Principles and Methods of Price Determination.pptx

This presentation mainly focused on principles and strategies which are majorly applied in the field of fisheries marketing with examples.

1. Principles and Methods of Price Determination Pugazhenthi P. FEX-MB2-05 FEC 503- Fish Marketing Management 1

2. Contents Price & Price Determination Principles and Strategies for Price Determination Objectives and Importance Factors of Price determination Process Methods of Price determination Pricing Methods in Fish Markets 2

3. Price What is Price ? Price is the value or money customers give up in exchange for a particular offering that would serve to satisfy their needs and wants. Price is the measure of the value a customer exchanges to purchases an offering. What is Market Price? The current price at which a good or service can be purchased or sold. What is Theory of Price? An economic theory that states that price for a specific good or service is determined by the relationship between its supply and demand at any given point. 3

4. Value vs Price vs Cost vs Worth Olajide et al, 2016 4

5. Price Determination Price Determination : Determination of Prices means to determine the cost of goods sold and services rendered in the free market. In a free market, the forces of demand and supply determine the prices. Equilibrium Price : The price where quantity demanded equals quantity supplied. Equilibrium Quantity : Where the supply and demand curves intersect is where the quantity demanded equals the quantity supplied. 5

6. Principles and strategies of Price Determination Cost-Based Pricing : Cost Recovery: Ensure that the selling price covers all production and operating costs, including variable and fixed costs. Value-Based Pricing: Customer Perceived Value: Price according to the perceived value of the product or service in the eyes of the customer. Demand and Supply: Supply and Demand Dynamics: Assess the balance of supply and demand to determine whether prices should be raised or lowered. 6

7. Principles and strategies of Price Determination Elasticity of Demand: Price Elasticity: Analyze how responsive demand is to price changes and adjust pricing accordingly. Psychological Pricing: Pricing Strategies: Employ psychological tactics, such as setting prices just below a whole number (e.g., Rs.999) to make prices appear more attractive. Skimming and Penetration Pricing: Skimming Pricing: Initially set high prices for new products, targeting early adopters. Penetration Pricing: Introduce products with lower prices to gain market share rapidly. Dynamic Pricing: Real-Time Adjustments: Adjust prices in real-time based on factors like demand, time of day, or customer demographics. 7

8. Principles and strategies of Price Determination Promotions and Discounts: Sales Promotions: Use discounts, coupons, and special offers to attract customers or boost sales during specific periods. Geographic Pricing: Location-Based Pricing: Adjust prices based on geographic location, considering factors like shipping costs and regional income levels. Price Discrimination: Customized Pricing: Offer different prices to different customer segments based on their willingness to pay. Government Regulations: Price Controls: Comply with legal regulations that may limit price adjustments in certain industries. 8

9. Objectives of Price Determination Maximize long-run and short-run profit. Increase sales. Increase market share. To obtain the target of return of investment. Company growth To obtain or maintain the loyalty and enthusiasm of distribution and other sales personnel. 9

10. Role and Importance of Price Determination Profitability depends on pricing Price is determinant of buying decision Price influences customer perception Price is a weapon to fight competition Price is an important part of sales and marketing promotion. 10

11. Price Determining Factors 11

12. SWOT analysis for fish price determination Strengths: Market Information: Access to data on fish supply, demand, and market trends can help make informed pricing decisions. Regulatory Support: Government regulations can provide a framework for price determination, ensuring fairness and sustainability. Industry Expertise: Knowledgeable experts can assess market conditions and make accurate price predictions. Technology: Advanced tools and software can aid in data analysis and pricing strategies. Weaknesses: Market Volatility: Fish prices can be highly volatile due to factors like weather, seasonality, and global economic events. Data Accuracy: Reliance on data accuracy, which may not always be precise, can lead to incorrect pricing decisions. Complexity: Determining fish prices often involves intricate calculations and considerations. Overregulation: Excessive government intervention can hinder market flexibility. 12

13. SWOT analysis for fish price determination Opportunities: Sustainability: Growing consumer demand for sustainable fishing practices can create opportunities for premium pricing. Emerging Markets: Expanding into new markets or export opportunities can boost profitability. Technology Advancements: Utilizing data analytics and machine learning can improve price forecasting. Partnerships: Collaborating with other players in the industry can lead to more informed price decisions. Threats: Environmental Factors: Climate change and natural disasters can disrupt fish populations and impact pricing. Competition: Intense competition among suppliers can lead to price wars and reduced profit margins. Global Trade Policies: Changes in trade agreements and tariffs can affect the cost of imported and exported fish. Consumer Preferences: Shifting consumer preferences and dietary trends may impact demand for certain fish species. 13

14. Process of Price Determination Setting the Pricing Objectives Determining Demand Estimating Costs Analyzing competitors pricing Selecting Pricing Methods Selecting Final Price 14

15. Methods of Price Determination 15

16. Cost based Pricing Methods Cost-Based pricing (or mark-up pricing) is a method to set the price of the goods or services based on the cost. Under this, we add a percentage of the total cost to the cost itself to get the selling price of the product. We can add an absolute amount to the cost as well. This method generally uses manufacturing or production costs and distributing and selling costs for setting the price 16

17. Cost based Pricing Methods Example : Total Cost of 4 kg of Tuna: Rs. 1000 Purchase of Tuna: Rs.800 Transportation: Rs. 100 Packaging: Rs.50 Labor: Rs. 50 Desired Markup: 30% Calculation: Total Cost = Rs.100 Markup (30% of Rs.1000) = Rs.300 Selling Price = Total Cost + Markup = Rs.100 + Rs.30 = Rs.1300 Profit margin – 30%. 17

18. Types of Cost based Pricing . Break-Even Pricing: Break-even pricing is used to determine the selling price required to cover all fixed and variable costs, along with a markup to achieve profitability Selling Price = (Total Fixed Costs + Total Variable Costs) / Total Units Produced + (Markup per Unit) Cost-Plus Pricing: This strategy involves adding a predetermined markup to the total cost, which includes both variable and fixed costs. The markup represents the desired profit margin. Selling Price = Total Cost + (Markup) Markup Price: Markup pricing is a straightforward pricing strategy where a company sets the selling price by adding a fixed amount or a percentage (the markup) to the cost of acquiring or producing a product. Here's the formula for markup pricing: Selling Price = Cost + (Markup) 18

19. Value Based Pricing Methods Value-based pricing : Pricing strategy in which the product’s price is based on perceived value delivered to the customer instead of the actual cost of the product or service. This type of pricing is most commonly used by niche industries and those that provide customer-oriented customized products. Good Value Pricing The product is priced as per the quality of the product and service provided to the customers concerning the product. The pricing depends mainly on the quality and service associated with the product. Value-Added Pricing The product/service is priced as per the value-added products for the customer to use. From the customer’s perspective, how much ever the value of a particular feature in the product is worth is studied, and accordingly, the price is decided for the whole creation. Types 19

20. Cost based pricing Vs Value based Pricing Aspects Cost-Based Pricing Value-Based Pricing Basis for Pricing Primarily based on production costs, including direct and overhead costs. Based on the perceived value of the product or service to the customer. Profit Margin Profit margin is added to cover costs and achieve a specified profit level. Profit is a secondary consideration; prices are set to maximize perceived customer value. Customer Value Customer value is not the primary consideration; pricing is cost-focused. Customer value is the primary consideration; prices align with what customers are willing to pay for the benefits received. Complexity Relatively simple and easy to calculate. Can be more complex, involving market research, customer surveys, and ongoing adjustments based on customer preferences. 20

21. Demand Based Pricing What is Demand Based Pricing? Demand Based Pricing is a pricing method based on the customer’s demand and the perceived value of the product. The customer’s responsiveness to purchase the product at different prices is compared and then an acceptable price is set.  Demand is rarely consistent across products and markets. Consumer behavior and demand keeps changing based on various parameters so the pricing methods based on demand are used.  Types of Demand Based Pricing: Price Skimming Price Discrimination Price Penetration 21

22. Price Skimming: Gradual reduction targets price-sensitive customers. Eventually settles at a profitable operating price. Set initial high price for exclusive customers. Price Discrimination: Vary prices based on customer demand. Example: Airline ticket prices rise closer to travel date. Different prices for the same product in different markets. Maximizes revenue by capturing various consumer segments. Price Penetration: Set initial low price to attract a broad customer base. Focus on increasing market share. Opposite strategy to price skimming. Commonly employed to quickly establish a product in the market 22

23. Pricing methods in Fish Markets Weight-Based Pricing: Fish priced by weight (e.g., per kilogram or pound). Per-Unit Pricing: Small fish or specific types priced per unit (e.g., per fish or per dozen). Auction Pricing: Buyers bid on fish, highest bidder gets the fish. Grade-Based Pricing: Fish categorized by quality, size, and freshness, each grade with a different price. Seasonal Pricing: Prices vary based on seasonal availability. Location-Based Pricing: Prices influenced by the abundance of certain fish in a region. Negotiated Pricing: Prices determined through buyer-seller negotiation. 23

24. References https :// www.studysmarter.co.uk/explanations/microeconomics/supply-and-demand/price-determination-in-a-competitive-market . https:// smallbusiness.chron.com/price-determination-economics-3884.html http://ecoursesonline.iasri.res.in/mod/page/view.php?id=145683#:~: text=The%20minimum%20price%20is%20determined . 24

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