INDUSTRIAL PRICING

MATHIVANAN K.MBA 2014SOURASHTRA COLLEGE,MADURAI

Meaning The uniqueness of price in the marketing mix is

that it is the only element that generates revenue, all other elements of the marketing mix incur costs.

Right price is one of the important determinants of business success.

Determinants of industrial product pricing

Marketing objectives Competition Firm size Product type Price leadership Product differentiation Costs Market characteristics (demand, trade margin,

importance of the product to the business buyers) Company image Exchange rate (in currency)

Marketing objective It is the most important factor

determining the price. Example When the objective is market

penetration the price changed may be low.

Competition Competitive environment also most

importance factor to determine the price.

A firm enjoys great power in pricing if it is a monopoly whereas in a market characterized by perfect competition any single firm has hardly control over the price

Firm size In a number of industries the dominant

firms often set the price trends. their pricing strategies would be affected by the nature their total business

Medium sized firms fix their prices which reference to those large firms.

Product type Highly technical and specialized

products normally dose not face a very severe competition as compared to less technical and standardized products.

Product life cycle As described under the sections,

industrial product life cycle and pricing over the PLC, the competitive environment is different at different stages of the PLC and this affect the pricing strategy of the PLc.

Price leadership A number of industries particularly in

oligopoly, are characterized by the existence of a price leader who set the price trends.

Product differentiation

If the company’s product is highly differentiated then those of the competitors or it the product has some strong unique features, the company will have more freedom to manipulate the price.

Pricing objectives Pricing is a strategic marketing tool to

achieve certain objectives. The pricing objective, naturally, is one of the very important determinants of price.

Pricing objectives Market penetration Market share Market skimming Fighting competition Preventing new entry Shorten payback period Early cash recovery Meeting export obligation Disposal of surplus Optimum capacity utilization Return on investment Profit maximization

Types of cost in industrial marketing

Production cost Selling and delivery cost

Production cost Fixed cost Variable cost

Selling and delivery cost

It includes cost of holding stock, packing, transport, documentation, preshipment inspection, insurance and marketing cost like advertising and personal selling etc…

PRICING METHODS / APPROACHES

Cost based pricing it include FC + VC + OHS + Marketing

cost + specified % of the total cost

Market oriented pricing

It is very flexibility policy Price is based on the market conditions

Competitors based pricing Setting the price at the same level as

that of the competitors Setting the price below or above that

of the competitors

Negotiated prices Deciding the price by the negotiation

between the seller and the buyer is common.

It is popular with government and institutional purchases.

Customer determined price The buyers specifies the price at which

he is prepared to buy the products. Whether a price quotation given by the

buyer will be acceptable to seller or not will depend on factors like his cost structure, conditions of business, objectives etc…

Break even price To avoid the loss and also the profit or

loss at various levels of sales

Marginal cost pricing Marginal cost pricing approach is

common is evaluating the profitability new order in case of firms with excess capacity.

Ie. idle

Pricing policies Discount pricing Trade discounts Quantity discounts Seasonal discounts Cash discounts

Geographic pricing FOB factory (Free On Board) FOB destination Freight equalization Basing point CIF ( Cost, Insurance and Freight )

FOB factory (Free On Board)

The buyer bears the cost and other responsibilities of transporting the goods from factory to destination.

FOB destination

The selling price quoted includes the cost of goods and transporting the goods to named destination and seller bearers the responsibilities and risks of transporting the goods from the factory to the destination.

Freight equalization The supplier assumes the portion of

the fright and charges only the remaining part of the customer.

Transfer pricing or intra-company pricing

Pricing of goods transferred from one unit or division of the company to another one of the same company.

Leasing of industrial products Operating lease

Financial lease Sales and back transaction Leveraged lease

Operating lease

Operating lease refers to a short term lease of an asset for an hour , a day , etc.

Financial lease

It is for a basic term during which the lease is non cancellable. The length of this basic period determined by the economic life of the asset.

Sales and back transaction

It provides on arrangement by which an entity that owns a given asset may sell it to the leasing company, and lease it back.

Leveraged lease

In case of very large assets, a single lessor may not be capable of acquiring it or may not be willing to shoulder the whole risk associated with. Hence two or more lessors may jointly acquire the asset and lease it to the lessee.