INDUSTRIAL PRICING STRATEGIES &

POLICIES
• Pricing is a critical part of industrial marketing
strategy
• An industrial marketing manager should
integrate various strategies or the element of
marketing mix,
(such as product,price,promotion,&place) so as to
ensure that the total offering not only satisfies the
market needs but also meets company's objectives
 SPECIAL MEANING OF PRICE

• When an industrial buying firm buys a product

from XYZ supplier which is in competition with
several other suppliers of similar product,it means
that buying firm perceives that XYZ supplier
offered highest delivered value
• If there is no agreed formula on the importance to
be given to various benefits,different individuals in
the buying firm will have different perceptions of
value provided by various supplier
 Cont…
• Eg.Production managers may consider quality &
reliability of delivery as the most important benefit
for raw materials & components supplied for
manufacturing operations
• Financial manager may give more importance to
lowest cost & liberal payment terms
• Purchase or material managers may consider
reputation of the supplier firms
 FACTORS INFLUENCING
PRICING DECISION
• Pricing objectives
• Demand analysis
• Cost analysis
• Competitive analysis
• Government Regulations
 PRICING OBJECTIVES
• (1) SURVIVAL-A short-term objective followed
by some companies is survival if the factory
production capacity is underutilised to a large
extent or unsold finished products have piled
up, or due to intense competition, a firm is
unable to sell its products
• To keep factory going & convert inventory to
sales,as a part of survival objective,an firm
reduces prices
 Cont…
• Profits are less important than survival
• Prices are set in such a way that they cover
variable costs & a part of fixed costs so that
company stays in business
• This is done for a short-term
• However,in the long run,the firm must raise
its prices to cover total costs or face losses
 (2) MAXIMUM SHORT TERM
PROFITS
• Some companies try to set prices with
the objective of maximisation of short-
term profits
• They look for maximum current profits
• They ignore long-term performance &
customer relationships
• They look more market were there are
no or less compititors
 (3) MAXIMUM SHORT TERM
SALES
• Companies set prices with objective of
maximising short-term sales revenue
• For doing this,it is required to forcast the
company sales over a period of time
• They belive,that by maximising sales
revenue the companies will have growth in
market share & also have profit
maximisation
 (4) MAXIMUM SALES
GROWTH(MARKET
PENETRATION)
• Some companies fix prices of commodites as
low as possible with the objective of maximising
sales
• The assumption is that market is price sensitive
& that low prices will increase sales
• Other assumptions are (1) Highest volume will
reduce production & distribution costs, leading
to higher long-term profits(2)Low prices will
discourage entry of new competitors
 (5) MAXIMUM MARKET
SKIMMING
• If market penetration price is placed at one end
of pricing alternatives,skimming price would be
found at the other end
• Some companies set high prices in the initial
stages of the product life-cycle when they
introduce new & innovative products
• New product is initially aimed at those market
segments where demand is least sensitive to
price
 Cont…
• The company gets maximum revenue
& profits
• As the time passes & sales slow
down,prices are lowered in stages to
attract new customers from price-
sensitive market segments
• The assumption is different prices can
be charged to different segments of
customers at different times
 Cont…
• The risk involved is that high profits,
will attract new competitors
 (6) PRODUCT QUALITY
LEADERSHIP
• A company may have an objective to
be product-quality leader in a market
• The company,therefore,produces
superior quality product & charges
slightly higher than the competitors
price
• This pricing objective results in
higher profits
 (7) OTHER PRICING
OBJECTIVES
• Between two extrems of market
skimming & market penetration,there is
an intermediate range of pricing
alternatives
• Objectives achieved are
• Be regarded fair by customers
• Avoid government intervention
• Try to stabilise the market
• Handling The competition
DEMAND ANALYSIS
 Cont…
• If demand hardly changes with a small
change in price,then demand is inelastic
• However,if demand changes to a large
extent with a small change in price,then
demand is elastic
• Formula
• Price elasticity of demand= % change in
quantity demanded/ % change in price
 Cont…
• Eg.(1)If price increase by 2% &
demand falls By 5%
• Price elasticity of demand=5/2= -2.5
(the minus sign confirms the inverse
relationship between price & the
demand)
• Demand is said to be elastic,because
with small change in price ,there is
drastic change in demand
 Cont…
• Eg.(2)If price reduced by 10 % & demand
increase by 5%
• Price elasticity of demand=5/10= -0.5

• Demand is said to be inelastic,because with

large change in price ,there is small change
in demand
 CONDITIONS DETERMINING
PRICE ELASTICITY OF
DEMAND
• The demand is likely to be less
elastic(inelastic) under following conditions
• 1.There are few competitors
• 2.No availability of substitute products
• 3.Buyers think higher prices are justified by
inflation or changes in government polices
on excise duty or sales tax, & others
 GOVERNMENT
REGULATIONS
• Government have regulations to ensure fair
play,& protect consumers & smaller companies
• Price-fixing is illegal as per MONOPOLIES &
RESTRICTIVE TRADE PRACTICES(MRTP) act
• Eg.In US several companies & individuals were
fined & also some CEOs were sentenced to jail
in march 2000.for graphide electrode price-
fixing conspiracy
 PREDATORY PRICING
• Is no permitted,because it takes
place when a company with
dominant position lowers its prices,so
that new or smaller firms cannot
operate in profitable manner
• Eg.Rs.60 cr tender of Department of
Telecommunication for supply of
jointing kits.offered very low prices