Price :

Simply, Price means the amount of money expected, required or given in

payment for something. Broadly, A price is the quantity of payment or
compensation given by one party to another in return for one unit of goods or
service. Price is the money charged for a good or service. For example, an item
of clothing costs a certain amount of money. Or a computer specialist charges a
certain fee for fixing your computer. Price is also what a consumer must pay in
order to receive a product or service. Price does not necessarily always mean
money. Bartering is an exchange of goods or services in return for goods or
services. For example, I teach you English in exchange for you teaching me
about graphic design. Price is the easiest marketing variable to change and also
the easiest to copy. Price is the one element of the marketing mix that produces
revenue. There are many synonyms for price; such as rent, tuition, fee, rate, toll,
retainer etc.

Value:
Simply, we can say, Value is the monetary worth of something. So, Value =
Benefits – Cost. Value is also the amount of money that someone is willing to
pay for anything. According to “Warren Buffet”, “Price is what you pay; Value
is what you get.” Value is the worth in goods, services or money of an object or
person. An example of value is the amount given by an appraiser after
appraising a house. Another example of value is how much a consultant's input
is worth to a committee.
Difference between price and value:
Basis of Value Price
Distinctions
Concept Value is a real concept. Price is a money concept.
Exchange value Value is a relative term in Price is an absolute term. It is
which exchange value of the exchange value of a unit
one commodity is of a commodity or service
measured in terms of measured in absolute terms
another commodity. through money.
Relation Value is related to any Price is always determined
quantity of goods. per unit of a commodity.
Ascertainment Value is ascertained from Price is ascertained from the
the user’s perspective. customer’s perspective.
Impact of Value remains unchanged. Price of product increases or
market changes decreases.
Calculation Value can never be Price is calculated in
calculated in numbers. numerical terms.

Pricing Objectives
Many pricing objectives are available for careful consideration. The one you
select will guide your choice of pricing strategy. You'll need to have a firm
understanding of product attributes and the market to decide which pricing
objective to employ. Your choice of an objective does not tie you to it for all
time. As business and market conditions change, adjusting your pricing
objective may be necessary or appropriate.
How do you choose a pricing objective? Pricing objectives are selected with the
business and financial goals in mind. Elements of your business plan can guide
your choices of a pricing objective and strategies. Consider your business's
mission statement and plans for the future. If one of your overall business goals
is to become a leader in terms of the market share that your product has, then
you'll want to consider the quantity maximization pricing objective as opposed
to the survival pricing objective. If your business mission is to be a leader in
your industry, you may want to consider a quality leadership pricing objective.
On the other hand, profit margin maximization may be the most appropriate
pricing objective if your business plan calls for growth in production in the near
future since you will need funding for facilities and labor. Some objectives,
such as partial cost recovery, survival, and status quo, will be used when market
conditions are poor or unstable, when first entering a market, or when the
business is experiencing hard times (for example, bankruptcy or restructuring).
Brief definitions of the pricing objectives are provided below.

Partial cost recovery—a company that has sources of income other than from
the sale of products may decide to implement this pricing objective, which has
the benefit of providing customers with a quality product at a cost lower than
expected. Competitors without other revenue streams to offset lower prices will
likely not appreciate using this objective for products in direct competition with
one another. Therefore, this pricing objective is best reserved for special
situations or products.

Profit margin maximization—seeks to maximize the per-unit profit margin of a

product. This objective is typically applied when the total number of units sold
is expected to be low. Profit maximization—seeks to garner the greatest dollar
amount in profits. This objective is not necessarily tied to the objective of profit
margin maximization.
Revenue maximization—seeks to maximize revenue from the sale of products
without regard to profit. This objective can be useful when introducing a new
product into the market with the goals of growing market share and establishing
long-term customer base.

Quality leadership—used to signal product quality to the consumer by placing

prices on products that convey their quality.

Quantity maximization—seeks to maximize the number of items sold. This

objective may be chosen if you have an underlying goal of taking advantage of
economies of scale that may be realized in the production or sales arenas.

Status quo—seeks to keep your product prices in line with the same or similar
products offered by your competitors to avoid starting a price war or to maintain
a stable level of profit generated from a particular product

Survival—put into place in situations where a business needs to price at a level

that will just allow it to stay in business and cover essential costs. For a short
time, the goal of making a profit is set aside for the goal of survival. Survival
pricing is meant only to be used on a short-term or temporary basis. Once the
situation that initiated the survival pricing has passed, product prices are
returned to previous or more appropriate levels.
New product pricing strategies

The most challenging stage in product life cycle is the introductory stage, where
the company has to determine the price of its new product for the first time.
There are two strategies that companies can choose from in this stage:

1) Market-penetration pricing strategy

2) Price-skimming strategy and

1) Market-penetration pricing strategy

In penetration pricing strategy, the new product is introduced at a low price in

the market so that it penetrates the market as quickly as possible. The company
adds a nominal markup to its cost of production while setting the price of the
product.

The low price of the product compels a large number of customers to buy the
product, thus generating high sales for the company. Hence, though the profit
margin for the company is low, it can generate profits through greater number
of sales. Because of greater sales, the company is able to decrease its costs,
which allows companies to further decrease their price.

Penetration pricing strategy is effective when certain conditions are present in

the market :

a) The market must be highly price sensitive so that a low price produces more
market growth.

b) production and distribution cost fall as sales volume increases.

c) the low price must help to keep out the competition.

2) Price-skimming strategy

In this strategy, a high price is initially charged for the product, with the
intention of skimming the “cream” from the market. The company sets a high
introductory price for their products so that they gain maximum profits in a
short time by targeting those customers that are ready to pay a high markup for
the products.

The company sells a lesser number of products in the beginning, but the profit
margin is high. With the passage of time, the price is gradually decreased so as
to attract the next segment of the market.

To adopt a skimming price strategy, there are certain conditions that have to be
fulfilled:

a) the product should be one that is unique and introduce features for the first
time in the market. Such product has no substitute in the market, and customers
pay the high price because of the uniqueness of the product.

b) the company should be able to sustain its distinctiveness.

c) there should be a category of customers in the market who give value to the
unique product.

Important of pricing

Pricing is one of the significant elements of the marketing mix, if late, it has
come to occupy the centre stage in marketing wars. ricing is an important
decision making aspect after the product is manufactured. Price determines the
future of the product, acceptability of the product to the customers and return
and profitability from the product. It is a tool of competition. Pricing is
important because of following reasons :

1. Most Flexible Marketing Mix Variable

2. Setting the Right Price

3. Trigger of First Impression

4. Important Part of Sales Promotion

Details explanation of the above point is given following:

1. Most Flexible Marketing Mix Variable

Price is the most adjustable aspect of the marketing mix. Prices can be changed
rapidly, as compared to other elements like product, place or promotion.
Changes in product design or distribution system would take a long time to be
implemented. Bringing about changes in advertisements or promotional
activities is also a time consuming task. But price is very flexible and can be
changed according to the needs of the situation. Therefore it is a very important
component of marketing mix.

2. Setting the Right Price

The wrong price decision can bring about the downfall of a company. It is
extremely significant to fix prices at the right level after sufficient market
research and evaluation of factors like competitors’ strategies, market
conditions, cost of production, etc. Low prices may attract customers in the
initial stages, but it would be very hard for the company to raise prices on a
future date. Similarly, a very high price will ensure more profit margins, but
lesser sales. So in order to maintain balance between profitability and volume of
sales, it is important to fix the right price.

3. Trigger of First Impression

Often price is the first factor a customer notices about a product. While the
customer may base his final buying decision on the overall benefits offered by
the product, he is likely to compare the price with the perceived value of the
product to evaluate it. After learning about the price, the customers try to learn
more about the product qualities. If a product is priced too high, then the
customer may lose interest in knowing more. But if he thinks that a product is
affordable, then he would try to get more information about it. Therefore price
is a critical factor that influences a buyer’s decision.

4. Important Part of Sales Promotion

Being the most flexible component of marketing mix, price is the most
important part of the sales promotion. In order to encourage more sales, the
marketing manager may reduce the price. In case of goods whose demand is
price sensitive, even a small reduction in price will lead to higher sales volume.
However prices should not be fluctuated too frequently to stimulate sales.
Pricing Method :
1. cost Oriented pricing :
 Cost –plus pricing
 Marketup Pricing
 Target return pricing
2. Market oriented pricing :
 Perceived value pricing
 Value pricing
 Going rate pricing
 Auction Type pricing
 Differential pricing

Cost Plus pricing: Cost Plus Pricing is a very simple pricing strategy where
you decide how much extra you will charge for an item over the cost. For
example, you may decide you want to sell pies for 10% more than the
ingredients cost to make them. Your price would then be 110% of your cost.
Markup pricing: Markup shows how much more a company's selling price is
than the amount the item costs the company. In general, the higher the markup,
the more revenue a company makes. Markup is the retail price for a product
minus its cost, but the margin percentage is calculated differently. For example,
the cost of a good is TK. 100 and the good sold is of Tk. 150, so the markup
will be 50%.
Target-return pricing: Target-return pricing is a method of which a company
will set the price of its product based on their desired returns on said product. It
is a dynamic method of price determination that takes into account and responds
to market factors of demand and supply while determining the selling price a
pricing method in which a formula is used to calculate the price to be set for a
product to return a desired profit or rate of return on investment assuming that a
particular quantity of the product is sold.
Perceived-Value Pricing: Perceived-Value Pricing method, a firm sets the
price of a product by considering what product image a customer carries in his
mind and how much he is willing to pay for it. pricing a product on the basis of
what the customer is ready to pay for it, is called as a Perceived-value pricing.
When making a purchase, a customer values a product's benefit higher than its
function. For example, a customer doesn't buy a drill to have a drill. He buys a
drill to have the capacity to make holes.
Value pricing: Value pricing is customer-focused pricing, meaning companies
base their pricing on how much the customer believes a product is worth. Say a
coffee shop, Company A, charges twice as much for a cup of coffee than their
competitor, Company B. Although their prices are double what others charge
for similar products, people are willing to pay more for coffee from Company
A.
Going rate pricing :Going rate pricing is when a business sets the price of its
product or service based on the market price. This pricing strategy is often used
to price similar products, like commodities or generic items, that have little
variation in design and function
Auction Type pricing: This type of pricing method is growing popular with the
more usage of internet. Several online sites such as eBay, Quikr,
OLX,BIKROY.com etc. provides a platform to customers where they buy or
sell the commodities.
Differential pricing strategy: Differential pricing strategy in which a company
sets different prices for the same product on the basis of differing customer
type, time of purchase, etc. differential pricing strategy is that of a specific
promotion for a specific user segment. Stores often reduce the price of a product
for customers who buy more than one. For example, a grocery store might
chargeTK 70 for a box of pasta that is regularly TK 100 if you buy six boxes.
Factors Affecting Pricing Decisions

There are a number of factors affecting the pricing decisions and price is not
determined simply. Moreover, there are many factors affecting pricing
decisions. The reason is that the price is a very sensitive issue for the customers
in their purchasing behavior. Following are the two main factors affecting
pricing decisions:

1– Internal Factors

2- External Factors

Internal Factors
Internal factors are those factors that are related to the internal environment of
the business. This means that the issues that prevail within the business
organization and upon which the organization has control are included in this
category. Internal factors further include the following:

· Overall Marketing Strategy ,objectives and Marketing Mix Strategies

· Costs
· Organizational Considerations
Each of these is discussed one by one.

Overall marketing strategy, objectives & Marketing Mix Strategies:

Price is the only one element of the company’s broader marketing strategy. So
before setting price, the company must decide on overall marketing strategy for
the product or service. The objectives of the business serve as a basis for the
development of proper marketing mix strategy. Also, that includes in the price
determination process. Those businesses that have kept clear objectives feel
comfortable in setting an effective price for their products or services. Since,
their prices are built on the ground of stated objectives

Costs
Cost is the fundamental element in setting prices for a product or service. There
is simple rule of the business charges. Such prices that should not only cover all
of the costs incurred in manufacturing, distribution and promotion of the
product or service. However, also provide a fair return on the invested money. If
a business has low costs, then it can increase its sales and profit by lowering the
price of its product.

Organizational Consideration:
This factor includes the fact that who should be given the responsibility to set
the price within the organization. There are many ways to deal with such an
issue.

· In smaller businesses, top management is responsible for setting the price of

the product.
· On the other hand, in large organizations product line managers or divisional
managers. In case of industrial markets, salespersons handle the pricing of
products by negotiating with the customers.
· If certain price sensitive industries have a separate pricing department that can
either directly determine the best prices.
· In some firms, top management like the proposed prices of the lower level
employees like salespersons etc.
External Factors

External Factors include factors that are related to the external environment of
the business. The business has less control over these variables of the external
environment. Following are included in this category:

1) The Market and Demand

2) Costs, Prices and Offering of Competitors

The Market and Demand

We have already discussed that the lower limits of price are determined by the
costs incurred. On the other hand the upper limits are determined by the demand
and market elements. Price is balanced by the benefits of owning the relative
product or service by consumer and industrial customers. For this purpose the
price and demand relationship for a product is essential to be understood before
setting its price.

Pricing in different Markets

Different market conditions require different sets of pricing strategies.
Generally there are following four types of markets:

1) Pure Competition
2) Monopolistic Competition
3) Oligopolistic Competition
4) Monopoly
Pure Competition
In case of pure competition in the market, there are many buyers and sellers in
the markets dealing with uniform commodities like wheat etc. There is one
ongoing price in the whole market and no single buyer or seller can affect this
price.

Monopolistic Competition
In case of monopolistic competition there are many sellers and buyers who offer
their products not at a single price but at a range of prices. The difference in the
price range is due to the differentiated product or service offering by the sellers.

Oligopolistic Competition
Another factor affecting pricing decisions is oligopolistic. In an oligopolistic
market, there are few sellers and buyers which are conscious about the pricing
and other marketing strategies of competitors. The offered products are either
uniform or differentiated

Monopoly
Another market condition is monopoly in which there is only a single seller who
can offer its products or services at different rates. As the seller is single and the
buyers are much more, therefore the seller charges a relatively higher price.
Because there is no fear of competition

Costs, Prices & Offering of Competitors

There are some external factors affecting pricing decisions of the business. Such
as the costs, price and offering of the competitors as compared to its own cost,
price & offering. This means that the management of the business should take
into account the change in the price. Although, offering of the competitors and
take steps accordingly.
Other external factors affecting pricing decisions are also important to be
considered. While determining a price for a product or service, like economic
conditions of the country, government rules and regulations etc.

Understanding Psychological Pricing Method

 Value based pricing

 Perceived value pricing.
 Going rate pricing.
 Sealed -bid pricing.

1. Value pricing: Under this pricing method companies design the low priced
products and maintain the high quality offering. Here the prices are not kept
low but the products is re-engineered to reduce the cost of production and
maintain the quality simultaneously. Tata nano is the best example of value
pricing, despite several Tata cars, the company designed the cars with
necessary features at low price and lived up to its quality.

2.Perceived value pricing: Manufacturer decides the price on the basis of

customers perception of the goods and services taking into consideration all the
elements such as advertising, promotional tools, additional benefits of product
quality, the channel of distribution etc that influence the customers perception.

Example : Customers buy Sony products despite less price products available
in the market. This is because Sony company follow the perceived pricing policy
wherein the customers is willing to pay extra for better quality and durability of
the products.
3.Going rate pricing : The firms consider the competitors price as a base in
determining the price of its own offering. Generally, the prices are more or
less same as that of the competitors and the price are gets over among the
price.

Example, In oligopolistic industry such as steel paper fertilizer etc the price
charged is same.

4. Sealed-bid pricing: It is followed in construction or contract businesses. It is

also a competitive pricing method. Here price is selected on the basis of Sealed-
bids ( quotation or estimated price) for the jobs.

Reference

principle of marketing ,13 edition, Philip kotler and Gary Armsrtong

www.economicsdisscussuon.net
Reference: NetMBA. 2005. Pricing Strategy.
http://www.netmba.com/marketing/pricing.
Reference “Principles of Marketing Philip Kotler”