pricing strategies:

Demand Based Pricing
Cost Based Pricing
Competition Based Pricing
Value pricing
Target return pricing
Going rate pricing

Projects & Assignment Questions on Pricing Strategies

Management (MBA) questions on pricing strategies.

Question: Explore your chosen country’s macro & micro environment to propose a Marketing Mix strategy for the company. Start working on your country-level analysis for pricing strategy. Spot costs, market & environmental factors important for devleoping your pricing strategy for the chosen market. Some factors to consider are:
Cost: Any prominent transportation/shipping/manufacturing costs to sell your products in the chosen host country? Any tariffs or other taxes to consider?
Market: Purchasing power of local consumers? Any customs/cultural specificities influential for price perception? Main competitors’ prices? Environment: Country-level indicators – inflation, currency rates, etc.? Legal constraints & price controls?
Reflect on the current domestic Marketing Mix strategy of your company/product. How should you align the core company strategies with the local considerations you highlighted above?

Q) As the Product Head for Hodrej you have been entrusted with the task to devise pricing strategy for your products to maximize sales and profits. Describe some of the commonly used international pricing strategies which could be used to achieve your marketing goal and objectives.

Q) Discuss your pricing strategies for each of the following B2B situations of MRF for its Tyres:

Indian Army requires to buy about 50,000 tyres for periodic replacement in its trucks, as and when required in year 2019-20
Ashok Leyland needs 5000 tyres, customized for its export order trucks for sub-zero cold conditions.
Golden Transport Company urgently needs 200 truck-tyres for its transport fleet.

Q) Don’s Lumber Company on the Hudson River feature a large selection of materials for flooring, decks, moldings, windows, siding, and roofing. The prices of lumber and other building materials are constantly changing. When a customer asks about the price on pre-finished wood flooring, sales representatives consult a manual price sheet and then call the supplier for the most recent price. The supplier in turn uses a manual price sheet, which has been updated each day. Often, the supplier must call back Don’s sales reps because the company does not have the newest pricing information immediately on hand.

1. Assess the business impact of this situation.
Don’s Lumber Company is operating the business less efficiently. They have to call the supplier for price and get response some time later. The supplier manages the price list daily but the way is inefficient. The task is prone to error occurrence. Time of customer, Lumber Company and Supplier is spending for less business revenue generating tasks. There need to seem some efficient technology or improvement.

2. Describe how this process could be improved with information technology.
The company could improve its operation by following technology capable of synchronizing price information. They would rather follow online mechanism to regulate the price. If the information kept is accessible from customers and Lumber Company, then time of both customers and Lumber company staff is saved. The customer can themselves see the price online rather than visiting Lumber company, wait for response from supplier. When information are kept digitized then they would enjoy the technology that keeps history, analyze the price change trend. The initial investment seems high, but on long go it becomes cheaper and efficient.

3. Identify the decisions that would have to be made to implement a solution.
Don’s Lumber and supplier can make an understanding on what will be the efficient way to conduct the boring task creatively. Business can get more revenue if the customers are happy. Moreover the implementation of technical solution doesn’t mean cost necessity, there are many Freeware solution for Enterprise Resource Planning. But there arises question of customer support of the Freeware providers. Such solution may not fit the requirement so they might need tailored application. There are options to use cloud based service or internal reporting system. They have to decide on how they would wish to train the staffs too.

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