PRICING- OBJECTIVES AND METHODS

PRESENTED BY ROOPESH M S2 MBA IMK KOLLAM

‡ 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. ‡ 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.

PRICING
‡ Price is what customers are willing to pay for services. ‡ In simple sense, price is the exchange value for a product or service expressed in terms of money. ‡ The relationship between price and sales volume is inverse.

‡ In economic terms, it is a price that shifts most of the consumer surplus to the producer. ‡ 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.

ROLE AND IMPORTANCE OF PRICING
It helps to attain the objectives. It is an economic regulator It denotes the quality of products It influences demand Pricing is very useful in developing marketing strategies. 6. It affect the standard of living of the people. 1. 2. 3. 4. 5.

What a price should do
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

Factors Determining Pricing
Internal Factors
‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ Organizational factors Marketing Mix elements Product differentiation Positioning Service cost Pricing objectives

External Factors
Competition buyers Demand Suppliers Economic conditions Regulatory factors

Steps involved in pricing decisions
‡ ‡ ‡ ‡ ‡ ‡ Analyzing the organizational objectives. Analyze cost incurred in delivering the service. Determine demand levels and customer characteristics. Examine competitor pricing and positioning. Consider the regulatory measures relating to pricing. Set price based on the method adopted-cost, demand, competitor. ‡ Implement suitable strategy based on market condition. ‡ Monitor the market response to the price set and identify problems.

Objectives of pricing
1. Return on investment
the objective of is to earn a certain rate of return on investment(target return).It adopt seller oriented pricing policy.

2. Market share
by reducing price, customers are benefited and the company can capture market share.to acieve this aim firms may sell even at a loss.

3. profit maximisation
a company may fix a low price with a view to increase the volume of sales and thereby profit

4. To meet or prevent competition
while fixing the price, one has to look into the prices of rival products and the existing competition.

5. Price stabilisation
it means bringing the price of the product at a narrow range and preventing frequent and violent fluctuations in price. It also gives continuous income to the firm and also brings reputation to it.

6. Pricing for Market Skimming the goal of many firm is to maximum profit at the shortest time (high profit margin). 7. Survival price is used to increase sales volume at that level which matches the organisation Expenses.

Methods of Pricing
‡ A sound pricing policy should be adopted to have maximum sales revenue. ‡ In the psat, price were determined by negotiations between the buyers and sellers ‡ Now, in the competitive economy price is fixed with the interaction of demand and supply. 1. Cost based pricing 2. Demand based pricing 3. Competition based pricing

1.COST BASED PRICING Cost-plus pricing
‡ Set the price at your production cost, including both cost of goods and fixed costs at your current volume, plus a certain profit margin. ‡ The retail price of a product item includes manufacturers cost of production plus his gross margin plus wholesalers gross margin plus retailers gross margin. So this method is also called sum-of-margin s method.

Target return pricing
‡ Set your price to achieve a target return-on-investment (ROI). ‡ Under this method, the selling price is fixed in such a manner so as to get the desired rate of return on the investment.

Break-Even Pricing
‡ Break-Even Point is the volume of sales at which the total sales is equal to the total cost. At this level there is no profit or no loss

2.DEMAND OR MARKET BASED PRICING 
the firms does not fix a price but charges what a buyer can pay. Price is fixed by simply adjusting it to the market condition  A high price is charged when demand is high and a low price is fixed when the demand is low  Consumers price elasticity and preference are considered under this policy

3. Competition-oriented pricing:
set prices after a careful consideration of the competitive price structure Price of the products of the firm will varry . ‡ Discounts ‡ Allowances  Trade Discounts  Promotional Allowances  Quantity Discounts  Brokerage Allowances  Cash Discounts  Seasonal Discount

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