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2.1 Pricing Basics

The document discusses pricing basics and strategies for companies. It addresses how to initially set prices for new products, how to adapt prices based on varying circumstances, and when to change prices. Companies should consider costs, demand elasticity, competition, and other internal and external factors to determine optimal pricing. Price is flexible and influences sales volume, market share, and profits.

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59 views14 pages

2.1 Pricing Basics

The document discusses pricing basics and strategies for companies. It addresses how to initially set prices for new products, how to adapt prices based on varying circumstances, and when to change prices. Companies should consider costs, demand elasticity, competition, and other internal and external factors to determine optimal pricing. Price is flexible and influences sales volume, market share, and profits.

Uploaded by

PoulomiDas
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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2.

1 Pricing Basics
2.2 Setting the Price
2.3 Adapting the Price
2.4 Price Change
 Marketing Management - V.S.Ramaswamy and
S.Namakumari,4th Edition , Chapter 34
 Kotler – Pricing chapter
 Pre-readings and Post-readings which are shared
with you by academic team
1. How should a company set prices initially for products or
services?
2. How should a company adapt prices to meet varying
circumstances & opportunities?
3. When should a co. initiate a price change?
4. How should a company respond to a competitor’s price change?
 The amount of money charged for a product or service or the
sum of the values that consumers exchange for the benefits of
having or using the product or service

 A value that will purchase a finite quantity, weight, or other


measure of a good or service.
 Price is the marketing-mix element that produces
revenue, the others produce cost.
 Most flexible element
 It can be changed quickly, unlike product features & channel
commitments
 At the same time, price competition is the number one problem
facing the companies.
 Important in times when the marketer seeks to quickly
stimulate demand or respond to competitor price
actions.
 E.g. a marketer can agree to a field salesperson’s request to lower
price for a potential prospect during a phone conversation.
 Product Positioning: Price also communicates co.’s
intended value positioning of its product or brand
 Well-designed & marketed product can command a
price premium & reap big profits
 Market Share: Cos. lower the prices temporarily to
gain market share from competitors
 Sales Volume: Pricing will affect business in terms of
increase/ decrease in sales volume
 Profit Margins: Price affects the profit margin per unit
sold.
 Higher prices results into higher profit if sales are constant,
 if sales volume decrease profit decrease
 Diminishing Product Differentiation: As technologies
get standardised, differentiation among firms on the
basis of the product is diminishing. More products &
brands will transcend to a commodity situation. In such
situation only way to differentiate between brands is
price
 Inflation in the economy: Inflation affects pricing in 2-
ways
i. It lowers the purchasing power of the customer & hence a
search for low priced substitutes
ii. It increases a firm’s costs because of inputs costing more. This
forces the price of a product upwards.
 The firm now finds itself in a dilemma; if it passes the increase
in input costs to the customer, the firm may lose the customer
to alternative low price competitor product
 And if it does not increase the price it may incur losses /
reduction in profits
FACTORS INFLUENCING PRICING DECISIONS

Internal Factors

Positioning Pricing Target


Objectives Decisions Market

External Factors
 Are those factors which are within the control of the
company & affect the pricing decisions
1. Costs: Cost & price of a product are closely related with
each other
 In the past the price fixing was a simple affair
 add all the costs incurred & divide by the no. of units produced
after adding necessary profits
 Defect- disregards the external factors such as demand & value
placed on goods by the consumers
2. Pricing Objectives: are overall goals that describe the role
of price in the organisation’s long range plans
 Co. fixes the price of a product on the basis of tis pricing
objectives which are framed within the framework of
corporate objectives
 Are those which are generally beyond the control of the company
1. Elasticity of demand
2. Competition
3. Distribution Channels
4. Buying Pattern of the consumers
5. Economic environment
6. Market Position of the Company
7. Government Policy
8. Miscellaneous factors
 Elasticity of demand: close relationship between the demand
& the price
 If demand increases the price will also increase

 Competition: no producer is free to fix his price without


considering competition unless he has a monopoly.
 Co. can fix the price of its product equal/lower than it’s
competitor’s price provided the quality of the product is
same
 Distribution Channels: long range of distribution channel
affect the price
 Buying pattern of consumers: if purchase frequency is
higher, lower price may be fixed to have lower profit per unit
 Low purchase frequency products are sold at high margin
profits & therefore at high prices e.g. TV, refrigerator, A/c,
cars etc.
 Economic environment: of the country affect the pricing
decisions
 In boom period high prices may be fixed so as to cover the
increasing cost of production
 During recession period prices are reduced to maintain
turnover of the product
 Market Position of the co.: image of the co. in the minds of
consumers as to goodwill for quality products influence
pricing decisions
 Govt. Policy: levies taxes such as excise duty, sales tax, etc.
fixes MRP
 Miscellaneous Factors: Product differentiation, social &
ethical consideration, product’s stage in life cycle, etc.
DEFINITION OF PRICE – FOR READING PURPOSE
 The amount of money expected, required, or given in payment for something.

 A value that will purchase a finite quantity, weight, or other measure of a good
or service. As the consideration given in exchange for transfer of ownership,
price forms the essential basis of commercial transactions. It may be fixed by
a contract, left to be determined by an agreed upon formula at a future date,
or discovered or negotiated during the course of dealings between the
parties involved.

 In ordinary usage, a price is the quantity of payment or compensation given


by one party to another in return for one unit of goods or services.

 In modern economies, prices are generally expressed in units of some form


of currency. (For commodities, they are expressed as currency per unit
weight of the commodity, e.g. euros per kilogram or Rands per KG.) Although
prices could be quoted as quantities of other goods or services, this sort of
barter exchange is rarely seen. Prices are sometimes quoted in terms of
vouchers such as trading stamps and air miles. In some circumstances,
cigarettes have been used as currency, for example in prisons, in times of
hyperinflation, and in some places during World War II. In a black market
economy, barter is also relatively common.
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PRICING METHODS –
STUDENTS NEED TO CHECK ON NET DETAILS OF IT

 Cost based pricing  Economic pricing


 Demand based pricing  Skimming pricing
 Competition based pricing  Penetration pricing
 Value based pricing  Target return pricing
 Going rate pricing  Bundle pricing
 Premium pricing  Psychological pricing
 Break even pricing  Premium pricing
 Perceived value pricing  Breakeven pricing

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