Pricing

Mr.Rakesh.N
 HIGHLIGHTS
• Meaning of Pricing
• Objectives of Pricing
• Pricing Policy
• Factors Influencing Pricing
• Methods of Pricing
• Pricing Strategies
 PRICE

Price is the exchange value of a product

or service always expressed in money.
The firm must decide where to position its
products on quality and price. Price is a
matte of vital importance to both seller
and the buyer in the market place.
 PRICING
Pricing is the function of determining
product value in monetary terms by the
marketing Department of a company
before it is offered to the target
consumers for sale.
The company must set its price in
relation to the value delivered and
received by the customer.
 Importance Of Pricing
• Price denotes value of the product.
• Determination of price needed for sale
transactions.
• Market Price is the basis to fix sale price.
• Price regulates production, Distribution, and
consumption of goods.
• Price influences the economic life of the
people.
 Objectives of Pricing
• Survival: Companies pursue survival as
their major objective if they have over
capacity, intense competition, or changing
consumer wants. As long as the prices cover
variable costs and some fixed costs, the
company stays in business. Survival is a short-
run objective, in the long run, the firm must
learn how to ad value or face extinction.
• Maximize current profits: many
companies try to set the price that will
maximize current profit. Companies estimate
demand and costs associated with alternative
prices and choose the price that produces
maximum current benefit.
• Maximum Sales growth (max unit
sales): (Market penetration pricing):
Some companies want to maximize unit
sales. They fix lowest price and expect
sales volume. This practice is called
market penetration pricing. This can be
followed when the market is highly
sensitive to pricing and low price
stimulates market growth.
• Maximum market skimming
(setting high price): Many companies
favor setting high prices to "skim" the
market. Dupont is an example. When they
invented each new product like Nylon,
Teflon etc, the company charged high
price. Each time sales slow down Dupont
lowers the price to draw next layer of
customers.
• Product Quality leadership: A
company can aim to become the product
quality loader in the market e.g., famous
designers cloths, Oberoi chain of hotels
etc.
• Market Leadership

• Meeting Competition
 Factors Influencing Pricing Policy
• Cost data of the product which may be actual,
replacement, standard or any other cost base.
• Firm’s profit and other objectives.
• Demand for the product or service and its
elasticity.
• Nature of product and its life expectancy.
• Pricing decision as a long-run decision or short
term decision or a one-time spare capacity
decision.
• Type of competition for the product or service
and availability of close substitutes.
• Number of suppliers in the market
• Economic and political climate and trends and
likely change in them in future.
• Type of industry to which the product belongs and
future outlook of the industry.
• Government guidelines, if any.
• Economic Conditions.
• Distribution Channels.
• Product Differentiation.
• Types of Buyers.
 Methods of Pricing Or General
Pricing Approaches

• Cost based Method

• Demand Based Method
• Competition Based Method.
 Cost Based Pricing
Company takes in to account the cost of
expenditure that is fixed cost and variable
cost and standard profit margin is added
to total cost to determine price of a
product.
Advantages of Cost based pricing:
 It is simple and certain in getting the cost.
 Fairer to both seller and buyer.

Disadvantages of Cost based Pricing:

 Ignores Competition and Demand Factor.
 It shows inefficiency of the management to compete
their competitors.
 Demand based Pricing
Under this method the marketer consider
demand to determine price. Demand is
reflected in sales volume which a product may
generate at a given price.
Advantages of Demand based
pricing:
 It considers the buyers needs – different classes may
pay varying amounts or price based on their needs
and the values they associate with the product.
Disadvantages of Demand based
Pricing:
 It is critical as not being socially fair and equitable.
 It is difficult to measure value and need of consumers
in clear terms.
 Competition based / Buyers based
Pricing

Based on the price quoted by competitors and

then price is fixed.
Advantages of Competation based
pricing:
 It is simple to follow.
 Avoids unhealthy competition and builds unity
among all the competitors.
Disadvantages of Demand based
Pricing:
 It ignores cost and demand for the product.
 It may incur loss.
 Break even analysis
Break even point is (Total revenue= Total
cost)