Pricing- Concept Factors Setting prices for new products Product-mix pricing, Yield pricing

This presentation explores key pricing strategies that businesses use to set the right prices for their products and services. It covers value-based pricing, where prices are determined by the perceived value to the customer, and competitor-based pricing, which focuses on matching or balancing prices with those of competitors. The presentation also delves into specialized strategies such as price skimming, penetration pricing, and dynamic pricing, often used in industries like technology and airlines. Other topics include cost-plus pricing, freemium pricing, and yield management, providing a broad understanding of how companies manage pricing to optimize revenue and market positioning.

1. Pricing
Concept
Factors
Setting prices for new products
Product-mix pricing
Price adjustment
Challenges in pricing due to technology
Yield pricing

2. Concept
Pricing is a process of fixing the value that a manufacturer will receive in the
exchange of services and goods.
Pricing method is exercised to adjust the cost of the producer’s offerings
suitable to both the manufacturer and the customer.
The pricing depends on the company’s average prices, and the buyer’s
perceived value of an item, as compared to the perceived value of competitors
product.

3. Several factors work together when setting a price for a product or service:
Overhead Costs: This includes all the expenses related to producing a product or
providing a service, such as labor costs, marketing/advertising costs, and shipping
costs.
Competition: What are other businesses charging for similar products or services in the
same market? Companies should consider their competitors’ pricing structures when
setting prices for their own products and services.
Price Sensitivity (Demand Elasticity): How sensitive are customers to changes in
prices? If demand for a product or service decreases too much with an increase in
price, it may not be profitable to charge more.

4. Several factors work together when setting a price for a product or service:
Value Proposition: The value of a product or service should reflect its price. Companies
should consider the extra features, quality, customer service, and brand value that customers
gain when they purchase their products or services.
Pricing Strategy: Loss leaders, price skimming, penetration pricing, premium pricing—there
are many different strategies to consider when setting prices for products and services.
Companies should determine the most appropriate strategy based on their goals and market
situations.
Product Complexity: Businesses with complex products (e.g., software with multiple features)
may need to consider different pricing models depending on the complexity of their products.
For example, subscription-based pricing or pay-as-you-go plans may be suitable for software
products.

5. Types of Pricing Method
VALUE-BASED PRICING
Value-based price is a pricing strategy that bases prices on the value customers receive
from products or services rather than their production costs. Rather than focusing on
competitors, companies that use value-based pricing largely base their retail price on the
value customers attribute to the product or service (i.e., what they are willing to pay).
Value-based pricing works best for companies that:
Sell unique products with a high perceived value.
Sell lightweight and efficient products that exponentially boost revenue growth for their
clients.
Have a limited number of competitors in the market.
Have substantial market research data about customer perceptions.

6. Competitor-Based Pricing
Competitor-based pricing is the opposite of value-based pricing. It’s a pricing method that
bases prices on those of competitors in the same market.
It’s important to note that competitor-based pricing isn’t about having the lowest price, but
rather finding a balance between charging what customers are willing to pay and what the
company needs in order to make a profit.
Competitive pricing is well suited to companies that:
Sell products with similar features across a competitive market.
Have a limited number of customers and aren’t able to charge higher prices due to
competition.
Recently entered the market and don’t have much customer data.
Have the resources needed to track competitor pricing strategies.
Are comfortable charging the same price as competitors, but offering a better product or
service.

7. Price skimming
Price skimming is about setting the price of a new product high to capitalise on
consumer demand, and then eventually lowering it over time.
It works best for products that are highly anticipated, innovative, or of the moment
– and which have no real competition.
Electronics and gaming is a big one for price-skimming.
Apple products selling at a premium, or the latest PlayStation that customers are
willing to pay top-dollar for – even knowing the price will eventually drop, or that a
new version will be released 1-2 years down the line.

8. Penetration pricing
Penetration pricing uses the opposite approach to price skimming.
It’s when a business looking to launch their product into a market offers a low initial price
point in order to reel buyers in and lure them away from competitors.
It’s a common approach with online subscriptions where you might be offered one month
free, or 50% off the regular price in the hope that you will remain with the service once your
offer period ends.
We also see it used with taxi services like Uber and its competitors.
It can be a useful strategy for generating high sales volumes in a short period of time, and
building a buzz as customers flock to check what the fuss is about.
The risks are that savvy customers take you up on your initial offer but return back to their
usual brand–or find another discounted offer–once their trial period is over or their curiosity
has been satisfied. It can also kick-off price wars with competitors, meaning you’ll need to live
with lower profits for longer.

9. Cost-Plus Pricing
The cost-plus pricing strategy is a product pricing method that uses the production costs of a
product or service as the baseline and adds an additional percentage (the “plus”) to determine
the final price.
In other words, companies figure out their costs for producing a product, then add a profit
margin on top of that cost. This helps them cover overhead expenses, account for risk, and
gain a profit.
Cost-based pricing strategies work best when the product or service has:
High production costs (e.g., industrial goods).
Few competitors in the market.
A large customer base that can absorb price increases.

10. Dynamic Pricing
Dynamic pricing is an approach where companies adjust their prices in real time based on
market demand, customer behavior, and other factors. This type of pricing strategy relies
heavily on analytics and data to make sure prices are set correctly.
In terms of revenue optimization, dynamic pricing is one of the most effective strategies. It
allows companies to adjust their prices in real time and maximize profits while still offering
customers a good value.
Airlines, for example, use dynamic pricing to adjust their fares according to customer demand.
Dynamic pricing is most suitable for companies that:
Have access to large amounts of customer data.
Are able to respond quickly to changes in the market.
Can create models or algorithms to analyze customer data and adjust prices accordingly.
Are comfortable with risk.
Have enough leverage to guarantee that customers will accept the pricing changes.

11. Freemium Pricing
When launching a new product, freemium pricing is one option you might want to consider.
With freemium pricing, you offer a free basic version of your product and then charge for
premium features or upgrades. This can be a great way to attract new users and get them hooked
on your product. And once they're using and enjoying the free version, they'll be more likely to
upgrade to the paid version.
Of course, there are some risks with this approach. You need to ensure that the free version is
good enough to entice people to use it but not so good that they don't see the need to upgrade.
And you also need to be careful not to overuse this strategy, or you could end up devaluing your
product in the eyes of potential customers.

12. High-Low Pricing
This involves setting a higher price point for your product when it first launches and gradually
lowering the price over time.
There are a few reasons why this strategy can be effective.
First, it helps to create a sense of urgency and excitement around your product. People are more
likely to buy something if they think they might miss out on it.
Second, it allows you to recoup your initial investment more quickly.
And third, it can help increase perceived value.
Of course, there are also some potential downsides to this strategy. For example, if you initially
set your price too high, you risk turning people off and missing out on potential sales. And if you
lower the price too much over time, you might devalue your product in people's eyes.

13. Yield Pricing
Yield pricing, also known as yield management or revenue management, is a dynamic pricing
strategy used to maximize revenue by adjusting the price of a product or service based on
demand, supply, and other factors like time or customer segmentation.
Key Concepts-
Demand Forecasting- Forecasting helps determine the optimal price to charge at different
times to maximize revenue.
1.
Price Sensitivity- business travelers may be less price-sensitive and willing to pay more for
last-minute bookings, while leisure travelers may be more price-sensitive and book in
advance.
2.
Capacity Utilization- The goal is to maximize the use of available capacity, whether it's hotel
rooms, airline seats, or rental cars.
3.
Segmentation-airlines may offer discounted prices to early bookers and higher prices to last-
minute travelers.
4.

14. Product Mix
Pricing
Strategy

15. What is Product Mix?
A product mix is the collection of all of the product lines owned by a brand, as well as
all the products contained within each product line. Product mixes are generally
considered to have four main dimensions:
Width is the number of different product lines offered.
Depth is the number of product variations in any one of those product lines.
Length is the number of products included in the overall product mix.
Consistency refers to the way different product lines relate to each other.

16. Product Mix Pricing
PRODUCT LINE PRICING
In product line pricing, the firm must determine
the price steps between various products in a
product line based on cost differences between
the products, competitors’ prices, and, most
importantly, customer perceptions of the value of
different features.
For example, when you look at a car brand, you
will see a relation between the different series and
their prices. The entry model obviously costs you
less than the top-range car.
OPTIONAL PRODUCT PRICING
Optional product pricing is the pricing of
optional or accessory products along with a
main product. In many cases, you can buy
optional or accessory products along with the
main product.
For instance, when you order your new car, you
may choose to order a navigation system or an
advanced Entertainment system. However, for
the company, pricing these options is not easy.
They must decide carefully which items to
include in the base price and which to offer as
options.

17. CAPTIVE PRODUCT PRICING
Setting prices for two
complementary products where
one is the main product and the
other is necessary for the
functioning of the main product
is referred to as captive product
pricing.
For example, Primary product is
smartphone, and secondary
products are screen gaurds,
chargers etc.
Most inkjet printers rely on
proprietary ink cartridges which
customers must purchase for
the continued use of their
printers.
PRODUCT BUNDLE PRICING
When brands combine several products
or services to sell together, usually at a
reduced price. It encourages customers
to purchase more from the same brand
than they otherwise may have, and it
offers them the opportunity to discover
what else the brand has to offer,
frequently from different product lines.
For example, McDonald’s offers a
bundle consisting of a burger, fries and a
soft drink at a reduced price. Also,
companies such as Sky, Telecom and
other telecommunications companies
offer TV, telephone and high-speed
internet connections as a bundle at a low
combined price.
BY-PRODUCT PRICING
When a company
manufactures a product,
it leaves behind some
residue. Disposal of this
residue is often a concern
for manufacturers.
Companies find a use for
this by-product and earn
additional revenue by
selling it.
Example: A
slaughterhouse sells meat
as its main product. Its
by-products are the skin
and bones.