CHAPTER TWENTY-TWO
Pricing
Topics Covered
The pricing landscape is changing
Capturing value: The purpose of pricing
Role and importance of pricing
Pricing objectives and pricing strategies/methods
Pricing strategies for capturing value
New products pricing
The Pricing Landscape Is Changing
Aggregators disrupt the firm’s pricing freedom
Exhibit 22.1 ‘The New Negotiators in Pricing: Clout of Airbnb and OYO;
Uber and Ola’ illustrates the pricing clout of Airbnb and OYO in the
hotel industry, and that of Uber and Ola in the taxi business.
Online marketplaces: Another disruptor of firms’ pricing freedom
Exhibit 22.2 ‘Technologies Track Product–Price Movements in Online
Marketplace’ illustrates how the online marketplaces increasingly
supported by latest technologies in tracking product–price movements
are changing the pricing scene.
Capturing Value: The Purpose of Pricing
Pricing has a twin role; it has to satisfy the customer by carrying the
right value to her and simultaneously capture back to the company’s
kitty the value that is due to the company.
Pricing becomes a difficult task, as it is required to quantify the value
offered
• To shape the price right, one has to correctly estimate the value of
the offer, but estimating the value correctly is a difficult task.
• Value is multidimensional. It includes the contribution made by
tangible and intangible factors.
Role and Importance of Pricing
• Price is the only element in the marketing mix of a firm that
generates revenue. Everything else generates only cost.
• Price and sales volume together decide the revenue of any business.
• Price is also the most important determinant of the profitability of
the business.
• Pricing acquires its importance on account of yet another factor; it is
a very risky decision area and mistakes in it seriously affect the firm’s
profits, growth and future.
Chart 22.1 ‘Factors Influencing Pricing’ gives a fairly exhaustive list of
internal and external factors that influence pricing.
Pricing Objectives and
Pricing Strategies/Methods
Pricing objectives
1. Pricing objectives flow from marketing objectives.
2. A business firm will have a number of objectives or a mix in the matter of
pricing.
Firms seek a mix of objectives from pricing
Chart 22.2 ‘Objectives Firms Seek in Pricing’ lists the various objectives sought by
firms through pricing.
Pricing strategies/methods
Chart 22.3 ‘Broad Categories of Pricing Methods’ shows the different methods of
pricing.
The methods are not to be treated as distinct silos
Pricing to Capture Value
• Price must reflect value
Customer value has to be the key in pricing
• Essence of pricing to value
1. Value > price > costs (this is not what we seek)
2. Price > value > costs (this is not what we seek)
3. Price > costs > value (this is not what we seek)
4. Price = value > costs (this is what we seek)
• Pricing to value is the winning approach
• Different approaches can work here (Exhibits 22.3 and Exhibit 22.4)
‘Challenge the cost’ route
Offering lower/affordable price points also a part of ‘pricing to capture value’
(Exhibit 22.5)
New Products Pricing
• Pricing of a new product should evolve out of the following:
The requirements of the firm in pursuing the given product
The extent of newness of the product
• The two broad alternatives available in new product pricing are as follows:
Skimming pricing
Penetration pricing
Managing pricing needs organisational infrastructure (Exhibit 22.6)
Pricing Procedure (Chart 22.4)
