Pricing decision

Pricing objectives, Factors affecting price decision, Pricing Strategy.

1. Chapter-8 Pricing Decision By, Prathibha Shetty

2. Contents Introduction Objectives Factors Affecting Price Decision Pricing Strategy

3. Introduction Pricing is simply the “money charged for a product or service”. It is everything that a “ customer has to give up” in order to acquire a product or service. The “price is not the same thing as cost”. Pricing is “one of the most important business decisions” management take.

4. Unlike other elements of marketing mix, “pricing decisions directly affect revenues rather than costs”. There are so many factors to consider, and much uncertainty about whether a price change will have the desired effect.

5. Price Price is the value that is put to a product or service and is the result of a complex set of calculations, research and understanding and risk taking ability. Philip Kotler define “ Price is the amount of money charged for a product or service.” Stanton define “ Price is the amount of money or goods needed to acquire some combination of another goods and its accompanying services.”

6. Pricing Decisions Pricing Decision is the process whereby a business sets the price at which it will sell its products and services, and may be part of the business's marketing plan. In setting prices, the business will take into account the price at which it could acquire the goods, the manufacturing cost, the market place, competition, market condition, brand, and quality of product.

7. Objectives of Pricing Survival Profit Maximization Return on investment (ROI) Sales growth Growth in market share Market Skimming Objectives Competitive Effect Objectives Image Differentiation Customer Satisfaction Objectives

8. Factors affecting Price Decisions Internal Factors Business Objectives Cost of the Product Marketing Mix Product Differentiation Organizational Factors External Factors Demand Competition Government policy Suppliers Buyer behaviour Economic condition

9. Internal Factors The internal factors are factors that can be control, determine and process by the organisation. This factors are mostly in relation with the organisation business level strategy and greatly influenced by the nature of business.

10. Business Objectives A firm may have various objectives and pricing contributes its share in achieving such goals. For example, contribution to society, education, charity etc. Pricing policy should be established only after proper considerations of the objectives of the firm.

11. Cost of the product Pricing decisions are based on the cost of the production. If a product is priced less than the cost of production, the firm has to suffer the loss. But the cost of production can be reduced, by co-ordinating the activities of production properly, the firm can reduce the price accordingly

12. Marketing Mix Price is the important element in marketing mix. A shift in any one of the elements has an immediate effect on the other three – Product, Place, Promotion, Price. The effort for implementing strategies will not succeed unless t he price change is combined with a total marketing strategy that supports it.

13. Product Differentiation The price of the product also depends upon the characteristics of the product. In order to attract the customers, different characteristics are added to the product, such as quality, size, colour, attractive package, alternative uses etc. Generally, customers pay more prices for the product which is of the new style, fashion, better package etc.

14. Organizational Factors Pricing decisions occur on two levels in the organisation. Overall price strategy is dealt with by top executives. They determine the basic ranges that the product falls into in terms of market segments. The actual mechanics of pricing are dealt with at lower levels in the firm and focus on individual product strategies. Usually, some combination of production and marketing specialists are involved in choosing the price.

15. External Factors The external factors are those factors that are not within reach of the organisation. They are external because there are many parties that determine and control these factors. The business organisation is a party to the external factor and cannot control or determine the aggregate indicators of these factor.

16. Demand Some companies who receive order from customers may decide to reduce their price per unit or increase their discount, when it is noted that demand from a customer is high, and this may be on the other way round, depending on other factors considered by the management.

17. Competition Competition is a crucial factor in price determination. A firm can fix the price equal to or lower than that of the competitors, provided the quality of product, in no case, be lower than that of the competitors.

18. Government policy Pricing Decision is also affected by the price-control by the government through enactment of legislation. The prices cannot be fixed higher, as government keeps a close watch on pricing in the private sector. The marketers obviously can exercise substantial control over the internal factors, while they have little, if any, control over the external ones.

19. Suppliers Suppliers of raw materials and other goods can have a significant effect on the price of a product. The price of a finished product is intimately linked up with the price of the raw materials. Scarcity or abundance of the raw materials also determines pricing.

20. Buyers behaviour The various consumers and businesses that buy a company’s products or services may have an influence in the pricing decision. Their nature and behaviour for the purchase of a particular product, brand or service etc. affect pricing when their number is large.

21. Economic condition The inflationary or deflationary tendency affects pricing. The prices are increased in boom period to cover the increasing cost of production and distribution. To meet the changes in demand, price etc.

22. Pricing Strategy

23. Penetration pricing  Penetration pricing is a marketing strategy used by businesses to attract customers to a new product or service by offering a lower price during its initial offering. The lower price helps a new product or service penetrate the market and attract customers away from competitors. Ex: Reliance mobile

24. Freemium pricing Freemium pricing—a mix of the words “free” and “premium”—is a pricing strategy that businesses use if they want to offer customers free services in addition to paid options. ... It can also apply to companies that offer a free trial of their services. Ex: Netflix, Audiobook

25. Premium pricing  Premium pricing is a strategy that involves tactically pricing your company's product higher than your immediate competitor. The purpose of pricing your product at a premium is to cultivate a sense in the market of your product being just that bit higher in quality than the rest. Ex: iPhone, Gucci, Starbucks

26. Skimming Pricing Price skimming is a product pricing strategy by which a firm charges the highest initial price that customers will pay and then lowers it over time. Ex: Mobile Phones

27. Economy pricing  Economy pricing is a method of pricing in which a low price is assigned to a product with decreased production costs. Ex: G eneric food sold at grocery stores

28. Bundle Pricing The organizations bundles a group of products at a reduced price. Common methods are buy one get one free promotions. Ex: These strategy is very popular in supermarket, KFC

29. Psychological pricing  A pricing strategy that specialises influencing p sychological effects on consumers. It is a marketing strategy based on utilising particular techniques to form a p sychological impact on consumers Ex: Odd pricing

30. Promotional pricing  Promotional pricing is a sales strategy in which brands temporarily reduce the price of a product or service to attract prospects and customers. By lowering the price for a short time, a brand artificially increases the value of a product or service by creating a sense of scarcity. Ex: Free samples

31. Dynamic pricing  Dynamic pricing is a partially technology-based pricing system under which prices are altered to different customers, depending upon their willingness to pay. Several examples of dynamic pricing are: Airlines. ... Thus, many different prices may be charged for seats on a single flight. Hotels.

32. Pay-What-you-want Pay-as-you-want a pricing strategy that lets customers decide how much they want to pay. Ex: Wikipedia Wikipedia, the giant online encyclopaedia, has used the PWYW model for years. Wikipedia is free to access, but always allows users to donate any amount they want to support the hosting and editing of the pages. They also  run donation drives  a few times each year where they prompt users to pay whatever they can to help keep Wikipedia running. For Wikipedia, the PWYW model has been a tremendous success, helping them raise more than  $112 million  during the 2018-19 donation run.

33. Conclusion It is that the marketing manager decide the objective of pricing before actually setting price. According to experts, pricing objective are overall role of price in an organizations long run plans. The objectives help the marketing manager as guideline to develop marketing strategies.

34. Reference https://www.businessmanagementideas.com/ https://www.yourarticlelibrary.com/ https://www.google.com/ https://en.wikipedia.org/ Agricultural And Food Marketing Management- Agriculture Department