Price may be defined as the value of product attributes expressed in monetary terms which a consumer pays or is expected to pay in exchange and anticipation of the expected or offered utility.
What is pricing?
Pricing is the function of determining product value in monetary terms by the marketing management of a company before it is offered to the target consumer for sale.
DETERMINANTS OF PRICING DECISION INTERNAL FACTORS EXTERNAL FACTORS OTHER OBJECTIVES
Objectives of pricing -Survival
-Current profit maximization
-Market share leadership
-Product quality leadership
Marketing mix strategy
Pricing in different types of markets
Consumer perceptions of price and value
Competitors Price and offers
Other external factors like economic position in the country, resellers reactions and government.
Methods/Approaches to pricing APPROACHES- THREE TYPES COST BASED METHOD BUYER BASED METHOD COMPETITION BASED METHOD
COST BASED METHODS
Cost-plus Pricing: Here the anticipated profit on product being sold is added to cost of production per unit of the product.
Break-even Analysis and Target Profit Pricing: This is another cost-oriented pricing approach. Here the firm tries to determine the price that will produce the profit it is seeking. It is known as target pricing. Normally some companies keep 10 to 20 percent profit on its investment. Target pricing uses the concept of break-even chart.
BUYER BASED PRICING Certain Companies base their pricing on the product’s perceived value. They see the buyer’s perception of value, not the seller’s cost, as the key to pricing. Here, seller use non-price variables in the marketing mix to build up perceived value in the buyer’s minds. For example a cup of coffee in a self service restaurant is charged at Rs.5/-, in a restaurant with service at Rs.8/-, in a family restaurant at Rs.12/-, in a posh area a/c room at Rs.15 and in 3 star hotel at Rs.20 and in 5 star hotel may be Rs.25/-. So each successive restaurant can charge more because of the value added by the atmosphere.
COMPETITION BASED METHODS
Going-rate Pricing: In this case company bases its price largely on competitors prices, with less attention paid to its own costs or demand.
b) Sealed-bid Pricing: Pricing to bid for jobs is sealed bid pricing. The firm bases its price on expectations of how competitors will price rather than on a rigid relation to the firm’s costs or demand. The purpose is to win the contract and therefore pricing, is lower than others. However firm cannot set the price below a certain level.
E.g.: Indian Oil Corporation
Pricing Strategy #1 Price A Product Or Service To Penetrate The Market Example: The way marketing guru Dr. Ken Evoy, who introduced his first product "Make Your Site Sell" to the Internet in 1999, is a good example of how to penetrate the market. Dr. Evoy developed a huge affiliate network of thousands of marketers by introducing this extremely low-priced informational product about Internet marketing. Today, his company enjoys the benefit of repeat business because he was able to effectively penetrate the market with this strategy.
Pricing Strategy #2 "Skimming the Cream!" "Skimming the cream" is the opposite of penetration. This is a high priced model, sometimes called "top pricing." The idea behind this philosophy is to give you high profits, even at the cost of losing a large number of potential customers. Typically, when a company launches a new product, they charge higher prices in the beginning to help recoup R&D expenditures quickly. Pricing
Pricing Strategy #3 "The Loss Leader!" Want to kill your competition? The loss leader is the way to set your prices to get the job done. No matter the cost! Even at a loss in profits! In its truest form, this approach has one objective -- ELIMINATE THE COMPETITION! The consequences of even a slight misjudgment in using this retail pricing strategy could be devastating to your business.
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