Pricing by Neeraj Bhandari ( Surkhet.Nepal )
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Pricing by Neeraj Bhandari ( Surkhet.Nepal )

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Pricing by Neeraj Bhandari ( Surkhet.Nepal ) Pricing by Neeraj Bhandari ( Surkhet.Nepal ) Presentation Transcript

  •  Price is an important element of the marketing mix. It can be used as a strategic marketing variable to meet competition.  It is also a direct source of revenue for the firm. It must not only cover the costs but leave some margin to generate profit for the firm.  Price should not be so high as to frighten the customers.  Price is also an element which is highly perceptible to customers and significantly affects their decisions to buy a product.  Price directly determines the quality to be sold.  That is why electric fans are sold at lower prices and hotels reduce their tariffs during off season periods to attract customers.
  • Various Factors Affecting Pricing  Pricing decisions are usually determined by demand, competition and cost. 1. Demand: The popular ‘Law of Demand’ states that “higher the price, lower the demand, and vice versa, other things remaining the same”. In season, due to plentiful supplies of certain, agricultural products, the prices are low and because f low prices, the demand for them increases substantially. Of course, the law of demand assumes that there should be no change in the other factors influencing demand except price. If any one or more of the factors, for instance, income, the price of the substitutes, tastes and preferences of the consumers, advertising, expenditures, etc. vary, the demand may rise in spite of a rise in price, or alternatively,
  • the demand may fall in spite of a fall in price. 2. Competition:  The degree of control over prices which the seller may exercise varies widely with the competitive situation in which they operate.  Sellers operating under conditions of pure competition do not have any control over the prices they receive.  A monopolist, on the other hand, may fix prices according to his discretion.  Sellers operating under imperfect competition may have some pricing discretion.  The marketers, therefore, needs to know the degree of pricing discretion enjoyed by him.
  • Who determines the price?  Price takers (Pure Competition)- All that the individual seller can do is to accept the price prevailing in the market, i.e., he is in a position of a Price Taker. If he wants to change a higher price, buyers will purchase from other sellers. And he need not charge less since he can sell his small supply at the going market price.  Price makers (Monopoly)- A single producer has complete control of the entire supply of a certain product. Railways and Telephones are examples of monopoly. Main features of monopoly are:  There is only one seller of a particular good or service and  rivalry from the producers of substitutes is so remote that it is almost insignificant. As a result, the monopolist is in a position to set the price himself. Thus, he is in the position of a Price Setter.
  •  Oligopoly: is a market situation characterised by a few sellers, each having an appreciable share in the total output of the commodity. Ex. Automobiles, cement, tyre, infant food, dry batteries, tractors, cigarettes, aluminium and razor blades industries. In each of these industries, each seller knows his competitors individually in each market.  Monopolistic competition: is a market situation, in which there are many sellers of a particular product, but the product of each seller is in some way differentiated in the minds of consumers from the product of every other seller. Ex. You can find it out yourself by going to the market, as a large number of consumer goods like toothpastes, soaps, cigarettes etc. are subject to a large degree of product differentiation as a means of attracting
  • Influences on Price  Customer demand  Competitors’ behavior/prices/actions  Costs  Regulatory environment – legal, political and image related
  • Pricing Methods 1. Cost-Plus or Full-cost pricing 2. Pricing for a rate of return, also called target pricing 3. Marginal cost pricing 4. Going rate pricing, and 5. Customary prices
  • Cost-plus or Full-cost Pricing  This is most common methods used in pricing. Under this method, the price is set to cover costs (materials, labour and overhead) and a predetermined percentage for profit.  The percentage differs strikingly among industries, among members- firms and even among products of the same firm.  This may reflect differences in competitive intensity, differences in cost base and differences in the rate of turnover and risk.
  • Pricing for a rate of return (Target pricing)  Rate of return pricing is practiced by businesses that set specific goals for the capital that they spend and the revenue they wish to generate.  A business can set prices to ensure that these goals will be achieved.
  • Marginal Cost Pricing  Both under above mentioned methods, prices are based on total costs comprising fixed and variable costs.  Under marginal cost pricing, fixed costs are ignored and prices are determined on the basis of marginal cost.  The firm uses only those costs that are directly attributable to the output of a specific product.
  • Going-rate Pricing  Instead of the cost the emphasis here is on the market.  The firm adjust its own price policy to the general pricing structure in the industry.  Where costs are particularly difficult to measure, this may seem to be the logical first step in a rational pricing policy.  Taker of this pricing strategy will show that the firm has some power to set its own price and could be a price maker if it chooses to face all the consequences. Ex. Banks, Petrol, Supermarkets, Electrical goods.
  • Customary Pricing  Prices of certain goods become more or less fixed, not by deliberate action on the seller’s part but as a result of their having prevailed for a considerable period of time. For such goods, changes in costs are usually reflected in changes in quality or quantity. Only when the costs change significantly the customary prices of these goods are changed.  Ex. Candy bars of a certain weight all cost a predictable amount -- unless you purchase them in an airport shop.
  • Pricing Strategies  Price skimming (Creaming) is a pricing strategy in which a marketer sets a relatively high price for a product or service at first, then lowers the price over time.  Penetration pricing is a pricing strategy where the price of a product is initially set at a price lower than the eventual market price, to attract new customers.