mm-ii- mod-ii-price

8/6/2019 MM-II- MOD-II-PRICE

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PriceBy

Mr. Subash C. Nath (Asst. Prof. (Marketing)

Srusti Academy of Management, Bhubaneswar)


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CHAPTER OUTLINES

Pricing Meaning & Concepts

Objectives of Pricing,

Factors influencing pricing

Pricing Policies,

Pricing Methods

Managing Price Changes

ByMr. Subash C. Nath


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PricingMeaning &

Concepts

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

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

Price denotes the value of a product expressedin terms of money. The value & utility of a

product have to be set against its price.



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Continued

In perfect market, price is determined bysupply & demand.

Perfect competition means uniformity ofprice.



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Deeper penetration into the market

Entering new markets

Keeping competition out and undercheck

Fast turnaround and early cash recovery

Making commodities affordable byweaker sections

Continued



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Factors influencing pricing

Internal factors

External factors



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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 theproduct

Cost of manufacturing and marketing

Extent of distinctiveness of the product

Other elements of the marketing mix of the firmBy

Mr. Subash C. Nath


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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 aspectsSocial considerations

Understanding with the price cartels



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Pricing Policies

Establish prices after determining costs,competitive prices and demand.

Determine the elasticity of a products demandcurve.

Decide which pricing objectives are to beachieved.

Anticipate potential pricing problems.

Constantly monitor the companys pricingprogram.



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Decide that product, place and promotiondecisions affect pricing.

Determine the extent to which market model isthe most appropriate for specific products.

Attempt to determine which market model isthe most appropriate for specific products.

Follow a step-by-step procedure for

establishing prices.Anticipate possible governmental action.

Continued



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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 Even Pricing/ Target ReturnPricing

b). Buyer-based Approach-

Perceived Value Pricing

c). Competition-based Approach-

Going-rate pricing

Sealed-bid pricing/ Auction-type pricing



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a). Cost-based Approach-

The price determination of a product, under cost-basedmethod, is made on the basis of cost of production plusan additional margin of cost, i.e. selling price is equals tothe cost of production plus anticipated profit.

Under this, there are two concepts, such as-

Cost-plus pricing/Markup Pricing-

The most elementary method is to add a standardmarkup 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 pictureof this concept.



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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 = Rs. 26/-

50,000

Cost-plus price = Unit cost(1- Desired return on sales)

= 26 = Rs. 37.10/-

(1-0.3)



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Example:

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

Target Return Price can be calculated asfollows-



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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 theprobable impact on sales volumes & profits at different prices.



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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 highdemand followed by a high price and a low demand is

followed by a low price. The basic concept under thismethod is as

Perceived Value pricing- It is based on the concept ofsetting the price on the basis of value perceived by the

buyer of the product rather than the sellers cost. Themarketer uses the non-price variables in the marketing-mix to build up perceived value in the buyers mind. Priceis set to match the perceived value of the product.



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c). Competition-based Approach-Going-rate pricing-

The firm bases its price largely on competitors prices.The firm may change the same, more or less than themajor competitor. The smaller firms follow the leader. Asleader fixes its price the other firm follows that price.

Thats why it is known as going rate price.Sealed Bid Price-

Here the firm bases its price on how it thinks competitorswill price, rather than on its cost or demand. The firmwants to win the control & winning the contrast requires

pricing lower than other firms.Yet, the firm cant set the price below a certain level. Itcant price below cost. On the other hand, the higher itset sits price above its costs, the lower its chance ofgetting the contracts.



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Managing Price Changes It refers to the ability of the firm to cut

or raise prices.

Initiating price cuts: A firm can go forprice cuts in two cases

Excess plant capacity

Drive to dominate the market throughlower cost

Initiating price increase:

Delayed quotation pricing

Escalator clauses

Unbundling

Reduction of discounts



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THANK YOU ALL

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