Pricing and its objective in terms of Marketing

1. PRICING & ITS OBJECTIVES

2. PRICING
Pricing is a sensitive issue, it does not work alone
but instead it is dependent on other factors
It is one of the important weapon controlled by
marketing managers
Utility, Value, Price
Utility: It is a characteristics of a product that will
satisfy human needs.
Value: Worth of a product (quantitative measure,
hassiat)
Price: is a money given in purchase of a product.
Utility creates value which is measure of price. (Or
amount of money needed to acquire the product)
In communist system------ state controlled pricing
Capitalist system-------- prices are set by the market

3. PRACTICAL PROBLEMS ASSOCIATED
WITH THE PRICING
Product = desk (table)
Deliver to;
Person A Person B
Price 325$ 175$
Incentive Fully assembled not assembled
varnished not varnished
on credit on cash

4.  Who paid more price? (A or B)

5. PRICING OBJECTIVE
Pricing objective should be compatible with the goals
of
the company.
1-PROFIT MAXIMIZATION (profit oriented obj)
2-TARGET RETURN ON INVESTMENT
3-INCREASE OR MAINTAIN MARKET SHARE
4-INCREASE IN SALES VOLUME (sales oriented obj)
5-STABILIZE PRICES
6-COMPETITION (status quo oriented obj)
7-SURVIVAL

6. PROFIT MAXIMIZATION
Every company dreams to have higher prices but it is
only possible if there is no strong competitor present
or if company is in monopolistic competition.
Generally if company increase the prices of the
product demand of the product will likely decrease.
Hence most company will charge “what the traffic will
bear” (according to demand and supply)
TARGET RETURN ON INVESTMENT
Used by manufacturer and middlemen for short term
motives.
1- by selling 50 % of the product you get total
investment
back.
2- by selling total volume of the product you get
desired

7. INCREASE OR MAINTAIN MARKET SHARE/ SALES
VOLUME
Its good to have the consistency in prices it will mostly give
maintenance in market share but sometimes you reduce the prices
slightly to increase or maintain market share.
Or to give discounts to increase sales volume (sales promotion)
STABILIZE PRICES
To end price wars with competitors, company aims to stabilize prices
and to deliver quality products.
COMPETITIVE PRICES
According to competition (market structure) in the market prices are
charged.
SURVIVAL OBJECTIVE
Company cannot survive without good prices of its products
Survival objective can also be used by the companies for short
period of time to boost its sales .
In maturity and declining positions of PLC company can reduce the
price of the product to survive for another 3-6 months

8. Importance of price
In the context of;
Economy, Consumer minds, Individual firms
Economy
Price is a basic regulator of economic system as it influence factor of
production (Land, labor, capital and entrepreneur).
High wages attract labor and high interest attract capital.
Consumer minds
Consumer thinks that Price and quality are related to each other.
Value Pricing = Perceived benefits
Cost incurred +Price
Individual firms
If the brand loyalty is more in the market firms will charge more
prices (BMW, Ferrari, Marks & Spencer etc:).
For Tech and differentiated products firms can charge more
prices.
In service sector where customers cannot judge the quality
directly firms can charge higher prices.
And vice versa firms can charge lower prices also.

9. FACTORS INFLUENCING PRICE
DETERMINATION
Demand, Target share of the market
Competitive reactions, other parts of marketing mix elements
A- Demand
Prices can have an effect on the demand in the market
Sometimes,
Price have direct relationship with the price (reverse demand case)
And price can have indirect relationship with the price (price elasticity of
demand)
Price and value are also related
Middlemen sometimes effect the price of the product. (more the middlemen
more is the price and vice versa)
Ethics and pricing
Prices should be in ethical range as described the consumer.

10. B- Target share of the market
To maintain market share (consistent price is
needed)
To Increase market share (some times increase
prices will work otherwise mostly decrease In prices
will work)

11. C- Competitive Reaction
Three types of competition
1- Directly Similar Products
Nike – Reebok, Pepsi – coke
Here firms cannot skim-up the market otherwise
will loose the market share on the other hand if the
company use penetration pricing strategy it would
start the price war.
2- Available substitute
Higher prices can be charged as competitors are
offering a different facility.
Truck, ships, rail, air transport etc:
3- Unrelated products
Products are unrelated but the price is the same,
so customers can be attracted by promotional
activities (discount schemes, lucky draw etc)

12. 4-other parts of Marketing Mix elements
Product:
(quality, standards, value and other features of the
product that makes the product important). In case of
new product and according to the “value” of the
product prices are charged.
Distribution:
Greater the length of channel of distribution greater
will be the price.
Promotion:
Promotional (Adv, personal selling, sales promotion,
publicity & PR) cost will be covered in prices of the
product.

13. TYPES OF PRICING
Cost Plus Pricing Method
T. Cost +Desired profit (based on the assumption
that all the product will be sold)
Prices based on marginal costs
It is cost of producing one more unit (done in case
where manufacturer wants its labor to be busy).
For example: Tesco sell coffee on marginal price to
attract the customer and will earn healthy profit on
other products.

14. (Penetration Pricing strategy)
 Prices below competitors prices are
useful when;
 Firms want to increase market share or
want to survive by delaying maturity and
decline
(Skimming pricing strategy)
 Prices above competitors prices are
useful when;
 Differentiated products are offered or if
brand loyalty of the product is more.

15. Geographical Pricing Strategies
1- Point of production pricing strategy
or free on board (or X factory price)
Here, cost and profit to the manufacturer is the same
as sales of goods is from the go-down or factory and
customer is bearing all transport (freight) expenses.
(example: Milk, fruits, vegetables, Lawarence pur
afctory outlet etc)
2- Uniform delivered Pricing strategy (stamp
pricing)
Seller here, includes transport cost in their selling
price. Hence there is one stamp price in all the
regions but
Profit to the seller will be variable.

16. 3- Zone delivered pricing strategy
In one zone there will be one price and profit to the
manufacturer (as average transport cost is included in the
price of the product).
In different zones prices will be the different but profits to
the manufacturer will be same.
(Example; chicken, eggs, meat in Peshawar and in
nathiagali)
4- Freight absorption pricing strategy
As the name indicate final price of the product will include
transports cost also (and as this will vary price will vary
also).
But profit to the manufacturer will be the same. (example;
TOYOTA selling in Karachi with the transport cost of 6000
Rs and in Peshawar with the transport cost of 22,000

17. SPECIAL PRICING STRATEGIES AND SITUATIONS
1- One price strategy Same price to all the customers.
2- Flexible pricing strategy Different prices for the customers
(geographical, weather or any
other reason.
3- Single price strategy
In this type of strategy all items are
sold at a single price.
4- Price lining
It basically involves a limited number
of prices at which business will sell
related products. (Rs:1500—1600)
5- Odd Pricing strategy
It is a psychological pricing strategy
which set the prices at odd amounts.
(Rs: 999 instead of 1000)

18.  6- Everyday low pricing
It involves consistently low prices on all the products
(usually large retailers do this like Walmart, Tesco etc:)
 7- High-Low pricing strategy
Company here offers low prices on some of the
products
and higher prices on other products. (Printer– tonner,
ribbons)
 8- Resale price maintenance
some companies even after the sale of the products try
to
control the resale price of their products it’s a good
strategy
so that no middlemen and other agents cannot take
advantage by selling the product at higher prices

19. TYPES OF DISCOUNTS
Quantity discounts
More the quantity more is the discount
Cash discount
A discount offered on payment of cash in specified period of time
Trade discount
Are deduction from the list price to buyers (agents and middlemen) for
the marketing function they will perform.
Cumulative discounts
It is based on the total volume of different products purchased over a
special period.
Seasonal discounts
These are offered to the customers who purchases a product during a
slack season