Pricing Decisions, Determination, Process

 

Pricing: - The amount the consumer pays in return of a service or a product.

Factors that influence pricing: -

1.      Internal Factors – They are in the control of the organization.

a.       Organizational Factors – Includes pricing policies and strategies of the organization

b.      Marketing Mix – There must be a sync between the price and the products.

c.       Product Differentiation – When you’re differentiating your products from your competitors then the pricing will change. 

d.      Cost of the product – Fixed cost (machinery, etc.) and variable costs (stationery, electricity, etc.) are included in this.

2.      External Factors - They are not in the control of the organization or in the semi-control of the organization.

a.       Demand of the product – Includes Elastic (When the demand gets influenced by the price of the product) and Inelastic Demand (when the demand does not change with the change in the price of the product). 

b.      Competition in the market – If the competition is high then the price will be high or will be competitive.

c.       Pricing Objectives

d.      Profit maximization

e.       Market share

f.        Marketing Methods Used

g.      Supplies

8 stages of Price Determination process: -

1.      Market Segmentation

2.      Estimating the demand

3.      Market share

4.      Marketing mix

5.      Estimation of cost

6.      Pricing policies – Guidelines to carry out the price

7.      Pricing Strategies – Changes according to the market condition

8.      Price Structure – Final step where you consider the overall price structure of the products.

Pricing policy: - It is the determination of what price the seller is charging for a product or a service. It is similar to the determinants of pricing. While determining price we look at competition, cost, demand in the market and value of the product.

Pricing strategies – The methods which a company uses to price the goods and services. There are various methods such as: -

1.      Penetration pricing/Pricing to gain market share: The companies will initially keep the pricing low and eventually they will go on increasing the price of the product or the service.

2.      Economy Pricing: When the marketing expenditure is low then the company opts for economy pricing then the company offers its products at low or no price. E.g.; Economy class seats in a flight are comparatively lower in price than the business class. Also, the middle seats are available at the standard price without charging any extra amount as compared to the isle or window seat.

3.      Psychological Pricing Strategy: Where the seller is playing on the emotional responses rather than the rational responses of the customers. E.g.; MRP of Rs. 99 creating a sense of belief that it is less than Rs. 100.

4.      Product line pricing: When you’re pricing the whole product line.

5.      Captive Product Pricing: These are the complementary products. E.g.; Lead with lead pencil, Printer and cartridges, etc.

6.      Geographic Location pricing: Pricing on the basis of various geographical locations. E.g.; Exotic fruits like avocado, plums, peaches, etc.

7.      Value pricing: It has nothing to do with the value of the product rather it has to do with the competition in the market. It is done to reduce the price of the product due to the external factors that can affect the sales. E.g.; competition and recession.

8.      Skimming strategy: It is opposite to penetration pricing. In this we keep the prices higher as long as a new competition doesn’t enter into the market.