PRICING : PRICING Major Shekhawat mail at email@example.com Pricing Introduction : Pricing Introduction The term ‘price’ denotes money value of a product. It represents the amount of money for which a product can be exchanged.
Objective of Pricing .
To achieve target rate of return on investment or net sales
To achieve price stability
To meet or prevent competition
To maintain or improve market share .
To maximize profit
To survive in the market
To build public image. Infinity" Major shekhawat : firstname.lastname@example.org Factor Affecting Pricing : Factor Affecting Pricing Infinity" Major shekhawat : email@example.com Factors Influencing Prices in Practice : Factors Influencing Prices in Practice Infinity" Major shekhawat : firstname.lastname@example.org Geographical or Distribution based pricing policies : Geographical or Distribution based pricing policies F.O.B. Pricing (Free on Board) implies that entire freight cost will be born by the buyer. The cost of Handling and loading is borne by seller .
Home Delivered Pricing.
Uniform Delivered Pricing.
Base Point Pricing.
Freight Absorption Pricing. Infinity" Major shekhawat : email@example.com Types of Pricing policies and decision : Types of Pricing policies and decision Demand Oriented Pricing
Cost oriented Pricing
Competition oriented pricing
Value based pricing Infinity" Major shekhawat : firstname.lastname@example.org Demand Oriented Pricing : Demand Oriented Pricing The law of demand and supply states that ‘the quantity demanded goes up as the prices goes down. And as the prices goes up quantity demand goes down” That is, there is an inverse relationship between price and quantity demand. As long as buyers need , ability , willingness and authority to buy remain stable , and as long as environmental situations remain constant, this fundamental inverse relationship will continue.
The demand may be described as either inelastic or elastic. Demand said to be inelastic when a large percentage change in price brings about a relatively small percentage change in sales. For example , the demand for milk, sugar , salt and wheat may be considered as inelastic, whereas when small percentage of price change effects large percentage of sales is known as elastic demand. The demand for automobile, gold , wrist , watches , televisions etc. is elastic and is sensitive to price changes. Infinity" Major shekhawat : email@example.com Types of Competition : Types of Competition Perfect Competition
Monopolistic Competition Infinity" Major shekhawat : firstname.lastname@example.org ART OF SETTING PRICE : ART OF SETTING PRICE The Broad parameters of setting the price can be
Competitors price strategy
The other criteria which influence price are :-
Price positioning of business
Price of other products in range
Product line pricing
Payment terms and loyalty schemes.
Indirect taxes and surcharge
Promotional and tactical pricing opportunities.
Customers perception for value for money and quality.
The image of business. Infinity" Major shekhawat : email@example.com Servicing Pricing : Servicing Pricing The mechanism of fixing the price for services is almost same as products with marginal differences . On account of inconsistency ,variability, Inseparability , Perishibility and seasonal of demand characteristics of services , Marketers have to also consider
Quality Infinity" Major shekhawat : firstname.lastname@example.org Pricing Method of Service Industry : Pricing Method of Service Industry Creative pricing
Cost oriented pricing
Cost plus Pricing
Rate of return Pricing
Demand Oriented Pricing
Market Penetration Pricing
Skimming Pricing Infinity" Major shekhawat : email@example.com Creative Pricing : Creative Pricing Infinity" Major shekhawat : firstname.lastname@example.org Cost Oriented Pricing : Cost Oriented Pricing Cost oriented pricing refers to setting prices on the basis of an understanding of their costs , it offer less scope for creativity. It is mainly an activity which is internally controlled . Prices related to basic cost depends on the buying skills of buyer and production skills of the producer, In cost oriented pricing the ’oncost’ include all the percentage mark ups and profit targeted . The percentage mark ups are inserted in the pricing structure at points where they achieve pre-determined amounts for various overhead, profits for channel members , marketing expenses . Infinity" Major shekhawat : email@example.com Cost plus Pricing : Cost plus Pricing This type of pricing is usually applied in retail outlets with tourist attraction , where the method of price determination in which the price of a unit of a product is set at a level equal to unit’s total cost plus a desired profit on the unit.. Cost plus pricing sets prices in relation to either marginal costs or total costs including overheads.
It weakness as a method of pricing is that it does not take into consideration demand for product or what prices the market will bear. It is not based on the price level of competitors. Infinity" Major shekhawat : firstname.lastname@example.org Rate of Return Pricing : Rate of Return Pricing P=UVC+F/X+ rk /X
Where P=Selling price
UVC=Unit Variable Cost
F = Fixed Cost
X= Standard Unit volume
R= Profit Rate Desired
K= Capital employed
Not:- In highly competitive environments use of cost plus or rate of return methods of pricing is limited. Infinity" Major shekhawat : email@example.com Demand Oriented Pricing : Demand Oriented Pricing This is the strategy approach whereby a firm sets prices after researching consumer desires and ascertaining the range of prices acceptable to the target market. This method of pricing is a perceived value pricing strategy that may be implemented with different pricing tactics . The product or service is priced according to the benefits perceived by the customers. This may be estimated on using in-house data or may be developed with the help of market research. Demand oriented pricing take into account the factors of demand rather than level of cost in order to set the price. Infinity" Major shekhawat : firstname.lastname@example.org Discriminating Pricing : Discriminating Pricing This is also known as flexible pricing . It allows a firm to adjust price based on the customer’s ability to negotiate or on the buying power of large consumers. It can take the following forms:
By Customers: For the same product or service different price may be charged for e.g. Airlines / Railways give senior citizen discount of 50% on all booking.
By Product Service: Different price are charged for different version there is frequently little or no cost difference in the different versions.
By Location: In this method the deciding factor is the place utility rather than the cost, Customer income will be a constraining factor in making choice. E.g. Front rows in concert cost more than the last rows, Front seats in movie hall is cheapest than balcony.
By Time: The prices vary by season , day of the week , time of the day Time sensitivity occurs when demand varies at different time but the service product is not storable.
By Quantity: The price is set according to the quantity used or volume purchased this pricing structure allow the service firms to predict future demand for it service. Infinity" Major shekhawat : email@example.com Backward Pricing : Backward Pricing This is the method of pricing which focuses on what the consumer is willing to pay. After Knowing the willingness to pay , the price is worked backward, First, an acceptable margin is agreed upon and then costs are closely monitored So that the price which is deemed to be acceptable can be matched. To be successful with this method of pricing it is important to understand the psychological effects of creating services which may appeal to the price conscious customer , but may not give the satisfaction if the holiday experience and company are considered to be of poor quality. Infinity" Major shekhawat : firstname.lastname@example.org Market Penetration Pricing : Market Penetration Pricing It is a strategy where pricing is set relatively low in the introduction phase in relation to the target market range of expected prices. This type of Strategy aim to penetrate the mass market immediately and in, so doing , generate substantial sales volume , large market share and create high growth for the company’s service product , with respect to competition. Infinity" Major shekhawat : email@example.com Skimmed Pricing : Skimmed Pricing Market skimming pricing is a strategy in which the initial price of product is set high in relation to the market range of expected prices. This strategy is used if the product or service is distinctive , its demand fairly inelastic and in short supply.
For Example; Luxury villas with swimming pool/tennis court and set in good locations are normally priced with higher margins than other accommodation product because of their shortage. Infinity" Major shekhawat : firstname.lastname@example.org Special Adjustments to the List or Quoted Prices : Special Adjustments to the List or Quoted Prices Infinity" Major shekhawat : email@example.com Service Industry Pricing –Application : Service Industry Pricing –Application Infinity" Major shekhawat : firstname.lastname@example.org Transportation Pricing : Transportation Pricing Type of Product
Loading and handling facilities.
Accessibility at pick-up and destination.
Weight of consignment.
Possibility of return load .
Need for high security.
Nature of product (perishable goods may need refrigerated vans)
Availability of transport route and terrain
Facilities for transportation –air, rail, road , canal
Cross state or cross border customs necessary
Distance Involved Infinity" Major shekhawat : email@example.com Pricing Management Consultancy : Pricing Management Consultancy RESOURCE CONSULTANCY: Consultant bring expertise , experience and knowledge to a firm and recommends an action programme based on the transference of that expertise.
PROCESS CONSULTANCY: Consultants help the firm to diagnose the problem and suggest remedial steps to solve these problems. The price providing consultancy cannot be based on the components as it has been explained in cost oriented pricing earlier. But it is related to perceived value.
Consultant fee /day = RXK/ P
R = Top rate of permanent employee
K = Factor between 2 and 3 (to account for perks payable to permanent employees and depend upon the type of job and experience )
P = Number of Days working On Site Infinity" Major shekhawat : firstname.lastname@example.org General Hotel Pricing : General Hotel Pricing Hotel Industry pricing can be divided into two categories
Fixed cost that have to be paid irrespective of any amount of business.
Variable cost which varies directly with the number of clients.
Marketers have two views on contribution towards payment of fixed overheads.
Any revenue that exceeds the variable cost contributes something towards fixed overhead.
Every product should contribute toward the fixed cost.
In manufacturing unit the product do not contribute to the fixed cost is usually dropped from the product line. Thus, the second view is relevant only to a non-service business environment
In hotel Industry, the variable cost of the room is relevant to pricing decision. Any revenue in excess of this is productive, otherwise it is going to perish for ever. Infinity" Major shekhawat : email@example.com Hotel Pricing : Hotel Pricing The room rate of the hotel are related to following factors. Firstly basic, normal rate considers the following:
Room space , Quality of furniture , Carpeting , Furnishing , Bath , toilet shower , hair dryer , trouser pressing equipment etc ,Telephone , colour TV , in house movie , Radio . Fridge , tea and coffee making machine , Personal computer and office facilities and others.
Secondly , the room rate is related to the market.
Thirdly, the room rate should reflect the availability of personal comforts facilities like , lounge ,bar , restaurants , shopping arcade , banks , hairdressing , swimming pool, health club etc. Some groups of customers may be looking for facilities like conference room , lecture room , meeting rooms . In this case the standard of the equipment provided are of great significance.
Hotel Industry market
Primary market : High business class and elite class and all appeals directed towards this during peak periods.
Secondary Market: This market relates to people who would be attracted to the hotel during non peak periods and all appeals are directed towards this secondary market and reduced rate are offered during this period. Infinity" Major shekhawat : firstname.lastname@example.org Questions : Questions Discuss the Importance of pricing in Marketing? What are the typical pricing objectives?
Define the term Price
Is pricing lethal weapon in the marketer’s armoury? If yes then why is it that some managers pay little attention evolving optional pricing strategies for their product?
Explain the factor that affect pricing by a firm . What factors push up the prices?
Describe the various internal and external forces that influence the pricing strategy of a firm?
Out of cost based , competition based , demand base approaches which one is most appropriate to customers?
Explain why the reaction of customers ,employees and competition must be considered while making pricing decision? Infinity" Major shekhawat : email@example.com