MEANING AND OBJECTIVES OF PRICING

PRICE

PRICE IS ONE ELEMENT OF MARKETING THAT PRODUCES REVENUE. THE OTHER ELEMENTS PRODUCE COSTS.

PRICES ARE THE EASIEST ELEMENT OF MARKETING TO ADJUST………..THE PRODUCT FEATURES, CHANNELS, COMMUNICATIONS ARE NOT EASILLY ADJUSTABLE.

PRICE ALSO COMMUNICATES TO THE MARKET THE COMPANY’S INTENDED VALUE POSITIONING OF ITS PRODUCT OR BRAND.

PRICE IS NOT JUST THE NUMBER ON THE TAG. PRICE COMES IN MANY FORMS AND PERFORMS VARIOUS FUNCTIONS.

RENT , TUTION FEES, FARE, RATES , TOLLS, WAGES ,AND COMMISSIONS ALL MAY IN SOME OR THE OTHER WAY BE THE PRICE YOU PAY FOR SOME GOODS OR SERVICES.

CONSUMER PSYCHOLOGY AND PRICING

ECONOMISTS ASSUME THAT CONSUMERS ARE THE PRICE TAKERS. AND ACCCEPT THE PRICE AT THE FACE VALUE.MARKETERS RECOGNISE THAT THE CONSUMERS OFTEN ACTIVELY PROCESS THE PRICE INFORMATION EITHER BEFORE PURCHASING IT OR AT THE TIME OF PURCHASING .

BASICALLY CONSUMERS HAVE GOT 2 TYPES OF MIND SETS:

LOWER PRICE THRESHOLD: BELOW THIS THE PRICE SIGNAL INFERIOR OR UNACCEPTABLE QUALITY.

UPPER PRICE THRESHOLD: ABOVE WHICH THE PRICES ARE PROHIBITED.

UNDERSTANDING HOW THE CONSUMERS ARRIVE AT THEIR PERCEPTIONS OF PRICES IS AN IMPORTANT MARKETING PRIORITY………..

3 BASIC ISSUES

HERE WE CONSIDER 3 IMPORTANT ISSUES:

REFERENCE PRICES

PRICE QUALITY INFERENCES

PRICE ENDINGS

REFERENCE PRICESREFERENCE PRICES

A CONSUMER OFTEN EMPLOYEES A CONSUMER OFTEN EMPLOYEES REFERENCE PRICES OF PRODUCTS REFERENCE PRICES OF PRODUCTS WHILE EXAMINIG THE PRODUCTS.WHILE EXAMINIG THE PRODUCTS.

CONSUMERS COMPARE THE OBSERVED CONSUMERS COMPARE THE OBSERVED PRICE TO AN INTERNAL REFERENCE PRICE TO AN INTERNAL REFERENCE PRICE THEY REMEMBER OR AN PRICE THEY REMEMBER OR AN EXTERNAL REFERENCE PRICE LIKE THE EXTERNAL REFERENCE PRICE LIKE THE REGULAR RETAIL PRICE.REGULAR RETAIL PRICE.

CONSUMERS PERCEIVED PRICE MAY VARY FROM THE STATED PRICE.

THERE MAY BE 2 SITUATIONS: SITUATION OF UNPLEASANT SURPRISES i.e.

WHEN PERCEIVED PRICE IS LOWER THAN THE STATED PRICE.

SITUATION OF PLEASANT SURPRISES i.e. WHEN PERCEIVED PRICE IS MORE THAN THE STATED PRICE.

PRICE QUALITY INFERENCESPRICE QUALITY INFERENCES

MANY CONSUMERS USE PRICE AS AN INDICATOR OF QUALITY…… SPECIALY WHILE CONSIDERING EGO SENSITIVE PRODUCTS LIKE PERFUMES AND CARS.

A BOTTLE OF PERFUME COSTING Rs. 5000 MIGHT CONTAIN SCENT WORTH Rs. 500 BUT THE GIFT GIVERS PAY Rs. 5000 TO COMMUNICATE THEIR HIGH REGARD FOR THE RECEIVER.

THIS IS ALSO CONSIDERED AS AN EXCEPTION TO THE LAW OF DEMAND WHERE THE DEMAND ACTUALLY INCREASES WITH THE RISE IN THE PRICES.

PRICE CUES

RESEARCHES HAVE SHOWN THAT MANY CONSUMERS TEND TO PROCESS PRICES FROM LEFT TO RIGHT.FOR INSTANCE A STEREO AMPLIFIER PRICED AT Rs. 2999 INSTEAD OF Rs. 3000 WILL BE VIEWED AS IN A 2000 RANGE.HENCE MANY SELLERS BELIEVE THAT PRICES SHOULD END IN ODD NUMBER.

LIMITED AVAILABILITY LIKE “THREE DAYS ONLY” CAN ALSO SPUR SALES IN CONSUMERS ACTIVELY SHOPPING FOR A PRODUCT.BUT SUCH THINGS ARE INFLUENTIAL ONLY WHEN THE CONSUMERS PRICE KNOWLEDGE IS POOR, WHEN THEY PURCHASE THE ITEM INFREQUENTLY OR THEY ARE UNAWARE.

SETTING THE PRICESETTING THE PRICE

SETTING THE PRICE IS A SIX STEP PROCESS :

SELECTING THE PRICING OBJECTIVE

DETERMINING DEMAND

ESTIMATING COSTS

ANALYZING COMPETITOR’S COSTS, PRICES AND OFFER

SELECTING A PRICING METHOD

SELECTING THE FINAL PRICE

1:SELECTING THE PRICING OBJECTIVE

The clearer the firm’s objectives the better it The clearer the firm’s objectives the better it is for the firm to set the price. There are 5 is for the firm to set the price. There are 5 major objectives of pricing:major objectives of pricing:

Survival: companies strive to survive Survival: companies strive to survive against intense competition and changing against intense competition and changing consumer wants. The company stays in consumer wants. The company stays in the business so long as the prices cover the business so long as the prices cover variable costs and some fixed costs.variable costs and some fixed costs.

Maximum current profit: companies estimate the Maximum current profit: companies estimate the demand and costs associated with alternative demand and costs associated with alternative prices and choose the price that produces prices and choose the price that produces maximum profits, cash flows and return on maximum profits, cash flows and return on investment.investment.Maximum market share: companies believe that Maximum market share: companies believe that a higher sales volume will lead to lower unit a higher sales volume will lead to lower unit costs and higher long run profits. Hence they set costs and higher long run profits. Hence they set the lowest price……often termed as penetration the lowest price……often termed as penetration pricingpricing

Maximum market skimming: here the company Maximum market skimming: here the company unveiling the new technology favor setting high unveiling the new technology favor setting high prices to maximize market skimming. Here the prices to maximize market skimming. Here the price start high and slowly drop over time.price start high and slowly drop over time.

Product quality leadership: here in some brands Product quality leadership: here in some brands position themselves as leaders in quality with a position themselves as leaders in quality with a premium pricing and a very loyal customer base. premium pricing and a very loyal customer base. For instance MERCEDES AND BMW CARS, TAJ For instance MERCEDES AND BMW CARS, TAJ LUXURY HOTELS.LUXURY HOTELS.

OTHER OBJECTIVES: Non profit and public organizations may have other objectives. For example a university, a charitable hospital, social institutions etc.

2:DETERMINING THE DEMAND2:DETERMINING THE DEMAND

EACH PRICE WILL LEAD TO A DIFFERENT EACH PRICE WILL LEAD TO A DIFFERENT LEVEL OF DEMAND AND WILL LEVEL OF DEMAND AND WILL THEREFORE HAVE A DIFFERENT THEREFORE HAVE A DIFFERENT IMPACT ON REVENUE.IMPACT ON REVENUE.

DEMAND AND PRICE ARE INVERSELY DEMAND AND PRICE ARE INVERSELY RELATED . THE HIGHER THE PRICE THE RELATED . THE HIGHER THE PRICE THE LOWER THE DEMAND.LOWER THE DEMAND.

PRICE SENSITIVITY: THE FOLLLOWING FACTORS LEAD TO PRICE SENSITIVITY: THE FOLLLOWING FACTORS LEAD TO LESS PRICE SENSITIVITY:LESS PRICE SENSITIVITY:The product is more distinctive.The product is more distinctive.The buyers are less aware of substitute.The buyers are less aware of substitute.The buyers can less easily compare the prices of The buyers can less easily compare the prices of substitutes.substitutes.The expenditure is a small part of the buyer’s total income.The expenditure is a small part of the buyer’s total income.The part of the cost is borne by another party.The part of the cost is borne by another party.

PRICE ELASTICITY.PRICE ELASTICITY.

3:ESTIMATING COSTS

DEMAND SETS THE CEILING ON THE DEMAND SETS THE CEILING ON THE PRICE WHILE COSTS SET THE FLOOR.PRICE WHILE COSTS SET THE FLOOR.

THE PRICE SHOULD BE SUCH SET THAT THE PRICE SHOULD BE SUCH SET THAT THE COMPANY CAN COVER ITS COST THE COMPANY CAN COVER ITS COST OF PRODUCTION, DISTRIBUTION, AND OF PRODUCTION, DISTRIBUTION, AND SALE INCLUDING A FARE RATE OF SALE INCLUDING A FARE RATE OF RETURN.RETURN.

4:ANALYSING COMPETITORS COSTS, PRICES AND OFFERS

In this step the companies set up their In this step the companies set up their prices by considering the nearest prices by considering the nearest competitors price.competitors price.

If the company’s offer contain features not If the company’s offer contain features not offered by the nearest competitor then the offered by the nearest competitor then the company evaluates its worth to the company evaluates its worth to the consumers and add that valueto the consumers and add that valueto the competitor’s price.competitor’s price.

5:SELECTING A PRICING METHOD

THERE ARE VARIOUS PRICING METHODS:THERE ARE VARIOUS PRICING METHODS:

MARK UP PRICINGMARK UP PRICING

TARGET RETURN PRICINGTARGET RETURN PRICING

PERCEIVED VALUE PRICINGPERCEIVED VALUE PRICING

VALUE PRICINGVALUE PRICING

GOING RATE PRICINGGOING RATE PRICING

AUCTION TYPE PRICINGAUCTION TYPE PRICING

6:SELECTING THE FINAL PRICE

THE COMPANY MUST CONSIDER THE FOLLOWING FACTORS:

IMPACT OF OTHER MARKETING IMPACT OF OTHER MARKETING ACTIVITIES: consumers are willing to pay ACTIVITIES: consumers are willing to pay higher for known products. Thus higher for known products. Thus advertising have an impact on pricingadvertising have an impact on pricing

The quality of product also impacts price. The quality of product also impacts price. People are ready to pay for better quality People are ready to pay for better quality products.products.

IMPACT OF PRICE ON OTHER PARTIES: IMPACT OF PRICE ON OTHER PARTIES: THE DISTRIBUTERS, DEALERS, THE DISTRIBUTERS, DEALERS, COMPETITORS, SUPPLIERS, COMPETITORS, SUPPLIERS, GOVERNMENT etc. HAVE THEIR GOVERNMENT etc. HAVE THEIR INFLUENCES ON THE PRICE.INFLUENCES ON THE PRICE.

THANK YOU!!!THANK YOU!!!