product Pricing ‘OBJECTIVES: AM dying this Chapter, you should be able to understand: A easing of Picea Pricing f Joprnce of Pe in Marketing Mix perce Pricing Policies > Factors Affecting Pricing Decisions {5 Procedure for Price Determination Pring Method 15 New Product Pricing Policies and Strategies » Discounts, Rebates and Premiums + Pricing in Practice > Resale Price Maintenance I MEANING OF PRICE Price is the amount of money charged for a product or service, or the sum of the values that sumers exchange for the benefits of having or using the product or service. Price is the only -mentin the marketing mix that produces revenue, while all other elements represent costs. Price also one of the most flexible element of the marketing mix. Unlike product features, price can be anged quickly. At the same time, pricing and price-competition is the number one problem faced many marketing executives. Priceis the exchange value of goods and services in terms of money. Price is all around us. We pay rent house, tuition fees for education, consultancy fees to a doctor, fare for taxi, wages to workers, iy to executive and money for goods we consume in our daily life. Thus, price has various ms, The term ‘price’ denotes money value of a product. It represents the amount of money for ‘cha product can be exchanged. In other words, price represents the money which the buyer ‘Sto the seller for a product. In actual business situation, it is difficult to define the price of a ‘duct. Because, the product does not mean only the physical aspect but it also includes services ‘benefits like warranty, repair facilities, free home delivery, credit facility, etc. The more the "iss, higher the price. Thus, we may define price as the amount which is charged by a seller from a Scanned with CamScanner _Principles op Mar, 7 = ing series. Or Prices the amount of money to be paid fo bug 2 its accompanyin} oduct and il buyer foray rofit margin jointly make the price utilities. know cost of production, selling cost and p1 Aswe! Therein, has three components: st of materials, labour expenses nd othe, rice ofa product ox +t refers to the cost of = ft M T diy 1 Original cost: Be edith ols wotie: One ie at expenses incurred ae luct. Hence, proper care should be taken while making expen, ing price of a finished pr : on the above items, saleable, the expenses incurred on, ACK api 2. Selling cost: In order to Beni Promotion are called as selling a te ae ou it ob wing expenses: modem time, selling eres re Rees differently ee Senne asi productis manufactured. Service o i raining, etc. ‘is Ma ee The es incurred on making the product ready as requirement of customers and on satisfaction of their necessities are called m, ePenses. Marketing expenses are incurred on advertisement, sales. demonstration and marketing campaign, (i) Administration expenses: A number of expenses incurre, businesslike office expenses, legal expenses, depreciation, are included in it. Administration expenses influence the Profit margin: Every business is carried o for profit margin is inclu ided in the price of a WS MEANING OF PRiciNG ‘The term ‘Price’ need not be confused with the term ‘Pricing’ Pricing is the into quantitative terms (ie. Tupees) the value of the product or service by the m, before itis offered to target consumers for sale Pricing is the process of Bjectives, identifying the factors formulating the pricing potici Bovering the price, es, Setting the prices, implementing them and controlling Ps “Snot an end itself but a means to achieve certain obj ley becase sere ‘Penses are treat Tepair and services fre d for adminis Provision forbad Profit. t to earn profit, Therefore, Product, tration of debts, ete @ certain percentage art of translating arketing manager setting pricing of because manufacturers, middlemen om nd are influenced by the Pricing of a produc m in following manners, H Services and ideas f, marketing mana, ave a price, even if they are free. Therefore Set must fix their price. Scanned with CamScanner301 passionate Pricing policy: Under this poti t — by id peo cee Prices fixed ems the price of a product is not fixed by the ce ShoPS inistered prices, Chan, Bovernment of goods sold jh fair 4 5 fn pe ‘of goods sold through fai 3 Co fase, margin of profits quite low, Tes Races possible only by the government. In peorle ‘Ours the welfare of low income grouP Loti e Feet bidder gets the work TONS Pie whichisalsoknown as contact Prise even pricing policy: The * Bs Rerisherett ovens of outputsales at which the total revere il be ‘ak even point. Sales over this point will yield profit the marketer sets the ‘therefore, ri the break-even point mente of a product in such a way that the sales must be ion pricing policy: a coat os ane Policy is based on sales promotion method. For instance, take erent have keane which is intended to revive the memory of the , lopped buying the prod ee dee thiscase, seller tries to gets rid of old and Taatdated wok they used to buy in the past. In AFFECTING PRICING DECISIONS. pring decisions nid be consistent with marketing objectives of the company. For peniation of ICES O its products the management must have to take a number of factors into jon. The influencing factors for a price decision can be divided into two groups, such as: ‘Internal Factors B, External Factors <> Consumer behaviour © Distribution channel | 20 <> Government regulations | > Suppliers _ UAINTERNAL FACTORS i Iniemal factors are those which are well within the control of the company: These factors | de Pricing objectives, marketing-mix, product differentiation, cost of production, st28° of PLC, _ © Abref explanation of internal/controllable factors are as follows: 1. Pricing objectives: The objectives set for pricing affect the decision regarding fixation of Price for a particular product. Firms may have a variety of objectives such as: price stability, a — Scanned with CamScanner‘ it, meeting th n investment ie es ee ‘nade onl after proper “ sles isationy 600% rat masini pricing sing ofthe product as both haye competitio™” oe pricing objective nt rote in the Er price fixation. Majority of the consideration jaysan impo as the base i ‘Actually itis not only the cost 2, Coatof prodae Cost of production for price fxatiO™ the cost of production, ace oes a target PINE ices. ate prepared to buy, firms use| ich determin 1 ane ‘hich % to se} e ‘ put the plus factors eller is prepared of the marketing-mix and therefore, the price is one at W ant elements romotion and distribution. Any roduction, Pit ee elements. The firm may e + Price is one of 3, Marketing-mix the othi ther must be coordinated with oe insitive customers or it may raise eet ‘an immedial Sail 1 ee nar ge price in order toattact Pr aed unless the price change either decide to cut : nee its prie tobuild up its image. In either case, a firm that raisesits iscombined with a total marketing; w advertising campaign, prices may add a more impressive 4. Product differentiation: The price of the Pr the product. In order to attract the Ca ea ity, si lour change, product, such as quality, size, col Lente Generally customers pay more price for the product whicl better package etc. 5, Organisational considerations: Pricing decisions occur at two levels in the organisation. It is the top management which generally has full authority over pricing. The marketing manager's role is to assist the top management in price determination and administer the pricing within policies laid down by the top management. The top management sets the guidelines within which the price is to be administered and determine the price range 302 buyer is the import ver elements: P! jiate effect ge and may begin a ne oduct also depends upon the characteristics of different characteristics are added to the attractive package, alternative uses, etc the new style, fashion, packaj while the actual price is dealt at lower level. However, in some companies, some authority is also granted to subordinate executives for setting prices, especially where pricing varies in different markets or where there are numerous products and frequent pricing decision are required 6 Product life cycle: Pricing decisi ou affected by the stages of product life cycle. As the decline. The price which is televsren, pon on eto BFOWth, maturity, saturation and aca Soh pevant in one stage may not necessarily be relevant in the next Inthenodctany gets Pies administration during each stage se, varket. As the sales Incest alee ie ee low so that the product can easily penetrate the = luct reac fan anit Dating the maturity stage the price, the growth stage, the prices can be raised t0# competition. Inthe declining stage, prices either kept at the same level or lower dow? ’ Prices are further reduced to maintain demand. Scanned with CamScannerPricing 303 EXTERNAL FACTORS ternal factors are those whi eigy an important role in deste Seneally beyond the control of the company. These factors 2 PY lilficalties while dene Pie of a product. Because ofthese factors, marketer y analysed and interpreted wine ee Pee & Produc therefor, these factors must be | esis a8 Follows: While taking pricing decisions. A brief explanation of these Duet! Product demand Elasticity of demand Competition Economic conditions Government regulations Consumer behaviour Distribution channel ‘Suppliers. Market postion of company Miscellaneous factors 1. Product demand: Product demand has a great impact on pricing, Since demand is affected by many factors, such as: number of prospective buyers, their preferences, their capacity and willingness to pay, number of competitors, what they are charging for similar products, etc. Therefore, these factors must be taken into consideration while fixing the price. 2. Elasticity of demand: Price elasticity of demand also affects the pricing decision. Price elasticity means a relative change in demand due to certain percentage change in price of the commodity. Ifthe demand of the productis inelastic, high prices may’ be fixed. Contrary to it, if demand is elastic, the firm cannot fix high prices rather it should fix lower prices than that of competitors. 3. Competition: Competitive conditions affect the pricing decisions. No manufacturer is free to decide his prices without considering competition unless he has monopoly. Competition isa rice dete While deciding the prict iarketer must kn« is a crucial factor in price determination. ‘hile deciding the p1 even — Pe the pricing objectives, policies ategies, strengths and weakness o the competito ¢ objectives, policies and str. tegies, s aaa ibilities for raising or : os oa aie i reales Ti has to consider the competition be co monopolistic conditions, ' : Soa silctite products while deciding the price of his pe coe os ee ai i il shi ds motorcycle. increases, the consumers will shift towar sizes also affect the price decisions. > | Scanned with CamScannerPrinciples gy he try is an Marin ronment of the country is an importan, facto, 304 4 conditions: Economic envi \d deflationary conditions affect the Pric, ne, Economie i an ; afeting the Pricing docsion, Jaded toa sizeable extent t0 maintain the a In recession period, oes QS the prices are increased during the boom period to coy"! tumover, On the other hand, the pt To meet the changing economic Conditions increasing cost of production and distribution. icing decisions are available such as: ge olin ba team protect profits against rising cos (i) Prices c stem can be linked with the price on delivery to current cost, (i) Emptess can bested from sles volume to profit margin and cost reduces B Policies in 5. Government regulations: The government of the country influences the pricin, : Vailable ang 6. a number of ways. Government regulates the prices of the products, it makes a services it renders to the community like electricity, transport, railway, posta) bs Government interference in the form of taxes and fixation of prices influence the Pricin, decisions. Like other marketers, government also sells necessity goods through its fai, Price shops such as sugar, rice, kerosene oil, atta, etc. Government happens tobe the largest employer and the buyer in the economy affecting the Pricing system. Government has framed different laws to restrict price hikes, artificial scarcity, consumer exploitation and monopoly tendencies. These are MRTP Act, Essentia} Commodities Act, Consumer Protection Act and so on. The prices cannot be fixed higher, ag government keeps a close watch on pricing in the private sector. example, if the consumers are small u: needs consumer products, they do no on pricing decis; é other hand, few consumers ties nae decisions, The pricing decisions are also affected b: user or a househ Scanned with CamScannerpicite 305 The scarcity or ¥ abund, eal pricing decisions, % ew material also h erable inf Iso has considerable influences om te patron of a company: Ma; Rectang moc ee + gconsume’ ardinis tts prodaerein aie ee ee te in the minds oe perwices, etc MAY also influ ‘ quality, technolo; i | oe Gore, Pali ence the pricing, di zy, durability, usefulness, after | ta ee a ips, Crompton, ete. cps cisions of the company. For example, jgher PP products. we a good image; so they can decide wittle eous factors: Besi | yiscellan esides the above, |p OO ectly i : , thi oN necly influence shetthcicingsdecininnp: one of factors which directly OF imgumers reactions Saige as: social and ethical considerations, prices, wage rates, productivity, trade customs, sgeruation, ihe above are some importai portant factors which affect the pricing decisions: ‘of a company: ‘tos i jess obviously can exercise substant eel over the external factors. intial control over the internal factors, while they have ot OURE FOR PRICE DETERMINATION p is to emulating the pricing objecti ‘di formu et ia ig objective and deciding the pricing, policy, the next ste the price of the Pp juct. There is no specific proced i i ne he price FP i procedure equally applicable to all firms for sasermination- wnerally, the following procedure may be followed: peters cen kaicodenunad 'e Select the target market @ Identify the potential customers: ‘@ Estimate the demand ‘e Economic conditions ‘e Anticipate competitive reactions e Establish expected strategy . Consider company's marketing policies Select the specific price. 1 Select the target market: The very fir ining the base price of a productis (6 select the segment or segments, ‘where the marketer wants f0 pursue. The demographic and psychographic characteristics of ihe selected segment Will effect the pricing decision 2 Identify the potential customers: The potential customers a> those who will pay the price in price det It is extremely for a product. They are therefore, the focal point jermination. without first identifying those people short-sighted ici i trate} to select a pricing policy oF S| ategy : Whom the prici i toaffect. The buyins motives, paying, capacity, location, ek i rer a the marketer and his brand, ete. of the mination. Price sensitivity, consumer's PTIOr attitude about the ™ Trae aattierable affect ON PPT dete .st step for determ Scanned with CamScanner