Pricing is the process of determining what a company will receive in exchange for its products.

Pricing factors are manufacturing cost, market place, competition, market condition, and quality of product. Pricing is a fundamental aspect of financial modeling and is one of the four Ps of the marketing mix. The other three aspects are product, promotion, and place. Price is the only revenue generating element amongst the four Ps, the rest being cost centers. The needs of the consumer can be converted into demand only if the consumer has the willingness and capacity to buy the product. Thus pricing is very important in marketing.

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Understand your costs: That includes both direct expensesi.e., what you pay for raw materialsand overhead, such as insurance and rent. With that information, you can then determine whether youll be able to cover your costs and generate a profit by charging specific prices. Investigate the competition: If there are comparable products or services on the market, youll have to know how theyre priced. You might not charge that amount, but youll need to use it as a baseline. Then, determine what kind of value youll add and the level of quality youll offer. Understand who your customer is: That means conducting thorough market research, either by hiring a specialist or doing surveys on your own. In either case, your goal is to get a detailed view of who your customers are and just how much they can spend.

Pricing Objectives Or Goals Give Direction To The Whole Pricing Process. Determining What Your Objectives Are Is The First Step In Pricing. When Deciding On Pricing Objectives You Must Consider: 1. The Overall Financial, Marketing, And Strategic Objectives Of The Company; 2. The Objectives Of Your Product Or Brand; 3. Consumer PRICE ELASTICITY (is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price.) & PRICE POINTS(Price points are prices at which demand for a given product is supposed to stay relatively high.) And 4. The Resources You Have Available.

SOME OF THE MORE COMMON PRICING OBJECTIVES ARE: Maximize Long-run Profit Maximize Short-run Profit Increase Sales Volume (Quantity) Increase Monetary Sales Increase Market Share Company growth Survival

The pricing of your product or service is a key element in determining the profitability of your business. Unless you have a product or service that offers a unique or additional benefit, if your price is too high, demand will reduce and you may price yourself out of the market. Unless you have a sustainable cost advantage, if your price is too low, your sales volume may not generate enough revenue to cover the costs associated with your business. People may also believe that the product or service does not offer value at such a low price. Why Is It Important? Pricing is a key determinant in the decision making process customers use to purchase a product or service It is important to establish how much your target market will pay for your product or service, how sensitive your customers are to changes in price and how price discounting will affect the level of demand and profitability of your business.

At different stages of your product or service life cycle you may change your pricing strategy to suite your business needs.

This graph illustrates the importance of pricing correctly. The centerline represents market value. As you move above this market value, you attract much smaller percentage of prospective buyers, greatly reducing your chances of a sale. Conversely, as you move below market value, you attract a much larger percentage of potential buyers.

This chart illustrates the level of excitement and interest in a new listing over time. It also demonstrates the importance of pricing correctly. When a property is first listed, it generates a very high level of interest from prospective buyers, which reduces dramatically over time. It is important to be priced correctly from the beginning, during the peak of this curve.

A well chosen price should do three things: achieve the financial goals of the company (e.g., profitability) fit the realities of the marketplace (Will customers buy at that price?) support a product's positioning and be consistent with the other variables in the marketing mix price is influenced by the type of distribution channel used, the type of promotions used, and the quality of the product price will usually need to be relatively high if manufacturing is expensive, distribution is exclusive, and the product is supported by extensive advertising and promotional campaigns low price can be a viable substitute for product quality, effective promotions, or an energetic selling effort by distributors
From the marketer's point of view, an efficient price is a price that is very close to the maximum that customers are prepared to pay. In economic terms, it is a price that shifts most of the consumer surplus to the producer. A good pricing strategy would be the one which could balance between the price floor (the price below which the organization ends up in losses) and the price ceiling (the price beyond which the organization experiences a no demand situation).

External Factors Internal Factors Marketing Objectives Marketing Mix Strategy Costs Organizational considerations Nature of the market and demand Competition Other environmental factors (economy, resellers, government)

Pricing Decisions

Internal Factors When setting price, marketers must take into consideration several factors which are the result of company decisions and actions. To a large extent these factors are controllable by the company and, if necessary, can be altered. However, while the organization may have control over these factors making a quick change is not always realistic. For instance, product pricing may depend heavily on the productivity of a manufacturing facility (e.g., how much can be produced within a certain period of time). The marketer knows that increasing productivity can reduce the cost of producing each product and thus allow the marketer to potentially lower the products price. But increasing productivity may require major changes at the manufacturing facility that will take time (not to mention be costly) and will not translate into lower price products for a considerable period of time. External Factors There are a number of influencing factors which are not controlled by the company but will impact pricing decisions. Understanding these factors requires the marketer conduct research to monitor what is happening in each market the company serves since the effect of these factors can vary by market.

Survival Low Prices to Cover Variable Costs and Some Fixed Costs to Stay in Business.

Marketing Objectives

Current Profit Maximization Choose the Price that Produces the Maximum Current Profit, Etc.
Market Share Leadership Low as Possible Prices to Become the Market Share Leader. Product Quality Leadership High Prices to Cover Higher Performance Quality and R & D.

Product Design

Non-price Positions

Price

Distribution

Promotion

Market and Demand Competitors Costs, Prices, and Offers Other External Factors
Economic Conditions Reseller Needs Government Actions Social Concerns

Pricing in Different Types of Markets

Pure Competition

Many Buyers and Sellers Who Have Little Effect on the Price

Pure Monopoly
Single Seller

Many Buyers and Sellers Who Trade Over a Range of Prices

Monopolistic Competition

Few Sellers Who Are Sensitive to Each Others Pricing/ Marketing Strategies

Oligopolistic Competition

Monopolistic Competition: A market structure in which several or many sellers each produce similar, but slightly differentiated products. Each producer can set its price and quantity without affecting the marketplace as a whole.

Oligopolistic Competition: a market situation in which control over the supply of a commodity is held by a small number of producers each of whom is able to influence prices and thus directly affect the position of competitors
Pure monopoly: A market in which only one firm has total control over the entire market for a product due to some sort of barrier to entry for other firms, often a patent held by the controlling firm. Pure competition: A marketing situation in which there are a large number of sellers of a product which cannot be differentiated and, thus, no one firm has a significant influence

The price is depended on three fundamental factors: Demand-supply relation (domestic and intl market) Necessary social production costs Relations between agricultural price and prices of production inputs and commodity goods. Production and market characteristics influence food price In terms of Production: food production is laid on geographical natural conditions and cropping seasons. In terms of Supply: Total supply is not elastic as much as changing of market price. In terms of Demand: Total demands is also inelastic to market price. In terms of Market: Free-competition market VS central planning mechanism

Unstable production makes the producers no longer want to invest. Automatic adjustment of market may change (or even break) the production and plant growing structure.

To obtain the following goals: Implementing oriented economic programs Protecting at a certain level of income for farmers when the price of food is unreasonable low Managing the food price to move in correlation with price of capital and consumption goods in the market. Ensuring the supply of food to meet the societys demand Successfully settling the political and social goals

 Factors other than price may be important in analyzing buying situations. Buyers may be willing to pay a premium price to gain other advantages or, be willing to forgo certain advantages for lower prices. Other important factors besides price that may be important are A)Quality B) Uniqueness C) Availability D) Convenience E) Service F) Warranty.

 Certain buying situations may reduce the

importance of price in the buyers choice process. The price of the product may be a minor factor when the amount is small compared to the importance of the use. As demand for a good goes up, the price goes up. So any determinant of demand that has positive or negative effect on demand will have the same affect on the price.

Non price factors have to do with why consumers buy the products that they do. On most consumer decisions, price is a huge factor in the decision to buy.

For example:
A mom needs ketchup for her kids because they use it on everything. The Heinz brand is more expensive than the store brand. She will weigh the decision of which on to use based on a few factors: Price, taste, if the kids will eat it. She may buy the Heinz because the kids like it better but she could buy the store brand because the kids put ketchup on everything meaning that she would have to soon replace the used bottle with a new one.

There are some products that people will buy just because they like the brand.
So it won't matter to these consumers if they will pay more for it because price is not an issue. An example for this might be the decision to buy a vehicle. A consumer may only like American made versus an import. The certain import may be a good deal offering easy financing, excellent gas mileage, and great warranty. But this certain consumer will decide to buy an American made car even if it more expensive, has lower gas mileage etc. This is a non price factor because price is not an issue for this consumer's decision to buy this vehicle.

Pricing strategies must be used responsibly They must benefit customers as well as dealers The Robinson-Pactman Act seeks to prevent unfair price discrimination by ensuring that sellers offer same price terms to customers at a given level of trade. Every retailer is entitled to same price terms from given manufacturer, whether retailer is Lifestyle or local kirana store However, price discrimination is allowed if seller can prove that its costs are different when selling to different retailers, or if seller manufactures different qualities of same product for different retailers. Seller has to prove that differences are proportional Retail price maintenance is also prohibited.

Manufacturer cannot require dealers to charge specified retail price for its product. But seller can propose manufactures suggested retail price to dealers Deceptive pricing is also not allowed. Occurs when seller states prices that mislead customers . This involves bogus references or comparison prices, ex. When retailer sets artificially high regular prices , then announces sale prices close to previous everyday prices. Commonly found in supermarkets, furniture stores, pharmacies and drugstores, computer stores, car dealers, department stores, etc. Federal Trade Commission (FTC) looks into all these

FTC war ns against scanner fraud and price confusion. Scanner fraud is rampant today due to scanner-based computer checkouts. Price confusion results in areas customers dont know about such as home mortgage or car leasing agreements. In this regard Automobile Information Disclosure Act was passed. Therefore, there is great need and demand to follow proper pricing by sellers and need to get information from customers side.