Meaning and objectives of pricingPresentation Transcript
MEANING AND OBJECTIVES OF PRICING
PRICE PRICE IS ONE ELEMENT OF MARKETING THAT PRODUCES REVENUE. THE OTHER ELEMENTS PRODUCE COSTS. PRICES ARE THE EASIEST ELEMENT OF MARKETING TO ADJUST………..THE PRODUCT FEATURES, CHANNELS, COMMUNICATIONS ARE NOT EASILLY ADJUSTABLE.
PRICE ALSO COMMUNICATES TO THE MARKET THE COMPANY’S INTENDED VALUE POSITIONING OF ITS PRODUCT OR BRAND. PRICE IS NOT JUST THE NUMBER ON THE TAG. PRICE COMES IN MANY FORMS AND PERFORMS VARIOUS FUNCTIONS. RENT , TUTION FEES, FARE, RATES , TOLLS, WAGES ,AND COMMISSIONS ALL MAY IN SOME OR THE OTHER WAY BE THE PRICE YOU PAY FOR SOME GOODS OR SERVICES.
CONSUMER PSYCHOLOGY AND PRICING ECONOMISTS ASSUME THAT CONSUMERS ARE THE PRICE TAKERS. AND ACCCEPT THE PRICE AT THE FACE VALUE. MARKETERS RECOGNISE THAT THE CONSUMERS OFTEN ACTIVELY PROCESS THE PRICE INFORMATION EITHER BEFORE PURCHASING IT OR AT THE TIME OF PURCHASING .
BASICALLY CONSUMERS HAVE GOT 2 TYPES OF MIND SETS: LOWER PRICE THRESHOLD: BELOW THIS THE PRICE SIGNAL INFERIOR OR UNACCEPTABLE QUALITY. UPPER PRICE THRESHOLD: ABOVE WHICH THE PRICES ARE PROHIBITED.UNDERSTANDING HOW THE CONSUMERS ARRIVE AT THEIR PERCEPTIONS OF PRICES IS AN IMPORTANT MARKETING PRIORITY………..
3 BASIC ISSUESHERE WE CONSIDER 3 IMPORTANT ISSUES: REFERENCE PRICES PRICE QUALITY INFERENCES PRICE ENDINGS
REFERENCE PRICESA CONSUMER OFTEN EMPLOYEES REFERENCE PRICES OF PRODUCTS WHILE EXAMINIG THE PRODUCTS. CONSUMERS COMPARE THE OBSERVED PRICE TO AN INTERNAL REFERENCE PRICE THEY REMEMBER OR AN EXTERNAL REFERENCE PRICE LIKE THE REGULAR RETAIL PRICE.
CONSUMERS PERCEIVED PRICE MAY VARY FROM THE STATED PRICE.THERE MAY BE 2 SITUATIONS: SITUATION OF UNPLEASANT SURPRISES i.e. WHEN PERCEIVED PRICE IS LOWER THAN THE STATED PRICE. SITUATION OF PLEASANT SURPRISES i.e. WHEN PERCEIVED PRICE IS MORE THAN THE STATED PRICE.
PRICE QUALITY INFERENCESMANY CONSUMERS USE PRICE AS AN INDICATOR OF QUALITY…… SPECIALY WHILE CONSIDERING EGO SENSITIVE PRODUCTS LIKE PERFUMES AND CARS.A BOTTLE OF PERFUME COSTING Rs. 5000 MIGHT CONTAIN SCENT WORTH Rs. 500 BUT THE GIFT GIVERS PAY Rs. 5000 TO COMMUNICATE THEIR HIGH REGARD FOR THE RECEIVER.
THIS IS ALSO CONSIDERED AS AN EXCEPTION TO THE LAW OF DEMAND WHERE THE DEMAND ACTUALLY INCREASES WITH THE RISE IN THE PRICES.
PRICE CUES RESEARCHES HAVE SHOWN THAT MANY CONSUMERS TEND TO PROCESS PRICES FROM LEFT TO RIGHT. FOR INSTANCE A STEREO AMPLIFIER PRICED AT Rs. 2999 INSTEAD OF Rs. 3000 WILL BE VIEWED AS IN A 2000 RANGE. HENCE MANY SELLERS BELIEVE THAT PRICES SHOULD END IN ODD NUMBER.
LIMITED AVAILABILITY LIKE “THREEDAYS ONLY” CAN ALSO SPUR SALES INCONSUMERS ACTIVELY SHOPPING FORA PRODUCT.BUT SUCH THINGS ARE INFLUENTIALONLY WHEN THE CONSUMERS PRICEKNOWLEDGE IS POOR, WHEN THEYPURCHASE THE ITEM INFREQUENTLYOR THEY ARE UNAWARE.
SETTING THE PRICESETTING THE PRICE IS A SIX STEP PROCESS : SELECTING THE PRICING OBJECTIVE DETERMINING DEMAND ESTIMATING COSTS ANALYZING COMPETITOR’S COSTS, PRICES AND OFFER SELECTING A PRICING METHOD SELECTING THE FINAL PRICE
1:SELECTING THE PRICINGOBJECTIVEThe clearer the firm’s objectives the better it is for the firm to set the price. There are 5 major objectives of pricing: Survival: companies strive to survive against intense competition and changing consumer wants. The company stays in the business so long as the prices cover variable costs and some fixed costs.
Maximum current profit: companies estimate thedemand and costs associated with alternativeprices and choose the price that producesmaximum profits, cash flows and return oninvestment.Maximum market share: companies believe thata higher sales volume will lead to lower unitcosts and higher long run profits. Hence they setthe lowest price……often termed as penetrationpricing
Maximum market skimming: here the companyunveiling the new technology favor setting highprices to maximize market skimming. Here theprice start high and slowly drop over time.Product quality leadership: here in some brandsposition themselves as leaders in quality with apremium pricing and a very loyal customer base.For instance MERCEDES AND BMW CARS, TAJLUXURY HOTELS.
OTHER OBJECTIVES: Non profit and public organizations may have other objectives. For example a university, a charitable hospital, social institutions etc.
2:DETERMINING THE DEMANDEACH PRICE WILL LEAD TO A DIFFERENT LEVEL OF DEMAND AND WILL THEREFORE HAVE A DIFFERENT IMPACT ON REVENUE.DEMAND AND PRICE ARE INVERSELY RELATED . THE HIGHER THE PRICE THE LOWER THE DEMAND.
PRICE SENSITIVITY: THE FOLLLOWING FACTORS LEAD TO LESS PRICE SENSITIVITY: The product is more distinctive. The buyers are less aware of substitute. The buyers can less easily compare the prices of substitutes. The expenditure is a small part of the buyer’s total income. The part of the cost is borne by another party.PRICE ELASTICITY.
3:ESTIMATING COSTSDEMAND SETS THE CEILING ON THE PRICE WHILE COSTS SET THE FLOOR.THE PRICE SHOULD BE SUCH SET THAT THE COMPANY CAN COVER ITS COST OF PRODUCTION, DISTRIBUTION, AND SALE INCLUDING A FARE RATE OF RETURN.
4:ANALYSING COMPETITORS COSTS,PRICES AND OFFERSIn this step the companies set up their prices by considering the nearest competitors price.If the company’s offer contain features not offered by the nearest competitor then the company evaluates its worth to the consumers and add that valueto the competitor’s price.
5:SELECTING A PRICING METHODTHERE ARE VARIOUS PRICING METHODS: MARK UP PRICING TARGET RETURN PRICING PERCEIVED VALUE PRICING VALUE PRICING GOING RATE PRICING AUCTION TYPE PRICING
6:SELECTING THE FINAL PRICETHE COMPANY MUST CONSIDER THE FOLLOWING FACTORS: IMPACT OF OTHER MARKETING ACTIVITIES: consumers are willing to pay higher for known products. Thus advertising have an impact on pricingThe quality of product also impacts price. People are ready to pay for better quality products.
IMPACT OF PRICE ON OTHER PARTIES: THE DISTRIBUTERS, DEALERS, COMPETITORS, SUPPLIERS, GOVERNMENT etc. HAVE THEIR INFLUENCES ON THE PRICE.