Pricing of Products/Services, Slides of Pharmaceutical marketing

Download Pricing of Products/Services and more Slides Pharmaceutical marketing in PDF only on Docsity! PRICING 1. What is price? 2. Factors to be considered to set the price. 3. Internal factors affecting pricing decision. 4. External factors affecting pricing decision. 5. Setting the price. 6. Pricing Strategies. 7. Factors affecting price. 8. Mark up pricing strategy. 9. Estimating Cost. 10. Cost based pricing. 11. Breakeven analysis. Topics to be Covered 1. Customer Value-Based Pricing 2. Good Value Pricing 3. Value Added Pricing Major Pricing Strategy Customer value-based pricing uses buyers’ perceptions of values as the key to pricing. Value-based pricing means that the marketer cannot design a product and marketing program and then set the price. Price is considered along with all other marketing mix variables before the marketing program is set. The company first assesses customer needs and value perceptions. It then sets its target price based on customer perceptions of value. The targeted value and price drive decisions about what cost can be incurred and the resulting product design. As a result, pricing begins with analyzing customer needs and value perceptions, and the price is set to match perceived value. Customer Value-Based Pricing The tom: er Value-Based Pricing ie Customer Value: Based Pricing Value-based pricing Vs Cost-based Pricing Cost-based pricing Designa good product rs Determine product costs & Set price based on cost > Convince buyers of product’s value wrong a7 Setting prices based on the costs for producing, distributing, and way! selling the product plus a fair rate of return for effort and risk. Value-based pricing Assess customer “a Determine costs ee ¥Good nen value ap customer Be that canbe > desired value at perceptions i, incurred . pricing target price | starts with . ; : esteey Setting price based on buyers’ perceptions of value rather than on seller’s cost. Internal Factors Pricing Decisions External Factors Target Market Positioning Objectives Factors to be considered to set the price Internal factors affecting pricing decision Marketing Objectives Marketing-Mix Strategy Costs Organizational Considerations Marketing objectives affecting pricing decision Marketing Objectives Survival Low Prices to Cover Variable Costs and Some Fixed Costs to Stay in Business. Current Profit Maximization Choose the Price that Produces the Maximum Current Profit, Cash Flow or ROI. Market Share Leadership Low as Possible Prices to Become the Market Share Leader. Product Quality Leadership High Prices to Cover Higher Performance Quality External factors affecting pricing decision Market and Demand Competitors’ Costs, Prices, and Offers Other External Factors Economic Conditions Reseller Needs Government Actions Social Concerns Market & Demand factors affecting pricing decision Pure Competition Many Buyers and Sellers Who Have Little Effect on the Price. Monopolistic Competition Many Buyers and Sellers Trading Over a Range of Prices. Oligopolistic Competition Few Sellers, Each Sensitive to Other’s Pricing/ Marketing Strategies Pure Monopoly Single Seller Different Types of Markets Setting the price 1. Selecting the pricing objective 2. Determining demand 3. Estimating costs 4. Analyzing competitors’ costs, prices, and offers 5. Selecting a pricing method 6. Selecting final price Each price will lead to a different level of demand. In the normal case demand & price are inversely related. The higher the price, the lower the demand. In the case of prestigious goods, the demand curve sometimes slopes upward. Estimating demand curves: Most companies make some attempt to measure their demand curves: Statistical analysis: past prices, quantities sold etc. Price experiment: Discount, different price, etc. Survey can be conducted regarding this. Price Elasticity of Demand: A price increase from 10 to 15 leads to a relatively small decline in demand from 105 to 100 (inelastic). But in some cases the same price increase leads to a large substantial drop in demand from 150 to 50 (elastic). If demand is elastic sellers will consider lowering the price. 2nd Step: Determining Demand - Demand set a ceiling on the price the company can charge for its product. Costs set the floor. The company wants to charge a price that covers its cost or producing, distributing, and selling the product, including a fair return for its effort & risk. - Two types of cost should be considered: Fixed costs & variable costs. 3rd Step: Estimating Cost Product Name Bulk Raw Pack Total Material Cost Variable Fixed Total Process Cost Product Cost Amoxicycilin Ped.Drop 4.0181 2.2490 7.7506 14.0177 15.1380 18.5018 33.6398 47.6575 The firm should first consider the nearest competitors’ price. If the firm’s offer contains features not offered by the nearest competitors, their worth to the consumer should be evaluated and added to the competitor’s price. If the competitor’s offer contains some features not offered by the firm, their worth to the customer should be evaluated and subtracted from the firm’s price. Now the firm can decide whether it can charge more, the same, or less than the competitor. 4th Step: Analyze Competitors’ cost, price & Offer - ricing by retailer and wholesaler Mark-up = 40% =$60 Mark-up = 20% =S18 Retailer's Hii i Wholesalers a we, price selling price . ‘ = 100% =$150 Manufacturer's i i = $90 selling price = 100% =S$72 MANUFACTURER > WHOLESALER = RETAILER = CONSUMER Target-return pricing: The firm determines the price that would yield its target rate of return on investment (ROI). Target pricing is used by General motors. Suppose company X has invested 1000000.00 & wants to set a price to earn 20% ROI. So in that case: Target-return price=unit cost+ (desired return*invested capital)/unit sales =16+(.2*1000000.00)/50000=20 Break-even volume = Fixed cost/(price-variable cost) = 300000/(20- 10)=30000 Selecting a pricing method NT —— Break-Even Chart $100,000 90,000 80,000 70,000 60,000 50,000 BREAK-EVEN POINT Cost, revenue, profit 40,000 Total variable costs 30,000 20,000 10,000 22 0 100 200 300 400 500 600 700 800 900 1000 = 1100 =: 1200 Quantity