Module 10: Price Management

10.0 Price
Price is what consumers give up in order to take possession of a product. It includes the monetary and non-
monetary assets. To the seller, price is a source of revenue. To the buyer, price is a sacrifice of purchasing
power. Without price, there is no marketing in the society.
Price is an important element in meeting consumer needs. The value and utility of a product have to be set
against its price. Price can decide success or failure of a form. It is important to seller and buyer.
10.1 Objectives of pricing
i. Profit maximization
Any business is run with the primary motive of earning maximum profit. Therefore, pricing always
aims at maximization of profit.
ii. Market share
Another objective of pricing is to maintain or improve the market share. A good market share is a
better indication of progress. For capturing the market, a firm may lower its price in relation to
the rival products
iii. Target return on investment
When a businessman invests capital in a business, naturally he expects some return on his investments.
Therefore, he will price the product in such a way to get the expected rate of return on investment.
iv. Meet or prevent competition
This is also an important objective of pricing especially when a product is introduced in a competitive
market. While fixing the price, it requires considering the prices charged by the competitors in order to
discourage the competition a form may follow a low price policy.
v. Price stabilization
Another objective of pricing is to stabilize the product. Prices over a considerable period of time are
usually a long run pricing objective.
vi. Resource mobilization
Companies often fix their prices in such a way that sufficient resources are made available for the
forms expansion, development investment etc
vii. Speed up cash collection
Another objective of pricing is to speed up the cash collection in respect of products sold. Then only
the form will get necessary cash for the purpose research of research and development, market
development, promotion etc
viii. Survival and growth
An important objective of pricing is survival and achieving the expected rate of growth profits are
less important than survival. According to Peter Decker, avoidance of loss and ensuring survival are
more important than maximization of profit.
ix. Prestige and goodwill
Pricing also aims at maintaining the prestige and enhancing the goodwill of the firm.
10.2 Factors influencing pricing decisions
The process of deciding the price for a product of deciding the price for a product is a difficult task. The
management has to weight to a large number of factors which are complex moreover may of the factors vary
from industry to industry and from one business unit to another. These factors may be classified into internal
factors and external factors
10.2.1 Internal factors
Internal factors are those which lie within the control of the organization. These factors are controlled.
These are:
i. Costs
The most important factor in the raising price is the cost of production. The price must cover the
cost of production including material, labour, overhead and administrative and selling expenses and a
reasonable profit.
ii. Objectives
Prices are fixed keeping the objectives in new. Maximization of sales targeted rate of return, stability
in prices, increase of market share, meeting or preventing competition projecting image etc. Before the
price of a product is fixed any one or more of these objectives would be considered.
10.2.2 Organizational factors
Organizational factors refer to internal arrangement or mechanism for decision–making (pricing) and its
implementation. Overall pricing strategies determined by top executives. The actual mechanisms of pricing are
handled by lower level management. It determines individual product strategies. Usually, production and
marketing and specialists are involved in choosing the prices.
Marketing mix
Price, production, place and promotion are the important elements of marketing mix. These elements are
interconnected. A change in any one of these elements has an immediate effect on others. However, price is
the only element in marketing mix that produces revenue, the other element produce costs.
External factors
External factors are those which are beyond the control of an organization. The following external factors
would affect pricing decisions.
i. Demand
a. The nature and condition of demand should be considered when fixing the price. Composition of
the market, the nature of buyers, their psychology, their purchasing power, standard of living,
tastes preferences have large influence on the demand. Therefore, the management has to
weight these factors thoroughly.
b. If demand for a product is inelastic, it is better to fix a higher price for it. On the other hand, if
the add is elastic, a lower price may be fixed.
ii. Competition
a. In modern marketing a manufacturer cannot fix his own price without considering the
competition. A number of substitutes enter the market these days. Hence the influence of
substitute has also to be considered when fixing a price.
b. A firm must keep track on the prices charged by competitors for the similar products. If prices
are fixed higher than the prices charged are much lower than the prices of the rural, the
customers may become suspicious about the quality and hence lower price may not lead to
higher sales. To avoid competitive pricing a firm may resort to product differentiation.
c. Price reduction as a marketing technique. Other forms may raise price as a marketing strategy to
build high-prestige product line. In both cases the price change must be combined with a total
marketing strategy that supports it.

iii. Product life cycle

a. Price policy is usually formulated by considering the age of product. That is the stages of life
cycle. In the introduction stage, normally a form charges a lower price in order to build
reputation. In the growth stage a form increases the price to some extent. In the maturity stage,
a firm may adopt the policy of price skimming. In the decline stage prices are to maintain the
demand.
iv. Product differentiation
The price of the product also depends upon the characteristics of the product. In order to attract
customer’s products are differentiated by adopting new style, better package etc one of the objectives of
product differentiation into charge higher prices.

Promotion
Refers to the marketing efforts intended to make the consumers move or act. It is the consumer’s
action that determines whether the marketer’s product will sell or not promotion informs, persuades and
influences consumers to action and this makes people develop preferences.
If in forms the consumer of the availability of the product, product benefits, price etc. Promotion
enables the customers to view the product better. Promotion mix includes sales promotion,
advertising, sales force, public relations and direct marketing. These variables can be assigned
different roles in different markets. One may give more emphasis given a particular market.
Sales promotions
It consists of all marketing efforts intended to stimulate buyer to act (to buy) promote immediate sales;
it is intended to create brand awareness and to influence consumers. It includes free gifts, corpus,
sweepstakes etc.
Direct Media Advertising
It is a paid service by an identified sponsor where the seller sends messages to the prospective
customers via direct mail detailing the product features, prices variety of the product offered through
catalogues and brochures. Differentiate the product. In view of the marketing management must be
very careful in determining the prices.
Government policy
Pricing also depends on price control by the government. Through, passing (enactment) of
legislation. While fixing the price a turn has into consideration the taxation and trade policies to
government.
Mass media advertising
This is mass communication through newspapers magazines, radios, TVs and journals. It is a paid
service by an unidentified sponsor.
Point of purchase communication
This includes displays, posters, signs and other appeals directed to influence buying decisions at the
point of sale.
Public and public relations
It is a non-personal communication to mass audience which is not paid by an identified sponsor. It
comes in form of news/items editorial comments about company’s product and services and these items
or comments receive free comments during air time or broadcast, because the media representatives feel
the information is worthy to the audience.

Personal selling
Refers to person to person communication where the seller persuades prospective buyers to purchase
company’s products. It includes fact to face communication, telemarketing or telephone sales,
electronic communication e.g. e-commerce.
Public relations
Public, relations mean building good locations with the company’s various publics by obtaining
favorable publicity building up a good incorporate image and handling or heading off unfavorable
rumors, stories and events.
Publicity
Is any message concerning an organization appealing in the mass media as a news item for which the
organization does not pay and is not generally considered to be the source? Publicity is crucial to
public relations. It is the means by which the public activities of the organization are communicated.

It does little good from public opinion standpoint) to donate scholarship if only the recipient and the
scholarship office of a universities are aware of it. To achieve publicity, the pp department will issue a
press release to the news media in the hope that it will be printed and or broadcast. Publicity is also
used to enhance the marketing of a specific product of a form.
Place (distribution)
All those marketing functions utilized to move the product and its title from its point of production to
the point of sale. A channel of distribution refers to the related group, institution or middlemen who
perform distribution function. Distribution system has two components of physical distribution and
channels of distribution