Price is defined as the amount of money

which is charged by a Seller from a Buyer

for a product or for certain service.

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A company must set its price in relation to the value delivered and perceived by the customer.

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6Price

qual

ity

I. Selecting the pricing objective

II. Determining demand

III. Estimating costs

IV. Analyzing competitors

V. Selecting a pricing method

VI. Selecting the final price7

The company first decides where it wants to position its market offering. The objective could be :-

Survival

Maximize current profit

Maximize market share

Maximum market skimming

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Each price will lead to a different level of demand and have a different impact on a company’s marketing objectives.Demand and price are inversely related i.e. Higher the price, lower the demandSo, Company needs to consider :-

Price sensitivity Price elasticity of demand

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The degree to which the price of a product affects consumers purchasing behaviors.

The degree of price sensitivity varies from product to product and from consumer to consumer. 10

Buying behavior

Inventory effect ( buyers can not store

the product )

Substitute awareness by buyers

Difficult comparison by buyers

Percentage of expenditure

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This determines the changes in demand

with unit change in price

If there is little or no change in demand,

when there is price change it is said to be

price inelastic.

If there is significant change in demand,

when there is price change then it is said

to be price elastic.

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There are few or no substitutes

Buyers readily do not notice the

higher price

Buyers are slow to change their

buying habits

Buyers think that the higher prices

are justified13

Demand sets a price the company charge for its product and Cost sets the floor as company wants to set a price that cover there costs also.

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Fixed costs-doesn’t vary with

production.

Variable costs-varies directly

Total costs: FC+VC

Average cost-TC/production

Profit= Price- Total Cost

Marketers are generally in a better position to establish prices when they know the competition’s prices; discovering competitors’ prices may be a regular function of marketing research.

Marketers in an industry in which price competition prevails need competitive price information to ensure their organization’s prices are the same, or lower than, their competitors’ prices.

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An organization may set its prices slightly above the competition to give its products an exclusive image, or it may use price as a competitive tool and price its products below those of competitors.

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The three major dimensions on which prices can be based are cost, demand, and competition.

An organization usually considers multiple dimensions. The selection of the bases to be used is affected by the type of product, the market structure of the industry, the brand’s market share position relative to competing brands, and customer characteristics.

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Markup pricing

Target-return pricing

Perceived-value pricing

Going-rate pricing

Auction-type pricing

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Markup is the difference between the cost of a good or service and its selling price

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Target return is calculated as the money invested in a venture plus the profit that the investor wants to see in return, adjusted for the time value of money. As a return on investment method, target return pricing requires an investor to work backwards to reach a current price.

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The valuation of good or service according to how much consumers are willing to pay for it, rather than upon its production and delivery costs.

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Setting a price for a product or service using the reveling market price as a basis. Going rate pricing is common practice with homogeneous products with very little variation from one producer to another does.

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English auctions

Dutch auctions

Sealed-bid auctions

Pricing methods narrow the range from which the company must select its final price. In selecting that price, the company must consider additional factors , inclosing the impact of the other activities , company pricing policies, gain and risk sharing pricing , and the impact of price in other parties

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