1.

1 DEFINITION AND MEANING OF PRICING

STRATIGIES

MEANING

Pricing strategy is the tactic that company use to increase sales and
maximising profits by selling their goods and services for appropriate prices. It is
the policy a firm adopts to determine what it will charge for its products and
services. Strategic approaches fall broadly into the three categories of cost- based
pricing , competition – based pricing, and value – based pricing. Pricing strategy is a
key variable in financial modelling, which determines the revenues achieved , the
profits earned , and the amounts reinvested, the profits earned, and the amounts
reinvested in the firm’s growth for its long – term survival. A number of pricing
strategy option are available, including mark up pricing , target return on investment
pricing, perceived value pricing, competition – based pricing, penetration pricing,
and skimming pricing. The choice of pricing strategies adopted by the firm will depend
on the overall corporate strategy, buyer expectations and behaviour, competitor
strategy, industry changes, and regulatory boundaries. Other factors affecting the
nature of pricing strategies are corporate image, geography, price discrimination, and
price sensitivity. Future trends in pricing policies are likely to focus on information -
based optimization through cost reduction of inefficiencies in the supply chain, the
reduction of trade allowances, an increase in responsiveness to changes in market
condition, greater pricing flexibility, and a reduction of pricing disparity across
different channels.

DEFINITION

Pricing strategy refers to method companies use to price their product or

services. Almost all companies, large or small , base the price of their products and
services on production , labor and advertising expenses and then add on a certain
percentages so they can make a profit. There are several different pricing strategies
, such a penetration pricing, price skimming, discount pricing, product life cycle
pricing and even competitive pricing.
 1.2 RELEVANCE / IMPORTANCE OF THE TOPIC

A. IMPORTANCE TO THE ECONOMY

In fact, price is the important element of economy. It directly affect

demand and saving. It also control means of production. To make it clearer, a short
description has been made as follow

 Determinant of demand and supply:

As the price of products directly affect demand, price plays an important role in
determining the quantity of demand. So price has been accepted as basic element. If
the price is increased but the quality of the product is unchanged, and then demands of
the products decreased, and if the price is decreased, demand for the products
increased.

 Effect to the factors of production:

Price of products is very important to economy and industry. It directly affects

wages, rent, interest, and profit. Capital, labor land and venture are the factors/ means
of ventures production.

 Effect to the saving and investment:

Determined/ fixed price for target market may affect inflation. This indicates
that inflation causes increased in price of products. When the price of products or
services increases, consumer’s saving decreases, due to which investment is
discouraged.

B. IMPORTANCE TO ORGANISATION

Price of product or services is an important element/ factor of

marketing mix. Price management is very difficult task for profit making organization.
So, rational decision should be taken for price management.
  Revenue and profit:

Price plays an important role in determining income and profit of an

organization. Total income can be made out/found out by multiplying per unit price by
sold quantity.

When sale quantity remains same, but price is decreased, income also
decreased. If price is increased and sale quantity remains same, income is increased.
Profit can be made out/found out also by subtracting total cost from total revenue.

 Competition:

Business organization should face various competitions appeared in market. It

has to face price competition certainly. If market competition increased in the price
already fixed, the organisation can attract increased number of customer by decreasing
the price. Increases sales volume and decreases production cost.

 Expansion of the production line :

Price directly affect organisation to expand target markets and add product line.
Price all so help in taking decision whether to add new product line or expand new
product or not.

C. IMPORTANCE TO THE CUSTOMERS

Determination of price should be based on genuine reasons. If price has

been determined rationally, this helps generally customers.

 Importance to the product selection:

Most of the customers give priority to price and analyze it. They try to select
products considering their.

 Importance of the quality perception:

 Price plays an important role to meet customer’s necessity /want. It is all so
equally helpful to assure them of the quality of the product.

 Importance of customer’s benefits:

Price of products affects customer’s benefit. The customer by low priced
products/goods even when the income source have fallen down. In the situation when
income has increased, demand for products does not decreased even if the price is
high.

PRCING STRATEGY ANALYSIS

Pricing is a powerful element of a small business’s marketing strategy. The

pricing structure of your product and services, and how it relates to your
competition’s pricing strategies and the expectations of consumers, play an important
role in creating an image for your company and establishing a specific customer base.

 SIGNIFICANCE:

While advertising and promotions can be effective at spreading the word about
your products and gaining new customers, it is ultimately your pricing strategy
combined with product and service quality—that will determine whether you can turn
new customers into loyal repeat purchasers.

Pricing can help to create and maintain an image of quality in your products and
services.

 OBJECTIVES

According to netmba.Com, pricing strategies are crafted to meet specific

objective. The first two are profit and revenue maximization. The profit maximization
involves setting prices as high as possible to increase short-term profits at the expense
of long-tram volume.

 PRICING STRATEGIES
 A number of distinct strategies exist to meet the objectives of pricing strategies.
Premium pricing involves setting price as high as possible when your company has a
distinct competitive advantage, as in the early years of a mew popular technology.

 CONSIDERATION

Different strategies suit different objectives at different times. Rather than

employing a single pricing strategy, companies are more likely to employ a range of
pricing strategies to confront the changing needs and goals of the company.

 WARNING

Price setting among competitors, also called price fixing or collusion, can be a
tempting way to avoid the ever- decreases profit margins that result from price
competition.

1.3 FACTORS INFIUENCING

Marketing’s four Ps – product, price, promotion and placement – the basic
components of any marketing mix. The decisions you make with regard to all of these
elements can mean the difference between success and failure. There are many
factors that will have an influence on how you set the price for your product or service,
with some of them internal and some external , and most of them will fluctuate over
time.

A. INTERNAL FACTORS
I. Cost:

While fixing the price of a product, the cost involved in producing the
product. This cost includes both the variable and fixed costs. Thus, while fixing
the prices, the firm must be able to recover both the variable and fixing costs.
 II. THE PREDETETMINED OBJECTIVES:

While fixing the prices of the product, the marketer should considers the
objectives of the firm. For instance, if the objectives of a firm is to increase return
on investment, then it may charge a higher price, and if the objective is to capture a
large market share, then it may charge a lower price.

III. IMAGE OF THE FIRM :

The price of the product may also be determined on the basis of the image
of the firm in the market. For instance, HUL and proctor& Gamble can demand a
higher price for their brands, as they enjoy goodwill in the market.

IV. PRODUCT LIFE CYCLE:

The stage at which the product is in its product life cyclealso affects its price.
For instance, during the introductory stage the firm may charge lower price to attract
the customers, and during the growth stage, a firm may increase the price.

V. CREDIT PERIOD OFFERED :

The pricing of the product is also affected by the credit period offered by the
company. Longer the credit period, higher may be the price, and shortthe credit period,
lower may be the price of the product.

VI. PROMOTIONAL ACTIVITY

The promotional activity undertaken by the film also determines the price. If the
firm incurs heavy advertising and sales promotion costs, then the pricing product shall
be kept high on order to recover the cost.

B. EXTERNAL FACTORS
I. COMPETITION:
 While fixing the price of the product, the firm needs to study the degree of
competition in the market. If there is high competition, the prices may be kept low to
effectively face the competition, and if competition is low, the prices may be kept high.

II. CONSUMERS:
The marketer should consider various consumer factors while fixing the prices.
The consumers’ factors that must be considered includes the price sensitivity of the
buyer, purchasing power, and so on.

III. GOVERNMENT C ONTROL

Government rules and regulation must be considered while fixing the price. In
certain products, government may announce administered prices, and therefore the
marketer has to consider such regulation while fixing the prices.
IV. ECONOMIC CONDITIONS

The marketer may also have to consider the economic condition prevailing in
the market while fixing the prices. At the time of recession, the consumer may have
less money to spend, so the marketer may reduce.

V. CHANNEL INTERMEDIARIES

The marketer must consider a near of channel intermediaries and their

expectation. The longer the chain of intermediaries ,the higher would be the prices of
the goods.

1.4 THEORIES / APPROACHES RELATED ON THE

TOPIC
 Deciding a price for a product or srevices is not a simple matter. On stead, you
need to consider all aspects that may influence the product pricing. They include
internal costs, expected profits, and many more. In other words, the pricing strategy
must consider every thing to make your business profitable.

 COST- BASED PRICING

This is actually the oldest and the must common pricing approach. For finance
department, this is also the most defensible one, since the pricing strategy ensures
marginal profits. Product pricing begins with calculating the price based on the costs
incurred to produce the products or the services. This strategy is popular in
manufacturing sectors, in which the company needs to calculate the production and
operational costs. However, this strategy is also associated with certain disadvantages.
The most notable drawback is that it does not consider the customer’s demands and
buying trends. In wirds,cost- based pricing does not the customer segments.

 MARKET- BASED PRICING

On the other hand, this pricing strategy is purely based upon the market
condition. Market-based pricing is also called competition based pricing. The strategy
is popular in commodity market and effective for low- cist suppiler that is planning to
enter a new market. The main advantage of this strategy is that it is based upon the
market dynamics. You can give lower prices for low -demand products and higher
prices for high-demand items.

 VALUE-BASED PRICING
This pricing strategy is based upon how the customers value a product or
service. In this case, value is above everything else. This strategy is ideal for goods that
are about to launch into the market. The company can emphasize the values of the
product for the customers and decide the value on it. Furthermore, value- based pricing
strategy is suitable for collectible products, antique collections, or ethnic -related
stuffs.

1.5 THEORETICAL FRAMEWORK

Pricing is one of the most vital and highly demanded component with in
the theory of marketing mix. It helps consumers to have an image of the standards the
firm has to offer through their products, creating firms to have an exceptional
reputation in the market. The firm’s decision on the price of the pricing strategy
impacts the consumer’s decision on whether or not to purchase the product. When firms
are deciding to consider applying any type of pricing strategy they must be aware of
the following reasons in order to make an appropriate choice which will benefit their
business. The competition with in the market today is extremely high, for this reason,
business must be attentive to their opponent’s actions in order to have the comparative
advantages in market. The technology of internet i usage has increased and devloped
dramatically therefore, price comparisons can be done by customer through online
access. Consumers are very selective regarding the purchase they make due to their
knowledge of the monetary value.

FEATURS OF PRICING STRATEGIES

TARGET MARKETING

The price of merchandise depands as much on how and to whom it is being

marketed as on its inherent value. Cheap goods are promoted to the market low men to
encourage mass buying other goods sometimes no better in quality, are sold higher
prices as luxury items to price-conscious consumers.

 COMPETITION
 Increased competition causes prices to drop. Most consumers, when presented
with two similarly priced products from competing companies. Purchase the less
expensive one. As competition increases. Marketing attempts to convey the image of
the product as superior in quality but less expensive than it rivals in the world of
marketing.

 PSYCHOLOGICAL PRICING

This approach is used when the marketer wants the consumers to respond on an
emotional, rather than rational basis.

 PRODUCT BUNDLE PRICING

Here sellers combine several product in the same package. This all so severs to
move old stock. Blu-rag and videogames are often sold using the bundle approaches
once they reach the end of their product life cycle. You might also see product bundle
pricing with the sale of items at action, where an attractive items may be include in a lot
with a box of less interesting thing so that you must bid for the entire.

 PRICING ATVA PREMIU

Business set costs higher than their competitors. Premium pricing is often most
effective in the early days of a product’s lifecycle, and ideal for small business that sell
unique goods.