2. What is Meaning of the Price?
Price is the overall perception of value or the benefits that
will vary in degrees of importance to the different
individuals within the buying committee (buying
Centre) of the buying firm.
However there is no agreed formula on the importance to
be given to various benefits(or attributes), different
individuals in the buying centre will have different
perception.
3. Factors influencing Pricing decision
A business marketing firm has to consider many
factors in its pricing decisions and they are:
1) Pricing objectives
2) Demand analysis
3) Cost analysis
4) Competitive analysis
5) Government regulations
4. Pricing Objectives
It is derived from the corporate and marketing
objectives.
1. Survival
2. Maximum short term profits
3. Maximum short term sales
4. Maximum marketing skimming
5. Product-quality leadership
6. Other pricing objectives
5. Demand Analysis
Conditions determining price elasticity of demand:
the demand is likely to be less elastic ( or inelastic)
under the following conditions.
• There are few competitors
• No availability of substitutes
• The high prices
6. Cost-Benefit Analysis
Categorized in two benefits and they are:
1. Hard benefits, refers to physical attribute of the
product
such
as
production
rate
of
a
machine,
rejection
of
a
component,
and
price/performance ratio.
2. Soft benefits includes company reputation, customer
service, warranty period, customer training and
more difficult to assess.
7. Cost Analysis
Company costs set the lowest point on the price
range. Hence forth pricing strategy or decisions
must consider the cost involved. The industrial
marketer must identify and classify costs.
And they are classified as Fixed costs, Variable
costs, Total Costs, Semi variable costs, Direct
costs, Indirect Costs and allocated costs
The industrial marketer must understand and they
are…..
8. Cost Analysis
• Production costs
• Accumulated experience helps in reduction
of costs
• The effect of break-even analysis on costs
& sales volume
9. Production Costs
Fixed, Variable, Semi Variable, Indirect and Direct
costs
TFC
C
o
s
t
s
AFC
Production
Total Fixed Costs & Average Fixed Costs
11. Production Costs
Sl
Number
Cost Elements
1
Executive salary
2
Marketing Persons salary
3
Tax & Insurance
4
Depreciation
5
Interest on Capital
Total
Total Fixed cost per unit
Sl
Number
Cost Elements
1
Direct Labour
2
Direct Materials
3
Factory Supplies
4
Inventory carrying
Total
Total Variable cost per unit
Average
Average cost Prof. Raghavendran.V
per unit
FIXED
COSTS
VARIABLE
COSTS
12. Accumulated Experience
Is also called as learning curve or Experience Curve.
This concept costs ( particularly variable costs) decline
as cumulative volume of production increases. In
other words, the average unit total cost of a product
declines over a period with accumulated experience of
production and sales.
Avg
Cost
Per Unit
Accumulated Production
13. Break Even Analysis
It is technique which is used by the marketer to
consider different prices and their possible effects
on sales volumes and profits.
Sales Revenue @ 30
@ 25
@ 20
Total
Cost
FIXED COST
14. Competitor Analysis
Competitive-level pricing as most important
pricing strategy. An industrial Firm should
get the information on not only
competitor’s level prices and costs but also
competitors product quality, technical
expertise and delivery performance.
15. Government Regulations:
BM should be aware of the effect of government
regulations on pricing decisions. Though we free
market economy, there are some necessary
restrictions that must be placed on business to
ensure fair play and to protect consumers and
smaller companies.
• Price discrimination
• Predatory Pricing
16. Pricing Methods
There are different methods or approaches to
determine the price of the product. BM should be
aware of those to implement it and they are as
follows:
Cost Based Pricing
Value Based Pricing
Customer Determined Pricing
Competition Based Pricing
17. Pricing Strategies
1. Competitive Bidding & negotiation
2. Pricing New products
3. Pricing across the product-life cycle
Competitive Bidding & negotiation:
Strategy for competitive bidding, this is known as
probabilistic bidding, this strategy make 2
assumptions and the pricing objective is profit
maximization and buying organization will decide the
order on the lowest bidder.
18. Three variables are used in this technique:
Amount or price of the bid
Expected profit, if the bid price is accepted and
The probability of acceptance of this bid price.
E(A)= P(A) * T(A)
A= bid in Rs
E(A)=Expected profit at bid price A
P(A)=Probability of acceptance of the bid price A
T(A)= Profit, if the bid price A is accepted
20. Pricing Policies
Key Terms Associated with pricing
Discounts
List Price
Trade Discounts
Quantity Discounts
Cash Discounts
Geographical pricing
Ex-factory
FOR & FOB destination
Taxes and Levies
21. Leasing
It is an alternative to selling capital goods is a common
thing in business marketing. Basically it is
arrangement between the leasing company (lessor)
and the user (lessee)
The lessee has to pay in form of rentals and lessor
remains the owner of the equipment during the
specified period.
There are 4 types of leases viz,
Operating Lease
Financial Lease
Sale and lease back transaction
Leveraged lease
22.
23. Cost Behavior at Different Production Levels –
Economies of Scale
Cost / Unit (in rupees)
300
200
100
0
100
200
240
300
Quantity Produced / Year (in thousand)
24. The Pricing Strategies
Competitive bidding in competitive markets
Probabilistic bidding
Pricing new products
Skimming strategy
Penetration strategy
Pricing across the product life-cycle
Growth stage pricing
Maturity stage pricing
Decline stage pricing
