PRICING DECISION1

chapter

10

Influences on pricing

The Generic influences on pricingObjectives Costs Marketing

mixInternal

stakeholders

Internal Influences

Pricing Decision

External Influences

Customers Competitors Share-holders Distributors Regulation

Objectives

Pricing decisions must take in to account the Organisation’s overall objectives.

It has two broad categories:Maximum return on investment, profit or margin

Maintaining or increasing market share or sales

Costs10

This is the most widely recognized influence onPrice.

Cost are typically recognize under two headingsoFixed cost- are incurred irrespective of levels ofSales of a product.

oVariable cost- refer to those costs which relate directly to the number of unit sold.

Marketing mix 1

If a product or service is to be positioned as a quality or prestige product then that image must be supported by a high price.

Internal stakeholders10

Pricing decisions involve different groups within the organization They will thus need to reflect the differing needs of groups. For example finance andAccounting may be concerned with price, only inRelation to cost and the organization’s ability to Certain specified financial targets.

External Factors 10

This includes:

Consumers

Competition

Intermediaries

Shareholders

Policy and Regulation

Consumers 10

Marketing managers must also think about consumer Perceptions of the value and the benefits they receive from the product.

What is important is not the cost but how highly the consumer value them.

Competition 10

If competitors prices are significantly lower, the Customers are more likely to buy from them.

Equally if competitors prices are significantly higher then the organization that is able to offer a lower price may gain additional sales.

Intermediaries 10

The intermediaries perform a range of services Including providing customers with information, helping them make choices and providing after sales.

The intermediaries has to be rewarded for providing these services.

Shareholders 10

Organization must give careful consideration to the needs and expectation of shareholders

Those providing capital will expect to receive an appropriate return and this must be factored into the pricing decision.

Policy and regulation

Chapter 1 Version 3e

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Specific policy and regulations may affect the pricing of certain product and services. These factors may constrain decisions made with respect to price.

Challenges Associated with Pricing Financial Services

Internal issuesCosts:-Financial service organizations may face difficulties in allocating costs across their productsbecause any service they provide to customer maybe combination of individual services.

Risks:- The issue of risk is probably far greater for financial services. When a bank provides a loan or issues a credit card, there is a risk that the consumer will not be able to make the payment.

External issues 10

Complexity and Transparency:- Many customers find financial service complex and difficult to understand. One particular area is the lack of transparency in pricing.Uncertainty:- Complication consumers face is that the value or benefit they get from particular financial service may not be clear or may be difficult to assess.

Variability:- Financial services are characterized by Variability.

Forms of pricing 10

Explicit or Over Pricing

Implicit or Covert Pricing

Spread Pricing

Explicit or Over Pricing 10

This approach makes the price paid for the service very clear.

Implicit or Covert Pricing

This is a system of pricing in which the actualprice to the consumer is unclear and the mayappear not pay it.

Spread pricing 10

This is a relatively specific approach to pricingmost commonly used in relation to managed funds.

Pricing strategies 10

The three general pricing strategies are :

Fixed Fee

Transactions Charges

Two-Part Tariffs

Fixed Fee

This types of pricing strategy presents the customer with a fixed fee for a given service in specific time period.

It may be used in combination with either implicit or explicit pricing.

Transactions Charges

This involves a specified charge for each transaction.

This type of pricing strategy only really works with explicit pricing.

Two-Part Tariffs

This involves a combination of fixed fee and transactions charges.

This comprises of charging a fixed fee and also a charge for the service used.