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Price is the amount of money needed to acquire a product. It is the cost that has to be occur by the buyer to acquire a product or service.
Economist defines price as the exchange value of a product or service, always expressed in money.
Price is the amount charged for the product or service including any warranties or guarantees, delivery, discounts, services or other items that are part of the conditions of sale and are not paid for separately.
Pricing is equivalent to the total product offering. This offering includes a brand names, package, product benefits, service after sale, delivery credit and so on.
Price is a matter of vital importance of both the seller and the buyer in the market place. A money economy, without prices there cannot be marketing. Price devotes the value of a product or service expressed in money.
Pricing decisions influences the following marketing variables:-
1. Odd Pricing : Odd pricing may be a price ending in an odd number or a price just under a round number, such a pricing is adopted generally by the seller of speciality or convenience goods.
Example: Bata shoes are priced at say Rs. 699.95. Odd price may bring more sales. Under odd pricing, buyers may feel that it is a “Mark down price.”
2. Psychological Pricing :
The price under this method is fixed at a full number. The price-setters simply feel that certain prices for certain products are psychologically appealing.
Example: Products like shampoo, ball pen, biscuit, soft drink are sold at prices such as 2, 3, 5, 10.
3. Prestige Pricing: Prestige price is one that is fixed at a higher price than the producer’s near-perfect substitute. Prestige pricing is adopted because many customers feel that high price means high quality. They feel that at the low price the product cannot be of good quality.
Moreover, the customers feel a high status at high price. At high prices, the customers buy more.
If prices are dropped a little bit, then customers may bargain a little.
4. Consumer Expectations: Such prices are fixed by consumer. Consumers are familiar with the rate and market condition and expect a particular price to be charge for certain products. Mostly such products are standardised.
Example: Soft drinks and shampoo packets.
5. Geographic Pricing: The distance between the sellers and the buyers is considered in geographic pricing. When there is a lot of distance between the production centre and consumption centre, the producer or marketer can adopt different prices in each area without creating any ill-will among customers.
Example: Petrol.
There are three ways of charging transit costs viz.
6. Price Lining : Price lining is found more commonly among retailers than among wholesalers or producers. This system consists of selecting a limited number of prices at which the store will sells its good.
Example: A buyer of a shirt can go into a shop where shirts are retailed between Rs. 300 to Rs. 600. It also helps the shopkeeper to plan his purchases.
7. Dual Pricing: When a manufacturer sells the same product at two different prices, it is dual pricing. Under dual pricing system, a producer is required compulsorily to sell a part of his production to the govt. or its authorised agency at a price fixed by the producer, e.g. sugar.
8. Company Policy: The price is fixed not on the basis of cost or competitive pressures or the laws of demand and supply, but fixed purely on the basis of the policy decisions of the company.
9. Monopoly Pricing: Monopolistic conditions exist where a product is sold exclusively by one producer or a seller. When a brand new product moves to the market, its price will be a monopoly price.
10. Penetration Pricing: Penetration pricing is intended to help the product penetrate into market to hold a position.
In other words, penetration pricing is intended to capture the market.
This can be done only by adopting a low price in the initial period or till such time as the product is finally accepted by customers.
Penetration pricing is adopted when substitute product is marketed.
11. Negotiated Pricing: It is also known as variable pricing. This method is invariably adopted by industrial suppliers. In certain cases, the product may be prepared on the basis of specification or design by the buyer. In such cases, the price has to be negotiated and then fixed.
12. Mark-up Pricing: This method is adopted by wholesalers and retailers in establishing a sale price. When the retailers or wholesalers fixed the selling price, they add a certain percentage to their cost price.
Example: An item that costs Rs. 20 may be sold for Rs. 25. Here the “mark-up price” is Rs. 5 or 25 percent.
13. Sealed Bid Pricing / Competitive Bidding: This method is followed in the case of specific job works. Big firms or govt. normally get the work done through contractors.
The contractors work out the probable expenditure and give their price offers in a sealed cover. The lowest bidder gets the work.
14. Skimming Pricing/ Skim the cream pricing: This method is followed while launching a totally new product into the market. Under this policy, a high price is ……………….to skim the cream of the market and the price moves downwards step by step until the right price is reached. The skimming price policy will produce more income in the early stage of a product life cycle only when the top of the market is insensitive to price and willing to pay what is asked.
Example: In the case of books, this method is followed by having a high price for the first / deluxe edition and lesser prices for subsequent editions.
14. Premium Pricing.
15. Charging what the traffic will bear.
1. Cost-oriented or Cost-based Pricing Policy: It is also referred to as “cost-plus” pricing. This policy assures that no product is sold at a loss but a fixed percentage of profit is added to the unit cost.
Advantages:
a. It is a simple system.
b. It is socially fair.
c. Recovery of cost is guaranteed.
d. It can be very well applied in charging situation.
Disadvantages:
a. Demand is ignored.
b. Future cost is not considered.
c. Inefficiency during the initial stages of manufacture is not considered and finally the ultimate consumers suffer.
2. Demand-oriented or Demand-based Pricing Policy:
Under this method, demand is the prime factor for pricing and price is fixed on the basis of demand for the product. Demand-oriented pricing policy may be adopted in three different ways:-
a. The firm does not fix the price but the price is charged by adjusting to the market conditions.
b. Another method is that the management may enter into test marketing through different prices and select the price which ensure the maximum revenue.
c. In certain cases, the management may forecast on the basis of historical data available.
3. Competition-oriented or Competition-based Pricing Policy:
Most companies set or fix prices after a careful consideration of the competitive price structure. It means, before pricing a product, every firm takes into account the conditions of competition.
If the competition changes the price, company has to fall in line.
4. Cost-Demand-oriented Pricing Policy: This is also known as break-even pricing. In break-even point, the sales revenue will be equal to total cost. In other words, at BEP there will be neither profit nor loss.
The break-even concept gives the relationship between costs and sales volume.
1. Market Segmentation: The very first step for price determination is market segmentation. Markets will first decide the type of products to be produced or sold and also decide the types of customers of market segments, they want to tackle.
2. Estimating the demand for the product: The second step in pricing a product is to estimate the total demand for it.
There are two practical steps in demand estimation. They are-
a. To determine whether there is a price which the market expects and
b. To estimate the sales volume at different prices.
2. Anticipate and analyse the competitive reaction: Present and potential competition is an important influence on price determination.
Even in the case of a totally new product, any possible distinctiveness is limited for some time. Competition can come from three existing source viz.:
a. Directly from similar product e.g. soup.
b. From available substitutes e.g. P.V.C. pipes.
3. Establish expected share of market: The next step in price determination is to assess what share of the market the company expects. Larger share of the market can be captured by low-priced product and high-priced product ………………………………. share of the market.
Larger share of the market can also be captured by advertisements and non-priced competition.
4. Selecting pricing strategy to reach market target: A good and proper pricing policy may be employed to achieve the predetermined share of the market. There are two methods-
a. Skimming Pricing.
b. Penetration Pricing.
5. Consider Company’s Marketing Policies:
Another major step in pricing procedure is to consider the company’s marketing policies with respect to the product itself, the distribution system and promotional programme.
a. Product itself
b. Channels of distribution
c. Promotional methods.
6. Setting the Price: It is the process of price determination for the products by the producer.
There is no specific method for setting the price. Procedures used for setting a specific price vary under different competitive conditions.
Pricing a new product is and art. It is one of the most important and puzzling marketing problems faced by a firm.
As far as new product is concerned, pricing is important in two ways because-
When new products are introduced, they appeal to many people as novel items. But when the product is being used constantly, the novelty disappears and the people start thinking about the price.
Therefore, new products are hard to be priced, especially with a right price.
Incorrect pricing will definitely lead to product failure.
In the case of new product, pricing has to be made with little knowledge of demand, cost and competition. The new product has also to bear the cost of “promotion”. The initial cost, therefore, will be definitely higher.
The product is the most important component of the marketing programme. A product is any tangible offering that might satisfy the need of a consumer. It is a set of attributes assembled in an identifiable form. Product research is an exhaustive study of all the attributes of a current or potential product in terms of quality, size, shape, appearance, colour, labelling, branding, packaging, competition and costs. In product research, existing products are made superior and new products are develop. Product research deals with technical and marketing aspect of a product.
Product research is undertaken to answer the following questions:-
Selling and sales management play a major role in the growth and development of the organisation.
It is the sales function that generates revenue for the organisation and, therefore, it is one of the most important components of marketing.
Marketing management depends upon sales research for formulating marketing policies, planning and controlling marketing operations.
Sales research includes the following:
The primary task of a business enterprise is to study the needs, desires and values of customers and offer products and services that will give desired satisfaction consumer research and marketing information service is expected to provide adequate and latest information regarding consumer profile and on the basis of such realistic information, the marketing manager will take sound decisions on marketing problems.
Consumer research is one of the important components of marketing research.
Consumer research is the study of consumer needs, likes, dislike, motives, consumption habits, and buying behaviour.
Economic, social, cultural, psychological factors that influence consumer purchase decisions are also included in consumer research.
Consumer research provides answers to the following questions:
When a buyer purchases a product or services he has a reason for the same. Motive is a strong feeling, urge, desire or emotion that makes the buyer take a decision to buy.
Motives can be classified as emotional product motives such as pride, sex, romance, desire to be distinct and rational motives that involve logical analysis and proper evaluation.
Similarly, these are physiological motives (thirst, hunger) and psychogenic motives (achievement, recognition).
Motivation research provides answers to questions such as “why do consumers buy? Why consumers buy a particular brand? Why consumers like or dislike a product?”
1. Personal Interview: Simple, direct and easily answerable question are asked.
2. Projective technique is based on the assumption that a person may disclose his opinions, thoughts and ideas in an imaginary.
Examples-
3. Observational Method: The behaviour of a consumer while buying/using a product or service is closely observed to understand the inner motive of the person.
Promotion is a form of communication with an additional element of persuasion to accept ideas, products and services and is the third element of marketing mix.
Promotion-mix includes advertising, publicity, personal selling and all forms of sales promotion.
As per American Management Association “The advertising research is an application of marketing research aimed on the measurement of advertising effectiveness and ameliorate advertising efficiency.”
The objective of advertising is to sell an idea, goods or a service and the ultimate goal of advertising research is to measure the impact of advertising on the sales of that idea, goods or services.
1. Copy Testing: Copy testing is also known as advertising message research. Copy testing deals with testing of copy size, colour, illustration, payout, copy appeal. Copy testing includes communication effect of the advertisement as well as sales effect of the advertisement.
A few tests conducted as a part of pre-testing are given below:-
2. Consumer jury tests
3. Laboratory tests
Most commonly used techniques for post-testing are given below:-
1. Recognition tests are also known as readership tests.
2. Recall test.
2. Media Selection Test:
A. Print Media
B. Broadcast media include TV and Radio and the following methods are used for measuring audience size and characteristics.
i. In Roster Recall method
ii. An audiometer.
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