UNIT - 5

Different competitive situations

 Contents

 Perfect competetition
 Monopoly competetition
 Monopolistic competetition
 Oligopoly competetition
 Pricing Method
 Perfect Competition

Features
 Large number of buyers and sellers

 Homogeneous product

 Free entry and exit

 Perfect knowledge

 Indifference

 Non existence of transport costs

 Perfect mobility of factors of production

 Perfect Competition
price-output determination

Short- Long-
run run
 Monopoly competition

Features

 Single person or a firm

 No close substitutes
 Large number of buyers
 Price maker
 Supply and price
 Downward sloping demand curve
 Monopoly competition
price-output determination
When demand and cost are favourable
 Monopolistic Competition

Features

 Existance of many firms

 Product differentiation
 Large number of buyers
 Free entry and exit
 Selling costs
 Imperfect knowledge
 The group
 Oligopoly Competition

Features

 Few firms or sellers

 Interdependence
 Both homogeneous or product differentiation
 Not easy to enter
 Every seller has a impact on other sellers
 There is a price war and price rigidity
 Price output decisions are very difficult and
indeterminate.
What is price?
Price may be defined as the value of product
attributes expressed in monetary terms which
a consumer pays or is expected to pay in
exchange and anticipation of the expected or
offered utility.
What is pricing?
Pricing is the function of determining
product value in monetary terms by the
marketing management of a company before
it is offered to the target consumer for sale.
 Pricing Methods

Competition
Cost Based Demand Based Strategy Based
Based

Going
Sealed Bid Penetration Skimming
Rate

Cost Plus

Marginal Perceived
Full Cost Differential
cost value
 Cost Based Methods

a) Cost-plus Pricing: Here the anticipated profit

on product being sold is added to cost of
production per unit of the product.
b) Break-even Analysis and Target Profit Pricing:
This is another cost-oriented pricing approach.
Here the firm tries to determine the price that
will produce the profit it is seeking. It is known
as target pricing. Normally some companies
keep 10 to 20 percent profit on its investment.
Target pricing uses the concept of break-even
chart.
 Buyer Based Methods

Certain Companies base their pricing on the product’s

perceived value. They see the buyer’s perception of value,
not the seller’s cost, as the key to pricing. Here, seller use
non-price variables in the marketing mix to build up
perceived value in the buyer’s minds.
For example a cup of coffee in a self service restaurant is
charged at Rs.5/-, in a restaurant with service at Rs.8/-, in
a family restaurant at Rs.12/-, in a posh area a/c room at
Rs.15 and in 3 star hotel at Rs.20 and in 5 star hotel may
be Rs.25/-. So each successive restaurant can charge more
because of the value added by the atmosphere.
 Competition Based Methods

a) Going-rate Pricing: In this case company bases its

price largely on competitors prices, with less
attention paid to its own costs or demand.
b) Sealed-bid Pricing: Pricing to bid for jobs is
sealed bid pricing. The firm bases its price on
expectations of how competitors will price rather
than on a rigid relation to the firm’s costs or
demand. The purpose is to win the contract and
therefore pricing, is lower than others. However
firm cannot set the price below a certain level.
E.g.: Indian Oil Corporation
 Pricing Strategy #1
Price A Product Or Service To
Penetrate The Market

Example:
The way marketing guru Dr. Ken Evoy, who
introduced his first product
"Make Your Site Sell" to the Internet in 1999, is
a good example of how to penetrate the market.
Dr. Evoy developed a huge affiliate network of
thousands of marketers by introducing this
extremely low-priced informational product
about Internet marketing. Today, his company
enjoys the benefit of repeat business because he
was able to effectively penetrate the market with
this strategy.
 Pricing Strategy #2

"Skimming the Cream!"

"Skimming the cream" is the opposite of
penetration. This is a high priced model,
sometimes called "top pricing."
The idea behind this philosophy is to give you
high profits, even at the cost of losing a large
number of potential customers. 
Typically, when a company launches a new
product, they charge higher prices in the
beginning to help recoup R&D expenditures
quickly. Pricing
 Pricing Strategy #3

"The Loss Leader!"

Want to kill your competition? The loss leader is
the way to set your prices to get the job done.
No matter the cost!
Even at a loss in profits!
In its truest form, this approach has one
objective --
ELIMINATE THE COMPETITION!
The consequences of even a slight misjudgment
in using this retail pricing strategy could be
devastating to your business.