PRICE MANAGEMENTUNIT - II

DEFINITION/ MEANING :

Price – cost + profit [or] rupee equivalent of the value of the product / what the consumer will willingly pay.

The factors governing prices:

1. Internal factors [ controlled]2. External factors [ uncontrolled]

INTERNAL FACTORS:

1. The costs2. The management policy • Objectives of business• Competitive situation in which the company is

placed• Product and promotional policies• Nature of price sensivity• Conflicting interest of manufacturers & middle man• Rotinization of policy Number of pricing definitions Speed requires by pricing decisions Quality of available information• Active entry of non- business groups into the

determination of prices.

EXTERNAL FACTORS:

1. Demand2. Competition 3. Distribution channels4. Legal restraints

OBJECTIVES:

5. Maximization of profits6. Promotion of long- range welfare of the firm7. Adaptation of prices to fit the diverse competitive

situations8. Flexibility to vary prices to met changes in

economic conditions9. Stabilisation of prices & margin

6. Market penetration

7. Market skimming

8. Early cash recovery

9. Satisfying (i. e) achieving a satisfactory rate of return.

*** Imp PRICING METHODS:

I. COST BASED PRICING :

Total cost method Mark-up pricing Absorption cost pricing Marginal cost pricing BEP pricing

II. DEMAND/ MARKET BASED PRICING:

What the market can bear pricing Skimming Penetration The concept of price elasticity of demand

III. COMPETITION BASED PRICING:

• Premium pricing• Discount pricing• Parity pricing

Kinds of pricing decisions/ prices:

Odd pricing Psychological pricing Customary pricing Pricing at prevailing pricing Prestige pricing Price lining Geographic pricing Dual pricing

Administered pricing Monopoly pricing Skimming pricing Penetration Expected pricing Sealed bid pricing Negotiated pricing Mark–up pricing Discriminatory pricing

STEPS INVOLVED IN PRICING PROCEDURE:

• Identify the target customer segments & draw up their profiles

• Decide the market position & price image that the firm desires for the brand

• Determine the extent of price elasticity of demand of the product & extent of price sensivity of target customer groups

• Take into a/c the life cycle stage of the product• Analyse competitors prices• Analyse other environmental factors• Choose the pricing method to be adopted taking all

he above factors into account• Select the final price• Periodically review the pricing method as well as

procedure.

PRICING FOR EXPORT MARKETING:

1. It is extremely sensitive factor in export trade2. Individual exporters have no control on price3. Understand the varied marketing situations from

country to country, product to product, time to time.

4. Concept of marginal costing is better5. Incase of dumping, marginal cost only works, fixed

cost already covered and there is extra plan capacity. So, they fix marginal prices.

PRICING FOR SERVICES:

• Services are intangible in nature• Services are perishable in nature

FACTORS INFLUENCING ARE :

• Structure of the market• Type of organization• Prices charged by competitors• The life cycle stage of the service• Organisational objective• Regulations of government or trade associations

PRICING STRATEGIES OF SERVICES:

1. Skimming pricing

2. Penetration pricing

3. Mixed pricing Cost plus pricing Marginal pricing Promotional pricing Flexible pricing Market oriented pricing

*** v. imp PRICING FOR NEW PRODUCTS:

I. Skimming: To skim the market and to take the cream, by pricing the new product high and concentrating on market segments which are not price sensitive.

II. Penetration:

If the new product is likely to be highly price sensitive and if there is no effluent market for it, penetration pricing is resorted to penetration pricing is resorted to penetrate a large market by using low prices

III. Price discrimination:

Monopoly price discrimination• First degree price discrimination e.g: doctor• Second degree price discrimination e.g: electricity• Third degree price discrimination e.g: air lines

IV. Price bundling:

1. Pure bundling [ 2 products together]2. Mixed bundling3. Tying – complementary & additional products

IMPORTANT Q’S:

1. Define price? What are the factors influencing pricing decisions?

2. What is the role of pricing in marketing mix? Explain the objectives of pricing?

3. What are the methods/approaches of pricing?

4. Explain the new product pricing methods?

5. Explain the steps involved in pricing a product & service?