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Pricing Techniques

Pricing Techniques

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Published by: Rishabh Raj Singh Thakur on Jul 12, 2012
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05/13/2014

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BY: Rishabhraj singh Thakur
PRICING
In today’s competitive market, where organisations are strive to attract the customers, has
understood the importance of various marketing forces and one of the important factor is
“Pricing”
, because price not only deals with the revenue generation, but play an importantrole right from the targeting and segmenting the customers to the positioning of the product.A firm with a single or multiple product must have the different pricing strategies dependsupon their pricing objectives and market condition in which they are operating. There couldbe many pricing objectives for a firm, some of them are as follows:-
 
Survival in a Particular Market
: The most common objective of any firm is tosurvive in the market between the cut throat competition. Apart from monopolisticmarket it is difficult to sustain the customers, where they have choices among thecompetitors.
 
Profit
: It is necessary for a firm to generate profit, if they want to do business for along term, company may bear losses or operate without profit for some time, whichcan be recover subsequently, but not for a longer period of time otherwise companywould be sick. Normally such situation occurs during an initial period of the newproduct development.
 
Positioning
: Positioning means the image of the product/service into the customersmind. Due to the unequal distribution of wealth among the people in almost every partof the world, price plays the important role of positioning the product, may be in Indiaa luxury mercedese car does not meant for the rich people only, but they have abilityto pay therefore mercedese positioned as the car for rich people.
 
Return on the Investments
: After the investment into the new product, one of thebiggest concern for a firm is to achieve Break Even Point, because this minimize thefurther risk and make the investors feel secure. Normally rate of returns depends uponthe industry and number of competitors into the industry, for ex: telecom industryhave low rate of returns, due to the low price rate and intense competition.
 
Market Share
: It means a part of 
firm’s
sales in total industry sales. To capture themaximum market share, price is an important determinant to keep a firm a head of itscompetitors because lower the price, higher the sales volume and thus, increase inmarket share.
 
Segmentation of Market
: Perhaps it is difficult to target all income group of customer with the same product and price; therefore to segment the market companyneeds to provides different brands with different price under its product line withsame utility. Mostly in FMCG goods, quantity decides the price of the product andthus the segment of the market.
 
Social Responsibility
: Apart from generating profit and other marketing objectives,some firms feels their responsibility towards the society especially towards theunderprivileged and low income group people, this has been noticed that companiesinto the Life Saving Drugs try to maintain their prices to make it affordable for all.
 
BY: Rishabhraj singh Thakur
 
Exit Small Competitor form the Market
: The big players in the market are capableto bear losses for some time and to produce large volume of goods (Economy of Scale) which helps them in cost reduction, thus they can sell the goods at low price ascompare to the small firms. In such a case small firms cannot able match up theirprice and lag behind.
 
Quality Leadership
: Quality is a perception, if ones feel, quality of a product is goodthen he will be ready to pay high price. One objective of keeping high price is to showyour product is superior and other is to produce good quality product by incurringmore cost.However, the pricing decisions to achieve these objectives are influenced by various Internaland External factors of a firm. Whereas, external factors are beyond the control and internalfactors are controllable for a firm. Some of the Internal and external factor are as follows:-
Internal Factors External Factors
 
Firm’s Objective
 
 
Demand
 
Cost of production
 
Competition
 
Desired Positioning
 
Taxes and Duties
 
Research and Development cost
 
Regulatory Bodies
 
Production Capability
 
Suppliers
 
Technology
 
Economic Condition
 
Innovation
 
Intermediaries
 
Product Characteristics
 
Customers Bargaining Power
 
Climatic Condition
There are various pricing strategies, which depends upon the firm’s pricing objective and
thefactors which are affecting it. Some of the pricing strategies are:-
 
Cost plus Pricing
: It is the most conventional and widely used pricing strategy; inwhich company add the desired profit to the cost of the product.
 
Market Penetration Pricing
: To get a competitive edge, a firm deliberately keep thelow price of the product/service, with an intention to capture more market share. Thisstrategy normally used, when the product/service is newly launched, with a belief thatcustomer will switch from the competitors product.
 
Market Skimming Pricing
: A firm charges high price for its product/service, whenthey believe that their product/service is unique and superior with the
competitors’
 product and the industry is less competitive, so that they can earn substantial profit tillthe market becomes competitive. Positioning sought is also one of the importantreason to keep price high.
 
Competition Based Pricing
: when the competition is intense, price of the product isinfluenced by the competitors product prices because the concern shifts towards thesurvival more than profit maximisation.
 
Value Based Pricing
: Some products/services incurred low cost, but they providegood value to the customers, for ex.- Registration over online business portal may

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