Price

By

Mr. Subash C. Nath (Asst. Prof. (Marketing) Srusti Academy of Management, Bhubaneswar)

CHAPTER OUTLINES
Pricing Meaning & Concepts Objectives of Pricing, Factors influencing pricing Pricing Policies, Pricing Methods Managing Price Changes
By

Mr. Subash C. Nath

Pricing Meaning & Concepts

Price is the exchange value of the goods / services in terms of money; for both the buyers and the sellers.

Price is one of the most flexible elements of the marketing mix.

Price denotes the value of a product expressed in terms of money. The value & utility of a product have to be set against its price.

By

Mr. Subash C. Nath

Continued
In perfect market, price is determined by supply & demand. Perfect competition means uniformity of price.

By

Mr. Subash C. Nath

Objectives of Pricing
Profit maximization in the short run

Profit optimization in the long run A minimum return on investment A minimum return on sales turnover Achieving a particular sales volume Achieving a particular market share
By

Mr. Subash C. Nath

Continued
Deeper penetration into the market

Entering new markets Keeping competition out and under check

Fast turnaround and early cash recovery Making commodities affordable by weaker sections
By

Mr. Subash C. Nath

Factors influencing pricing

Internal factors

External factors

By

Mr. Subash C. Nath

Internal factors:
Corporate and marketing objectives of the firm The image sought by the firm through pricing The characteristics of the product

Price elasticity of demand of the product. The stage of the product in its life cycle
Use pattern and the turn around rate of the product

Cost of manufacturing and marketing

Extent of distinctiveness of the product Other elements of the marketing mix of the firm
By

Mr. Subash C. Nath

External factors:
Market characteristics ( these relate to demand, customer and competition) Buyer behavior in respect of the product

Bargaining power of the major customers

Bargaining power of the major suppliers

Competitors pricing policy

Government controls/regulation on pricing Other legal aspects

Social considerations
Understanding with the price cartels
By

Mr. Subash C. Nath

Pricing Policies
Establish prices after determining competitive prices and demand. costs,

Determine the elasticity of a products demand curve.

Decide which pricing objectives are to be achieved. Anticipate potential pricing problems. Constantly program. monitor the companys pricing

By

Mr. Subash C. Nath

Continued
Decide that product, place decisions affect pricing. and promotion

Determine the extent to which market model is the most appropriate for specific products. Attempt to determine which market model is the most appropriate for specific products.

Follow a step-by-step establishing prices.

procedure

for

Anticipate possible governmental action.

By

Mr. Subash C. Nath

Pricing Methods
The following are some basic approaches /methods for setting the price of a product-

a). Cost-based Approach-

Cost-plus pricing/Markup Pricing Break Pricing Even Pricing/ Target Return

b). Buyer-based ApproachPerceived Value Pricing

c). Competition-based ApproachGoing-rate pricing

Sealed-bid pricing/ Auction-type pricing

By

Mr. Subash C. Nath

a). Cost-based ApproachThe price determination of a product, under cost-based method, is made on the basis of cost of production plus an additional margin of cost, i.e. selling price is equals to the cost of production plus anticipated profit. Under this, there are two concepts, such asCost-plus pricing/Markup Pricing-

The most elementary method is to add a standard markup to the products cost. It determines: - the no. of units likely to be sold
Calculating the direct cost per unit

to cover overhead costs and profit

The following example will give up a clear-cut picture of this concept.

By

Mr. Subash C. Nath

Example:
Ex- Suppose, Variable cost = Rs. 20/Fixed cost = Rs. 3,00,000/Expected units sale = 50,000 units

Manufacturer wants to earn a 30% return on sales.

Solution- Unit Cost = Variable cost + Fixed Cost

Unit Sales = 20 + 3, 00,000

50,000 Cost-plus price = = Unit cost 26 (1-0.3)

= Rs. 26/-

(1- Desired return on sales)

= Rs. 37.10/By

Mr. Subash C. Nath

Break Even Pricing-

Pricing/Target

Return

Under this, the firm first determines the break-even point i.e. the volume that is required to sell at least to reach to the no profit/ no loss situation.

By

Mr. Subash C. Nath

Example:

Ex- Suppose, in the above example, the total capital invested is Rs. 1,00,000,00/- and price is so set that it could earn 30% return. Then-

Target Return Price can be calculated as followsBy

Mr. Subash C. Nath

TRP = Unit cost + Desired return

Invested Capital

Unit Sales

= 26 +

0.3

1,00,000,00
50,000

= Rs. 32/Break Even Volume = Fixed Cost TRP- Variable cost

3,00,000
32 20

= 25,000 units
Hence, the manufacturer by the B.E.A. can understand the probable impact on sales volumes & profits at different prices.
By

Mr. Subash C. Nath

b). Buyer-based Approach-

Here the firm doesnt fix the price, but the buyers do this. Price is fixed simply adjusting it to the market condition. The price varies from consumer to consumer. A high demand followed by a high price and a low demand is followed by a low price. The basic concept under this method is as Perceived Value pricing- It is based on the concept of setting the price on the basis of value perceived by the buyer of the product rather than the sellers cost. The marketer uses the non-price variables in the marketingmix to build up perceived value in the buyers mind. Price is set to match the perceived value of the product.

By

Mr. Subash C. Nath

c). Competition-based ApproachGoing-rate pricingThe firm bases its price largely on competitors prices. The firm may change the same, more or less than the major competitor. The smaller firms follow the leader. As leader fixes its price the other firm follows that price. Thats why it is known as going rate price. Sealed Bid PriceHere the firm bases its price on how it thinks competitors will price, rather than on its cost or demand. The firm wants to win the control & winning the contrast requires pricing lower than other firms.

Yet, the firm cant set the price below a certain level. It cant price below cost. On the other hand, the higher it set sits price above its costs, the lower its chance of getting the contracts.
By

Mr. Subash C. Nath

Managing Price Changes

It refers to the ability of the firm to cut or raise prices.

Initiating

price cuts: A firm can go for price cuts in two cases

Excess plant capacity
Drive to dominate the market through lower cost

Initiating price increase:

Delayed quotation pricing Escalator clauses Unbundling

Reduction of discounts
By

Mr. Subash C. Nath

THANK YOU ALL