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Price: The amount of money charged for a product or service or the sum of the values that customers exchange

for the benefits of having or using the product or service is known as price. Of all the aspects of the marketing mix, price is the one, which creates sales revenue - all the others are costs. The price of an item is clearly an important determinant of the value of sales made. Although non price factors have gained increasing importance but price still remains one of the most important elements determining a firms market share and profitability. Setting prices is the number one problem facing many marketing executives and many companies do not handle pricing well. Pricing Approaches used We will determine the price of Honda ecstasy on two bases. 1. Cost based Pricing 2. Competition based pricing Cost based pricing: which includes setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk. According to cost based pricing first step is to design a new product then determine the product costs then set price based on cost and the final step includes convincing the buyers of the products value. Competitor based pricing: It refers to the method of pricing your own product based on competitors products based on your own costs and demand. As the auto industry is a price sensitive market Honda needs to be updated about its competitors products. In the case of Honda

its biggest competitor is Toyota and price settings by Honda ecstasy will to react to the changes in prices of Toyotas corolla. Steps to determine the price 1. Develop marketing strategy-marketing analysis will be performed and target market will be established and Honda ecstasy will be positioned.
2. Determination of marketing decisions-Product (Honda ecstasy), distribution and

promotional tactics are determined.


3. Estimate of quantity demanded with variation in price.

4. Calculation(all fixed and variable costs) 5. Understand environmental factors-competitors and their products are analyzed 6. Determining of price using the information collected in the above steps. The first three steps are performed in the previous pages. Estimate of quantity demanded with variation in price Honda ecstasy can be internally compared with its existing product Honda civic of which approximately 5908 units were sold in one year which was a big success so we estimate that Honda ecstasy will sell around 5000 units annually.

Calculation of all fixed and variable costs Fixed Costs Fixed costs are those that do not change with the level of sales. If sales increase or decrease but nothing else changes then fixed costs remain the same. Common examples of fixed costs include rents, salaries of permanent employees and depreciation. Companies like Honda which are already established can achieve economies of scale which are spreading of fixed costs over increasing level of production.

Fixed Costs Plant Promotion Distribution Misc Total

Rs 4,0000000 3,0000000 1,0000000 2,0000000 10,000000

We estimated that the assembly plant will assemble approximately 14 cars in one day. Resulting from this budget we deduce the average fixed cost /car is Rs 20,000 which can be reduced by increase in production keeping in mind the demand of the market.

Variable costs

Variable costs are the costs that vary with the level of production that for example raw materials used in production process; packaging etc. An accurate statement is that variable costs are directly proportional to production. The various variable costs included in our Honda ecstasy are as follows; Variable Costs Engine Front Suspension Rear suspension Body
Tyre/Rims

Rs 450000 80000 60000 300000 50000 260000 1200000

Interior TOTAL

Pricing Objectives:
Our pricing objective for the Honda ecstasy will be sales oriented in which our goal is be to maximize sales, profit and market share of our product.

Determination of Price
After analyzing all the factors discussed above and determining all the fixed and variable costs we are adding a markup of 25% on the total cost. Total cost= fixed cost +variable cost. The variable cost and fixed cost that will incur are Rs 1220000(20000+1200000).After adding a markup of 25% our selling price is going to be Rs 1520000.