Pricing Strategies & Consumer Psychology.pptx

Marketing Basics

1. Pricing & Consumer Psychology

2. Presentation Agenda 01 Introduction to Pricing Defining the core concept and its role in marketing. 02 Consumer Psychology & Pricing Understanding how consumers perceive and react to prices. 03 Factors Influencing Pricing Internal and external elements that shape pricing decisions. 04 Pricing Strategies Exploring various approaches to setting prices. 05 Indian Case Studies Real-world examples from the Indian market. 06 Classroom Activities & Assignment Interactive exercises to apply learned concepts. 07 Pricing Cheat Sheet A quick reference guide for future use.

3. What is Pricing? Pricing is the process of determining the monetary value (cost) that a consumer has to pay to acquire a product or service. It's not just a number; it reflects the perceived value and utility of the offering. In the marketing mix, pricing is one of the crucial 4Ps (Product, Price, Place, Promotion) . It directly impacts revenue, profitability, and competitive positioning. An optimal price strikes a balance between covering costs, generating profit, and being attractive to the target customer.

4. Importance of Pricing in India India is a highly price-sensitive market , where even a small difference in price can significantly influence consumer choice. Growing premium segment willing to pay more for quality and brand. This dual nature makes pricing in India complex and dynamic. Companies like Jio revolutionized the telecom industry with aggressive pricing. Patanjali tapped into the value-for-money, ethically-sourced segment. E-commerce giants like Flipkart and Amazon constantly battle with pricing strategies to capture market share. Jio's aggressive pricing strategy led to rapid subscriber growth, disrupting the Indian telecom market. Data as of late 2023

5. Key Pricing Objectives Profit Maximization Setting prices to achieve the highest possible profit margins, often through careful cost analysis and demand forecasting. Market Share Leadership Aiming to gain a dominant share of the market, sometimes by lowering prices to attract a large customer base. Survival Pricing to stay afloat during challenging economic times or intense competition, often involving price reductions to maintain sales volume. Brand Image Using price to convey exclusivity and premium quality, or conversely, to signify value and affordability, aligning with the brand's positioning. Increasing Sales Volume Increasing the quantity of products sold, which can directly impact profit but may lead to lower per-unit margins Market Entry Setting prices strategically to penetrate a new market and create interest and demand for a new product Preventing Competition Setting prices low enough to deter new entrants into the market or to drive out existing marginal competitors.  Revenue Generation Cash Flow Target ROI Customer Retention etc.

6. Consumer Psychology & Pricing Pricing is not purely an economic decision. It intertwines with consumer psychology. Pricing Perception influences purchase decisions Anchoring: The tendency to rely heavily on the first piece of information offered (the "anchor") when making decisions. Odd-Even Pricing: The belief that prices ending in odd numbers (e.g., ₹999) appear significantly lower than a round number (e.g., ₹1000). Reference Price: The price against which consumers compare the actual price of a product, often based on past experiences or competitor prices. Willingness to Pay (WTP): The maximum price a consumer is willing to pay for a product or service, reflecting their perceived value.

7. Pricing Strategies Group 1: Economy, Medium-Value and Premium Group 2: Good Value, High Value and Superb Value Group 3: Rip Off, Overcharging and Poor Value

8. Pricing Strategies Overview

9. Penetration Pricing: Gaining Rapid Market Share Penetration pricing involves setting an initially low price for a new product or service to attract a large number of customers quickly and gain significant market share. The goal is to discourage competitors and achieve economies of scale as production increases. Once market share is established, prices may gradually increase. Example: Jio's Disruption in India Reliance Jio famously utilized penetration pricing when it launched its telecom services in India. Offering free voice calls and extremely low-cost data plans initially, Jio quickly amassed millions of subscribers, shaking up the entire telecom industry. This strategy allowed them to capture a massive user base within a short period. Skimming Pricing: Maximizing Early Revenue Market-skimming pricing involves setting a high initial price for a new product to "skim" maximum revenue layer by layer from the segments willing to pay the high price. The company makes fewer but more profitable sales. This strategy is effective when demand is inelastic, product quality and image support a high price, and competitors are not likely to enter the market quickly. Example: iPhone Launches in India Apple frequently uses a skimming strategy for its new iPhone models in India. Upon release, the latest iPhone is priced at a premium, targeting early adopters and brand loyalists who are willing to pay top dollar. As time passes and new models are introduced, the price of older iPhone models is gradually reduced, making them accessible to a wider market segment. This allows Apple to maximize profits from different customer segments over time. Pricing Strategies..

10. Premium Pricing: Exclusivity and Perceived Value Premium pricing, also known as prestige pricing, involves setting a price higher than competing products to give the impression of higher quality, exclusivity, or luxury. This strategy relies heavily on brand image, unique features, and superior customer experience. It targets consumers who are less price-sensitive and value prestige and quality above all else. Examples: Starbucks and Taj Hotels In India, Starbucks commands higher prices for its coffee compared to local cafes. Customers pay for the international brand experience, premium ingredients, and inviting ambiance. Similarly, Taj Hotels are synonymous with luxury and impeccable service, justifying their premium room rates. These brands have successfully built a perception of superior value that supports their higher pricing. Pricing Strategies..

11. Bundle Pricing: Value Through Combinations Bundle pricing is a strategy where several products or services are offered together as a single package at a lower combined price than if each item were purchased separately. This can encourage customers to buy more, help clear inventory, or introduce new products. It creates added value for the consumer while increasing the average transaction value for the business. Example: Disney+ Hotstar IPL Package Disney+ Hotstar effectively uses bundle pricing, especially around major sporting events like the Indian Premier League (IPL). They offer a subscription package that combines access to their extensive library of movies and TV shows with live IPL matches. This bundle is often priced attractively to entice cricket fans to subscribe, offering them more content for a perceived better deal than standalone streaming or sports packages. Pricing Strategies.. Freemium Pricing: Try Before You Buy Freemium is a business model where a basic version of a product or service is offered for free, while advanced features, functionality, or content are available for a premium price. The term "freemium" is a portmanteau of "free" and "premium." This strategy aims to attract a large user base with the free offering and then convert a percentage of those users into paying customers. Example: Byju's Learning App Byju's , India's leading EdTech company, extensively uses the freemium model. They offer a free trial or basic access to some of their learning content and educational videos. To unlock the full suite of features, including personalized learning paths, live classes, and in-depth modules, users need to subscribe to their premium paid plans. This allows potential customers to experience the value before committing financially.

12. Dynamic Pricing: Real-time Adjustments Dynamic pricing, also known as surge pricing or demand pricing, is a strategy in which businesses set flexible prices for products or services based on current market demands. Prices can change in real-time based on factors like demand fluctuations, time of day, supply levels, competitor prices, and even customer behavior. This aims to maximize revenue by matching prices to the immediate market conditions. Example: Uber/Ola Surge Pricing Ride-sharing platforms like Uber and Ola are prime examples of dynamic pricing. During peak hours, bad weather, or high-demand events, their algorithms automatically increase fare prices ("surge pricing") to incentivize more drivers to come online and balance supply with demand. Conversely, during low-demand periods, prices might drop. This ensures availability and optimizes earnings for both drivers and the platform. Pricing Strategies.. Psychological Pricing: Playing on Perception Psychological pricing is a broad category of strategies designed to appeal to consumers' emotions rather than rational thought. These tactics make prices seem more appealing, often by slightly altering their presentation. The goal is to create a perception of greater value or affordability. This often involves the "left-digit effect" where customers perceive items priced at ₹499 as significantly cheaper than ₹500, due to focusing on the first digit. Example: Amazon's ₹499 vs ₹500

13. Discount Pricing: Driving Short-term Sales Discount pricing involves offering products or services at a reduced price for a temporary period or under specific conditions. The primary goal is to boost sales volume, clear excess inventory, attract new customers, or respond to competitor pricing. While effective for short-term gains, over-reliance on discounting can erode brand value and train customers to wait for sales. Example: Flipkart Big Billion Days Flipkart's "Big Billion Days" is an iconic example of discount pricing in India. During this annual sale event, Flipkart offers massive discounts across various product categories, accompanied by aggressive marketing. This leads to a surge in sales, attracts millions of shoppers, and positions Flipkart as a go-to platform for value-for-money deals, especially during the festive season. Pricing Strategies..

14. Indian Case Study: Jio Jio's entry into the Indian telecom market is a textbook example of successful penetration pricing . By offering free voice calls and extremely affordable data, Jio rapidly acquired a massive subscriber base, disrupting established players.

15. Discuss and propose a pricing strategy for Zomato Gold, the dining and delivery subscription service. Consider its current positioning, target audience, and market competition. Which pricing strategies (e.g., penetration, premium, freemium, bundle) would be most effective? How would you incorporate psychological pricing elements? What internal and external factors would influence your decision? Classroom Activity 2: Zomato Gold Strategy

16. Indian Case Study: Zomato vs Swiggy The battle between Zomato and Swiggy exemplifies the interplay between discount and subscription pricing . While both offer various discounts, Zomato has leaned more into its "Gold" subscription, offering exclusive benefits, whereas Swiggy often focuses on broader, frequent discounts.

17. Indian Case Study: Apple iPhone India Apple's strategy in India is a clear demonstration of skimming pricing combined with leveraging high Willingness to Pay (WTP) for its premium brand. Despite prices being higher than in some other markets, a segment of Indian consumers is willing to pay the premium for the latest iPhone.

18. Indian Case Study: HUL vs Patanjali The competition between Hindustan Unilever (HUL) and Patanjali represents a clash between established brand power and a low-cost disruption strategy. Patanjali entered the market with Ayurveda-based products, offering them at significantly lower prices, challenging HUL's dominance in certain FMCG categories Price /100 gms