Retail Industry In India

Pricing Strategy

What price is right?

Suppose there are two people A and B, they both subscribe to the services of a gym. A

pays the annual subscription of INR 12000 while B pays in monthly installment of INR

1000. Both of them pay the same amount but B is more likely to continue exercising at

the club than A. A will look forward to get the money worth early in the membership, but

this drive will lessen as the INR 12000 fades into the past. While A will be reminded of

the drive as he/she has to incur the cost per month. The gym owner may argue that B

will be least likely to take the membership for another year, but like we say it all

depends.

Price, the name may vary according to the interest of the sellers. It may be rent, fee,

donation, subscription, tuition, toll, honorarium; fee for professional service etc. price is

what is given up in exchange of a good service. We often hear a consumer asking for a

"reasonable price". So what is this reasonable price? It is the perceived reasonable

value at the time of transaction. Price paid is based on the satisfaction customers

expect to receive and not necessarily the satisfaction they actually receive.

Thus the executives must draw the customer's attention to the price that was paid is

counter intuitive. People are more likely to consume when they feel "out of pocket". In

case of the example in the first paragraph, a consumer is unlikely to buy again the

product he does not consume. Another example is the price bundling which often

happens in case of FMCG goods.

Determinants of Pricing:

Ð'* Stages in PLC

Ð'* Distribution Strategy

Ð'* Promotion strategy

Ð'* Competition

Ð'* Internet and Extranet

Ð'* Demand of large customers

Considerations in Pricing-

1. Break even- It is the point below which it will be unreasonable to price a product

2. Price Sensitivity- there are 2 factors that affect prices:

Consumer attitude

Attribute preference

The degree to which consumer demand is sensitive to price changes is Price

Elasticity.

3. Positioning- Premium price suggests product quality. Even distribution channels

define the class/ segment targeted. Rolex is distributed through exclusive retailers

while Timex through mass merchants.

4. Target Market- A good understanding of the target market shall give fair insight

about the tastes and preferences and readiness to pay.

5. Promotions- We seldom see discounts in the premium perfume segment, this is

because they wish to promote themselves as a classic produce not an easy to reach

product. While in case of Fa deodorants, limited price reductions will only help in

increasing the sales.

Business Strategy Assignment -1 Pricing Strategy

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6. Competitive Bidding- In case of construction industry, the price of a project is

determined by tenders presented by the industry players.

7. Business Goal- It necessarily means what one needs to accomplish. It can be

increasing short term sales or increase in sales growth or even survival.

Steps for developing Pricing Strategy:

1. Develop Marketing Strategy- marketing analysis, segmentation, targeting and

positioning.

2. Make Marketing Mix Decisions- Define the product, distribution and

promotional tactics.

3. Estimate the demand curve- Understand how quantity demanded varies with

price.

4. Calculate cost-Include fixed and variable costs involved.

5. Understand environmental factors- Competitor action, legal constraints etc.

6. Set pricing objectives- revenue maximization, price stabilization etc.

7. Determine pricing- Use the information collected above and fix a pricing

strategy.

Business Strategy Assignment -1 Pricing Strategy

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Types of Pricing Strategy:

1. Skimming-

This strategy is used for new products when it is perceived by the target market as

having unique advantage. It works best when the market is willing to buy the product

even if it is priced above average. A successive skimming allows recovery of the

development costs quickly. It encourages competition to enter the market.

Y-Axis

2. Penetration-

It is the opposite of Skimming. It aims at charging a relatively low price for a product.

The strategy is designed to capture substantial market share, lower production cost

and