2. PRICE
PRICE IS ONE ELEMENT OF MARKETING
THAT PRODUCES REVENUE. THE OTHER
ELEMENTS PRODUCE COSTS.
PRICES ARE THE EASIEST ELEMENT OF
MARKETING TO ADJUST………..THE
PRODUCT FEATURES, CHANNELS,
COMMUNICATIONS ARE NOT EASILLY
ADJUSTABLE.
3. PRICE ALSO COMMUNICATES TO THE MARKET THE
COMPANY’S INTENDED VALUE POSITIONING OF ITS
PRODUCT OR BRAND.
PRICE IS NOT JUST THE NUMBER ON THE TAG. PRICE
COMES IN MANY FORMS AND PERFORMS VARIOUS
FUNCTIONS.
RENT , TUTION FEES, FARE, RATES , TOLLS, WAGES
,AND COMMISSIONS ALL MAY IN SOME OR THE OTHER
WAY BE THE PRICE YOU PAY FOR SOME GOODS OR
SERVICES.
4. CONSUMER PSYCHOLOGY
AND PRICING
ECONOMISTS ASSUME THAT
CONSUMERS ARE THE PRICE TAKERS.
AND ACCCEPT THE PRICE AT THE FACE
VALUE.
MARKETERS RECOGNISE THAT THE
CONSUMERS OFTEN ACTIVELY
PROCESS THE PRICE INFORMATION
EITHER BEFORE PURCHASING IT OR AT
THE TIME OF PURCHASING .
5. BASICALLY CONSUMERS HAVE GOT 2
TYPES OF MIND SETS:
LOWER PRICE THRESHOLD: BELOW THIS
THE PRICE SIGNAL INFERIOR OR UNACCEPTABLE
QUALITY.
UPPER PRICE THRESHOLD: ABOVE WHICH
THE PRICES ARE PROHIBITED.
UNDERSTANDING HOW THE CONSUMERS ARRIVE
AT THEIR PERCEPTIONS OF PRICES IS AN
IMPORTANT MARKETING PRIORITY………..
6. 3 BASIC ISSUES
HERE WE CONSIDER 3 IMPORTANT
ISSUES:
REFERENCE PRICES
PRICE QUALITY INFERENCES
PRICE ENDINGS
7. REFERENCE PRICES
A CONSUMER OFTEN EMPLOYEES
REFERENCE PRICES OF PRODUCTS
WHILE EXAMINIG THE PRODUCTS.
CONSUMERS COMPARE THE OBSERVED
PRICE TO AN INTERNAL REFERENCE
PRICE THEY REMEMBER OR AN
EXTERNAL REFERENCE PRICE LIKE THE
REGULAR RETAIL PRICE.
8. CONSUMERS PERCEIVED PRICE MAY VARY FROM
THE STATED PRICE.
THERE MAY BE 2 SITUATIONS:
SITUATION OF UNPLEASANT SURPRISES i.e.
WHEN PERCEIVED PRICE IS LOWER THAN THE
STATED PRICE.
SITUATION OF PLEASANT SURPRISES i.e.
WHEN PERCEIVED PRICE IS MORE THAN THE
STATED PRICE.
9. PRICE QUALITY INFERENCES
MANY CONSUMERS USE PRICE AS AN
INDICATOR OF QUALITY…… SPECIALY
WHILE CONSIDERING EGO SENSITIVE
PRODUCTS LIKE PERFUMES AND CARS.
A BOTTLE OF PERFUME COSTING Rs. 5000
MIGHT CONTAIN SCENT WORTH Rs. 500
BUT THE GIFT GIVERS PAY Rs. 5000 TO
COMMUNICATE THEIR HIGH REGARD
FOR THE RECEIVER.
10. THIS IS ALSO CONSIDERED AS AN
EXCEPTION TO THE LAW OF DEMAND
WHERE THE DEMAND ACTUALLY
INCREASES WITH THE RISE IN THE
PRICES.
11. PRICE CUES
RESEARCHES HAVE SHOWN THAT
MANY CONSUMERS TEND TO PROCESS
PRICES FROM LEFT TO RIGHT.
FOR INSTANCE A STEREO AMPLIFIER
PRICED AT Rs. 2999 INSTEAD OF Rs.
3000 WILL BE VIEWED AS IN A 2000
RANGE.
HENCE MANY SELLERS BELIEVE THAT
PRICES SHOULD END IN ODD NUMBER.
12. LIMITED AVAILABILITY LIKE “THREE
DAYS ONLY” CAN ALSO SPUR SALES IN
CONSUMERS ACTIVELY SHOPPING FOR
A PRODUCT.
BUT SUCH THINGS ARE INFLUENTIAL
ONLY WHEN THE CONSUMERS PRICE
KNOWLEDGE IS POOR, WHEN THEY
PURCHASE THE ITEM INFREQUENTLY
OR THEY ARE UNAWARE.
13. SETTING THE PRICE
SETTING THE PRICE IS A SIX STEP PROCESS :
SELECTING THE PRICING OBJECTIVE
DETERMINING DEMAND
ESTIMATING COSTS
ANALYZING COMPETITOR’S COSTS, PRICES
AND OFFER
SELECTING A PRICING METHOD
SELECTING THE FINAL PRICE
14. 1:SELECTING THE PRICING
OBJECTIVE
The clearer the firm’s objectives the better it
is for the firm to set the price. There are 5
major objectives of pricing:
Survival: companies strive to survive
against intense competition and changing
consumer wants. The company stays in
the business so long as the prices cover
variable costs and some fixed costs.
15. Maximum current profit: companies estimate the
demand and costs associated with alternative
prices and choose the price that produces
maximum profits, cash flows and return on
investment.
Maximum market share: companies believe that
a higher sales volume will lead to lower unit
costs and higher long run profits. Hence they set
the lowest price……often termed as penetration
pricing
16. Maximum market skimming: here the company
unveiling the new technology favor setting high
prices to maximize market skimming. Here the
price start high and slowly drop over time.
Product quality leadership: here in some brands
position themselves as leaders in quality with a
premium pricing and a very loyal customer base.
For instance MERCEDES AND BMW CARS, TAJ
LUXURY HOTELS.
17. OTHER OBJECTIVES: Non profit and public
organizations may have other objectives.
For example a university, a charitable
hospital, social institutions etc.
18. 2:DETERMINING THE DEMAND
EACH PRICE WILL LEAD TO A DIFFERENT
LEVEL OF DEMAND AND WILL
THEREFORE HAVE A DIFFERENT
IMPACT ON REVENUE.
DEMAND AND PRICE ARE INVERSELY
RELATED . THE HIGHER THE PRICE THE
LOWER THE DEMAND.
19. PRICE SENSITIVITY: THE FOLLLOWING FACTORS LEAD TO
LESS PRICE SENSITIVITY:
The product is more distinctive.
The buyers are less aware of substitute.
The buyers can less easily compare the prices of
substitutes.
The expenditure is a small part of the buyer’s total income.
The part of the cost is borne by another party.
PRICE ELASTICITY.
20. 3:ESTIMATING COSTS
DEMAND SETS THE CEILING ON THE
PRICE WHILE COSTS SET THE FLOOR.
THE PRICE SHOULD BE SUCH SET THAT
THE COMPANY CAN COVER ITS COST
OF PRODUCTION, DISTRIBUTION, AND
SALE INCLUDING A FARE RATE OF
RETURN.
21. 4:ANALYSING COMPETITORS COSTS,
PRICES AND OFFERS
In this step the companies set up their
prices by considering the nearest
competitors price.
If the company’s offer contain features not
offered by the nearest competitor then the
company evaluates its worth to the
consumers and add that valueto the
competitor’s price.
22. 5:SELECTING A PRICING METHOD
THERE ARE VARIOUS PRICING METHODS:
MARK UP PRICING
TARGET RETURN PRICING
PERCEIVED VALUE PRICING
VALUE PRICING
GOING RATE PRICING
AUCTION TYPE PRICING
23. 6:SELECTING THE FINAL PRICE
THE COMPANY MUST CONSIDER THE
FOLLOWING FACTORS:
IMPACT OF OTHER MARKETING
ACTIVITIES: consumers are willing to pay
higher for known products. Thus
advertising have an impact on pricing
The quality of product also impacts price.
People are ready to pay for better quality
products.
24. IMPACT OF PRICE ON OTHER PARTIES:
THE DISTRIBUTERS, DEALERS,
COMPETITORS, SUPPLIERS,
GOVERNMENT etc. HAVE THEIR
INFLUENCES ON THE PRICE.
