1 Meaning Of Price

Price refers to the amount of money or other goods and

services that must be exchanged in order to acquire a product
or service. It is the value that is assigned to a good or service in
a market transaction. Prices are determined by the interaction
of supply and demand in a market, as well as other factors such
as production costs, competition, and consumer preferences.

Price is a crucial concept in economics and business that plays

a significant role in determining the allocation of resources,
influencing consumer behavior, and shaping market outcomes.

Price is a fundamental concept in economics that represents

the value of goods and services exchanged in the market. It
serves as a mechanism for allocating scarce resources
efficiently by signaling the relative scarcity or abundance of
products. Prices are determined by the interaction of supply
and demand forces in the market, with higher prices indicating
higher demand or limited supply, and lower prices signaling
lower demand or excess supply. The price of a product reflects
the costs of production, distribution, and marketing, as well as
factors such as competition, consumer preferences, and market
conditions.

In business, setting the right price is crucial for maximizing

profits and achieving strategic objectives. Pricing strategies
play a key role in influencing consumer behavior, market
positioning, and competitiveness. Businesses must consider
various factors such as production costs, pricing strategies of
competitors, price elasticity of demand, and perceived value by
consumers when determining the optimal price for their
products or services. Effective pricing strategies can help
businesses capture market share, increase revenue, and
maintain profitability in a competitive market environment.

Price also plays a significant role in shaping market dynamics

and economic outcomes. Fluctuations in prices can impact
consumer purchasing power, inflation rates, and overall
economic stability. Central banks and policymakers closely
monitor price levels to ensure price stability and manage
inflationary pressures. Understanding the factors that influence
prices, such as supply and demand dynamics, production costs,
and consumer behavior, is essential for businesses and
policymakers to make informed decisions that promote efficient
resource allocation and sustainable economic growth.

In summary, price is a fundamental economic concept that

influences resource allocation, consumer behavior, profit
maximization, market dynamics, and overall economic stability.
Understanding the factors that influence prices and the impact
of pricing decisions is essential for businesses, policymakers,
and consumers in navigating the complex dynamics of markets
and economies.

2) Explain Key Factors Influencing Pricing Method

There are two Factor that Influence pricing Method Which are
Internal Factory and external factor

2.1 Internal factors

When setting price, marketers need to take into consideration

several factors, which are the result of company choices and
actions. Largely, these factors are controlled by the company
and, if needed, can be altered by them However, while the
business may have control over these factors, making a quick
change is not always realistic For example, product pricing may
depend on the productivity of a manufacturing facility. The
marketer knows that increasing output can reduce the cost of
manufacturing each product and thus allow the marketer to
potentially reduce the product’s price. However, increasing
output may require major changes at the manufacturing facility
that will take time and will not translate into lower price
products for a substantial period

1) Return on Investment (ROI) A firm may set as a

marketing objective, the prerequisite that all products achieve
a certain percentage return on the organization’s spending on
marketing the product. This level of return along with an
estimate of sales will help determinesuitable pricing levels
needed to meet the ROI objective

2) Cash flow Firms might seek to set prices at a level that will
insure that sales income will cover product production and
marketing costs. This is most likely to happen with new
products where the organizational objectives permit a new
product to simply meet its expenditures while efforts are made
to establish the product in the
market.

3) Market share The pricing decision might be important

when the firm has a goal of gaining a hold in a new market or
retaining a certain percentage of an existing market.

4) Maximize profits Mature products that appeal to a market

that is no longer growing may have a company target requiring
the price be set at a level that optimizes profits.

5 Fixed costs Likewise referred to as overhead costs, these

represent costs the marketing organization sustains that are
not affected by level of production or sales.

6) Variable costs These costs are directly related with the

production and sales of products and, consequently, might
change as the level of manufacture or sales changes. Typically
variable costs are assessed on a per-unit basis since the cost is
directly connected to individual items.
2.2 External factors

There are a number of swaying factors, which are not controlled

by
the company but will influence pricing decisions. Understanding
these factors necessitates the marketer conduct research to
monitor what is
happening in each market the company serves since the
consequence of these factors can vary by market.

1) Elasticity of demand Understanding how price changes

influence the market necessitates the marketer have a firm
understanding of the idea economists call elasticity of demand,
which relates to how purchase amount changes as prices
change.

2) Customer expectations Possibly the most noticeable

external factors that influence price setting, are the
expectations of customers and channel partners. When it
comes to making a purchase decision customers assess the
overall “worth” of a product much more than they assess the
price. When deciding on a price marketers need to conduct
consumer research to determine what “price points” is
satisfactory.

3) Direct competitor pricing Almost all marketing decisions,

including pricing, will contain an evaluation of competitors’
offerings. The impact of this information on the actual setting of
price will be contingent on the competitive nature of the
market. For example, products that dominate markets and are
viewed as market leaders might not be heavily influenced by
competitor pricing since they are in a commanding position to
set prices as they see fit.

4) Related product pricing Products that offer new ways for

explaining customer needs may look to pricing of products that
consumers are currently using even though these other
products might not appear to be direct competitors. For
instance, a marketer of a new online golf training service that
allows customers to access golf training via their smart phone
might look at prices charged by local golf professionals for in-
person instruction to measure where to set their price.
Although on the surface, online golf training may not be a
direct competitor to a golf coach, marketers for the online
service can use the cost of in-person instruction as a reference
point for setting price

5) Primary product pricing Marketers may sell products

regarded as complementary to a primary product. For example,
Bluetooth headsets are considered complementary to the
primary product mobile phones. The pricing of complementary
products may be affected by pricing variations made to the
primary product since customers may compare the price for
complementary products based on the primary product price.

6) Government regulation Marketers need to be aware of

regulations that influence how price is set in the markets in
which their products are sold. These regulations are primarily
government endorsed, meaning that there may be legal
consequences if the rules are not followed. Price regulations
can come from any level of government and vary extensively in
their requirements.

3 New Product Pricing Strategy

There are seven main product pricing strategies For New
Products

1) Value-based pricing
2) Competitive pricing
3) Price skimming
4) Cost-plus pricing
5) Penetration pricing
6) Economy pricing
7) Dynamic pricing strategies

Let’s break down how each of these pricing strategies work and
how you can implement them in your business.

1. Value-based pricing

Value-based pricing does what it says on the tin. A business

using this approach will price their products based mainly on
what the actual or perceived value of the goods or service is.

It often works best for tailor-made goods, bespoke or expert

services, and craft products – for example, jewellery, high-end
fashion, or premium alcohol. It can also work well for items that
come with ‘extras’ or those made popular because of
associations with high-profile people or events.

This strategy is the opposite of the ‘undercut the competitors’

approach, and more about making a statement about why your
product is worth the higher price. That doesn’t mean you won’t
want to know what your competitors are selling for and where
you fit in. But once you’re comfortable with the lay of the land,
it’s about knowing how your product will improve your
customers’ lives – whether it’s helping them achieve their
goals, saving them time and hassle, or adding to their social
status and perceived desirability. If you get it right, value-based
pricing means you’ll be winning with higher profits. But it can
be a complicated and time-consuming approach, so weighing
up the balance is important.

2. Competitive pricing

Competitive pricing is all about setting a price-point in relation

to similar products sold by other companies – one that will give
you a competitive advantage.
This strategy is often used in saturated markets and with mass-
sold goods that are well-established – for example, chewing
gum, ‘big box’ beer, household products, or services like
cleaning or dinning.

It can also work for businesses with a wide range of goods who
want to use the price-point of one product as an entry point for
customers to buy other products.

Competitive pricing means you’ll need to keep a close eye on

your competitors, constantly. You’ll want to know when they
drop their prices or offer promotions. And you’ll want to think
about how to use creative marketing techniques to give your
products an edge – especially at times when undercutting isn’t
financially viable.

If you go with this approach, particularly if your competitor pool

is large or aggressive, you’ll need a good tracking system to
keep you abreast of their movements so you can react quickly
if need be.

3. Price skimming

Price skimming is about setting the price of a new product high

to capitalise on consumer demand, and then eventually
lowering it over time. It works best for products that are highly
anticipated, innovative, or of the moment – and which have no
real competition. Electronics and gaming is a big one for price -
skimming.

Think about the new Apple products selling at a premium, or

the latest PlayStation that customers are willing to pay top-
dollar for – even knowing the price will eventually drop, or that
a new version will be released 1-2 years down the line.

It’s about capitalising on popularity, buzz, and scarcity. It can

be a great strategy for the right product, but it can also go
badly wrong for your brand and sales if it backfires. Before you
go with price skimming as your option, explore whether your
product can be easily and quickly replicated by competitors.
And make sure you have the highest confidence in its
uniqueness. If you’re forced to drop the price soon after launch,
you might end up with angry customers and a tarnished brand.
4. Cost-plus pricing

Cost-plus pricing is one of the more common pricing

mechanisms used – often by grocery and department stores
with a wide range of common products, as well as smaller
businesses who aren’t able to spend huge amounts on market
research.

The idea is as the name says – calculate the cost it takes to

make a product (or deliver a service) and then add a mark-up
depending on what you hope to make as profit.
It’s a simple way of calculating costs and can also help brands
justify their prices because of the easy-to-understand pricing
system.
Businesses using a cost-plus pricing strategy must beware of
hidden production costs. Because this approach relies heavily
on the actual cost of making a unit, it’s imperative to get that
right, or those missed costs will likely eat into your profit
margin.
Make sure you account for things like materials, as well as
labour, and overheads.

If you get it right, it can be a beneficial approach, especially for

businesses looking for stability and consistency in their returns.
It’s also helpful if you don’t have much budget for market
research.

5. Penetration pricing

Penetration pricing uses the opposite approach to price

skimming. It’s when a business looking to break their product
into a market offers a low initial price point in order to reel
buyers in and lure them away from competitors. The idea is
that once the product has a following and has established itself
in the market, the price can gradually be adjusted upwards. It
can be an effective marketing tool to introduce a large
audience to the product or brand.

It’s a common approach with online subscriptions where you

might be offered one month free, or 50% off the regular price in
the hope that you will remain with the service once your offer
period ends. We also see it used with taxi services like Uber and
its competitors. It can be a useful strategy for generating high
sales volumes in a short period of time, and building a buzz as
customers flock to check what the fuss is about.

The risks, of course, are that savvy customers take you up on

your initial offer but return back to their usual brand – or find
another discounted offer – once their trial period is over or their
curiosity has been satisfied. It can also kick-off price wars with
competitors, meaning you’ll need to live with lower profits for
longer.

6. Economy pricing

Economy pricing is where budget items live. Production costs

are kept low so that prices can be kept low too. This works best
with products manufactured at scale – and is something big
businesses like pharmaceutical companies or airlines can easily
take advantage of to sideline the competition and drive sales.

Grocery stores often use economy pricing by producing their

own no-frill lines of common products such as biscuits or
condiments. It can be incredibly effective when done right as
there is always a market for thrifty consumers, or those
tightening their purse strings to save or get out of debt. It’s also
an effective way to grow deeper into a market, or weather
economic downturns, as customers ditch premium products for
the basics. It can be a tough business though. Competition can
run high, and for bargain hunters who care more about price
than product, they will likely switch when another brand offers
a discount.
Revenues will rely heavily on high sale volumes – so it’s
important to stay vigilant around your production costs and
market demand.

7. Dynamic pricing

Dynamic pricing is an agile pricing system to help maximise

profits. It’s where a business will change the price of their
products depending on who they’re selling to, where, and
when. Even though dynamic pricing can benefit customers,
they often don’t like this approach. It has been known to cause
backlash amongst buyers who find out they’ve been sold a
service or item at a higher price point than someone else –
even though they themselves may have gotten a better price
than someone else.

That said, it’s becoming an increasingly common approach for

businesses thanks to multichannel selling and artificial
intelligence. Take Uber, for example. Customers who rely on the
service regularly might be used to a certain low fare for their
journey home from the train station, but when the weather is
bad, or rush hour hits, the car service will jack up prices to
capitalise on demand. The same approach is used in the travel
and hospitality industry during peak travel season, or in sports
when a big game comes up.

While this approach can be successful, it’s important to

understand that aside from brand risks, it can be resource
intensive and costly, which is part of the reason big businesses
can take advantage of it while smaller businesses may struggle
to. The cost of the AI, data analysis, and the required resources
should be thoroughly considered before adopting this approach.
It’s worth noting however that tools enabling SME product
business to be more dynamic with their pricing strategies are
becoming more easily available and affordable. Unleashed’s
B2B eCommerce store, for example, includes flexible pricing
features such as customer-based pricing, as well as volume
pricing – which encourages larger purchases with a better
price-per-unit when buying in bulk.

4 Price Adjustment Strategy

Price Adjustment Strategies are not always the same rather it
depends upon situation and customer differences. We divide
them into mainly seven categories:

1) Discount and Allowance Pricing

2) Segmented Pricing
3) Psychological Pricing
4) Promotional Pricing
5) Geographical Pricing
6) Dynamic Pricing
7) International Pricing

1) Discount and Allowance Pricing

This is introduced by the companies when they offer less price

for their different products. It may include seasonal discount,
quantity discount and other discounts as well. While Allowance
is another type if reduced prices and it includes trade allowance
and promotional allowance

Examples: There are different examples that we see around us.

Some of them are

* Quantity Discount: MEPCO and WAPDA have different billing

units. For units below 100 they have lesser per unit price like 18
rupees and then from 100-200 per unit price is 22 rupees and
so on. It increases as we number of units increases per unit
price also increases

* Seasonal Discount: Companies like Bata and Services reduce

the prices of their shows in seasons like in winter they offer up
to 35% discount on summer shoes in winter. The main aim is to
keep the production steady whole year.

* Discount: Dairy Milk – A famous chocolate product reduce the

prices on the New Year week so that people can enjoy and send
sweets to their loved ones

2) Segmented Pricing

Companies adjust their basic prices according to difference in

customers, products and locations. That mean they sell same
product with different prices according to segments. It includes
product-form pricing, location pricing, customer-segment
pricing and time pricing

Example: These are given below

* Product form Pricing: Coca-Cola have regular bottle in 30
rupees but the price of 1 litter is 90 rupees while the price of
1.5 litter coke is 120 rupees. Although the
company is same but they have different prices according to
the quantities.

* Customer -Segmented Pricing: Different companies like Al-

Maida Hotel have different rates for their dishes for different
customer segmented. They include 50% less price for kids
under age 10 but for adult the price is actual. They even target
their customers according to that.

* Location Pricing: companies also adjust their prices according

to location. KFC and MacDonald have not same price in USA as
in Pakistan. They have lesser prices and more family offers then
in USA. This depends upon different factors

3) Psychological Pricing

Price matters most because sometimes people compare the

values and quality of product based on the price. So, by
keeping this point in mind company set their product values so
that they are not too much high that people would not buy and
not too low that people consider it low quality.

Example: Few examples are given below

* Using digit of 9: Studies done by scientists at MIT and the
College of Chicago have demonstrated that costs finishing in 9
provoke expanded client interest for items. This mental wonder
is driven by the way that we read from left to right, so when we
experience another cost at $1.99, we see the 1 first and see the
cost to be nearer to $1.00 than it is to $2.00

* 1-Day only offer: sometimes play the psychology of customers

as they introduce such offers that customer cannot resist. like
“50 % off on all products for 1 day only’’. Potential customers
believe that the sales are only temporary, they’re more likely to
make their purchases today, rather than next week. Consumers
are afraid of missing out on such an obvious deal, so they make
the purchase in order to avoid this potential feeling of regret or
missing out.

4) Promotional Pricing

This type of strategy is used by company to increase the short

run sale by temporarily decreasing the price of product. It can
be in different form sometimes it is in shape of discount while
sometime they use special event pricing technique to draw
more customers.

Examples:
*Special-Event Pricing: Companies offer discounts and rebates
on festivals, during the off-seasons with the intention to pull as
many customers as possible. On Eid , Diwali and other festivals
companies introduce their special events pricing.

* Buy one, get one free promotion: Buy one, get one free deal
(aka BOGO) are among the most popular types of sales
promotions. Offering two of an in-demand products at a
reduced price and for a short time creates a sense of urgency
that can boost sales. Papa John’s Pizza introduced such offer to
grab customers

* Cashback promotions: Nike-famous brand introduced 20%

cashback on their shoes. Many consumers would agree that it
doesn’t feel as bad to spend money when you get some in
return. It’s almost like paying less from the start and then
having extra money to get other desirable products.

* Social media contests and giveaways: Audacity – a brand for

headphones and other accessories use such type of promotions
to attract customers. A contest or giveaway on Facebook,
Instagram, or your target audience’s social platform of choice is
a great way to get new customers interested in your business
and gain more quality followers.one common method is to
require followers to tag a certain number of people in the
comments, or post to their stories, to be entered to win

5 Geographical Pricing:

This means to set the price according to location in different

parts of country or world. a pricing method in which customers
bear the freight costs from the producer's location to their own;
examples of geographical pricing include FOB pricing, base-
point pricing and zone pricing.

Examples
* Zone Pricing-Taxation: In India, there are multiple zones with
multiple taxes per zone. So, for example – Gujarat, which is a
state in India has 15% tax whereas Delhi which is another state
has 5% tax. If the base cost of the product was 100 rs, then
after taxes, the cost of the product will be different in Gujarat
as well as in Delhi. In Gujarat it will be 115 rs whereas in Delhi
it will be 105 rs. Here, the difference in prices is not due to
transportation or difference or any other cost. Here, the
difference of geographical price is due to taxation

6 Dynamic Pricing:

Dynamic pricing is a method firms use to constantly adjust the

price of goods/services depending on demand.

Examples
* Airlines: The airline industry alters the price of its seats based
on the type of seat, the number of seats remaining, and the
amount of time before the flight departs. Thus, many different
prices may be charged for seats on a single flight

* Price setting for Uber taxis – where the company advertises

the price will vary depending on demand. Consumers are able
to see the likely price they will pay before committing to the
taxi.

* Google Ads. The price of paying for Google ads is determined

by a marketplace supply and demand. Ads for competitive
keywords will push up the price as there is more demand. If a
keyword becomes less competitive, the price will fall.

7 International Pricing:

Companies that sell their products in international markets or

globally. They set their prices according to that and it includes
different things. They will have to decide how to price their
product in each market. Purchase power, needs, and
preferences differ between countries and so does willingness to
pay for a given product or service; to maximize profit, pricing
research must be conducted for each market.

Example:
* Samsung Products: Samsung introduced its mobile phones
that have price difference in Dubai and in Pakistan . In Dubai
there is difference of almost 180$ in price of same brand that in
Pakistan is selling at higher rates

* Pair of Levis Selling: a pair of levi’s selling for 30$ in the

United States mighy go for 63$ in Tokyo and 88$ in Paris .

* Gucci Handbag: A Gucci handbag going for onluy $140 in

Milan , Italy might fetch $240 in United States