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Marketing Price

Marketing Price

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Published by tanbir singh

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Published by: tanbir singh on Sep 08, 2010
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After reading this module, students should:
Know why pricing is important
Know what is the scope of pricing
Know some of the objectives of pricing
Understand the different approaches of pricing
Know the effects of changes in price
Among the traditional 4 Ps in marketing that we learn of, Price is the only P which takes brings in revenue for the firm. All the other Ps, whether it is making a product, creating channels to distribute it and promotion of the product, just add on to the cost of the organization. It reflects (or rather should reflect) the demand-supplysituation present in the economy.Pricing is considered by many the key activity within the capitalistic system of free enterprise. Price becomes ahub around which the system revolves; it is the balance wheel which keeps the system operating on an evenkeel. Imperfections in pricing are an indication of imperfections in the system. Despite the increased role of nonprice factors in modern marketing, price remains a critical element of the marketing mix. Price is the onlyelement that produces revenue; the others produce costs. In setting pricing policy, a company follows a six-step procedure. It selects its pricing objective. It estimates the demand curve, the probable quantities it will sell ateach possible price. It estimates how its costs vary at different levels of output, at different levels of accumulated production experience, and for differentiated marketing offers. It examines competitors’ costs, prices, and offers. It selects a pricing method. It selects the final price.Companies do not usually set a single price, but rather a pricing structure that reflects variations in geographicaldemand and costs, market-segment requirements, purchase timing, order levels, and other factors. Several price-adaptation strategies are available: (1) geographical pricing; (2) price discounts and allowances; (3) promotional pricing; and (4) discriminatory pricing.After developing pricing strategies, firms often face situations in which they need to change prices. A pricedecrease might be brought about by excess plant capacity, declining market share, a desire to dominate themarket through lower costs, or economic recession. A price increase might be brought about by cost inflation or overdemand. Companies must carefully manage customer perceptions in raising prices. Companies mustanticipate competitor price changes and prepare contingent response. A number of responses are possible interms of maintaining or changing price or quality.The firm facing a competitor’s price change must try to understand the competitor’s intent and the likelyduration of the change. Strategy often depends on whether a firm is producing homogeneous or nonhomogeneous products. Market leaders attacked by lower-priced competitors can seek to better differentiateitself, introduce its own low-cost competitor, or transform itself more completely. Pricing is considered bymany the key activity within the capitalistic system of free enterprise. Price becomes a hub around which thesystem revolves; it is the balance wheel which keeps the system operating on an even keel. Imperfections in
Marketing Management, 1
semester, Jain University
MODULE-3 Price
 pricing are an indication of imperfections in the system.
Pricing can be defined as the method by which a marketer decides in quantitative (monetary) terms the value of a product at any particular point of time. In a very narrow sense we can define Price as the money that acustomer shells out in order to acquire or use the product/service. However, this will not be a sufficient way of describing the price. In a broader sense, we can define price as “the sum total of all the values that a customer exchanges for the benefit of using a particular product/service.” Pricing is a managerial task. It involvesestablishing objectives, determining the factors affecting price and their corresponding significance, setting the price and controlling it when required. Price in fact means different things to different participants in anexchange process:Buyer’s view: For those making a purchase, price refers to what has to be given up in order to obtain the befitsfrom a product.Seller’s view: As far as sellers as concerned, price would reflect the revenue generated from a product and thuswould ultimately determine the profits they can generate.
The market price of product influences wages, rent, interest and profits. That is, the price of a productinfluences the income earned by, or the price paid for, the factors of production labor, land capital andentrepreneurship. In this way, price becomes a basic regulator of the entire economic system because itinfluences the allocation of these resources. High wages attract labor; high interest rates attract capital and soon. Conversely, low wages, low rent or low profits reduce the availability of labor, land and risk takers.The price of a product or service is a major determinant of the market demand for the item. Price will affect thefirm's competitive position and its share of the market. As a result, price has considerable bearing on thecompany's revenue and net profit. The revenue is equal to unit price times the volume of units sold. The volumeitself, that is, the
measure of demand, is affected by the price. The profit is equal to revenue minuscosts. To some extent, costs are a function of volume and costs themselves are measured by their price. Priceaffects the market segment that will be reached by a firm. Because a person's income so often determines hisother socioeconomic characteristics, the price may influence the
nature of the company's market aswell as its quantitative limits.As far as the buyers are concerned, they must be able to derive a good value out of any purchase that theymake.Value = Perceived benefits receivedPerceived price paidThe price of the product is a direct means for the customer to either choose to buy the product or not.The price of a product also affects the firm's marketing program. In product planning, for example, if management wants to improve the quality of its product or add differentiating features, this decision can beimplemented only if the market will accept a price high enough to cover the costs of these changes. In thechannels of distribution, a properly priced product not only helps to attract the general types of middlemenneeded, but it can also attract desirable individual whole sales and retailers. The pricing structure will determinewhether the manufacturer or his retailers will be expected to finance the bulk of the promotional program.
Marketing Management, 1
semester, Jain University
MODULE-3 Price
Unless a price can be set high enough to pay for the advertising or personal selling, these efforts will have to becurtailed or omitted.
Fixing the price is not an easy task for anybody. Wrong pricing of a productcould drastically reduce the sales in an organization. Some other factors which make price important are listed below:1.Most flexible marketing mix variable2.Setting the right price can make the product viable/profitable3.Triggers first impression about the product4.Important part of sales promotions5.Price regulates demand6.Is a competitive weapon7.It is a decision input
Price And Pricing Objectives
 Markets attempt to accomplish certain objectives through their pricing decisions. Research has shown that pricing objectives vary from firm and many companies pursue by setting high prices, while others set low pricesto attract new business. The four basic categories of pricing objectives are:♦ Profitability♦ VolumeMeeting competition♦ Prestige
Profitability Objectives
 Most firms pursue some type of profitability objectives in their pricing strategies. Marketers know that:Profit = Revenue = ExpensesAlso, revenue is a result of the selling price times the quantity-sold:Total Revenue = Price X Quantity SoldSome firms try to maximize profits by increasing prices until sales volumes decline. This approach may or maynot work.Some marketers seem to believe that price consciousness is a personality trait. Price consciousness is the resultof how much spending money (discretionary income) a consumer has and how much the consumer thinks the product is worth (value). Far too often, low-price strategies compromise long-term plans.Since price is an easily observed characteristics of competing products it represents a powerful marketingweapon. However, it is also one of the easiest product traits to match by competitors. In marketplaceconfrontations based on price cutting, the reduction in per-unit revenues or they will leave all firms worse off than before the changes. Credit card companies are learning this lesson the hard way as they seek to enticecardholders to switch companies by offering below-average interest sales. They gain customers, but as soon asthe introductory rate period ends, savvy borrowers surf the financial web for another deal. In this promotion,credit-card marketers have succeeded only in creating a new, highly disloyal consumer group, the card surfers.The principle of 
profit maximization
forms the basis of much of economic theory, yet its application oftencreates difficult problems in practice. Many firms have turned to a simpler profitability objective the
target-return goal.
Most target-return pricing goals state desired profitability levels as financial returns on either salesor investment.
Marketing Management, 1
semester, Jain University

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