1. PRICE MANAGEMENT
UNIT - II

2. DEFINITION/ MEANING :
Price – cost + profit [or] rupee equivalent of the value
of the product / what the consumer will willingly pay.
The factors governing prices:
1. Internal factors [ controlled]
2. External factors [ uncontrolled]

3. INTERNAL FACTORS:
1. The costs
2. The management policy
• Objectives of business
• Competitive situation in which the company is
placed
• Product and promotional policies
• Nature of price sensivity
• Conflicting interest of manufacturers & middle man
• Rotinization of policy
 Number of pricing definitions
 Speed requires by pricing decisions
 Quality of available information
• Active entry of non- business groups into the
determination of prices.

4. EXTERNAL FACTORS:
1.
2.
3.
4.
Demand
Competition
Distribution channels
Legal restraints
OBJECTIVES:
1. Maximization of profits
2. Promotion of long- range welfare of the firm
3. Adaptation of prices to fit the diverse competitive
situations
4. Flexibility to vary prices to met changes in
economic conditions
5. Stabilisation of prices & margin

5. 6. Market penetration
7. Market skimming
8. Early cash recovery
9. Satisfying (i. e) achieving a satisfactory rate of
return.

6. *** Imp
PRICING METHODS:
I. COST BASED PRICING :
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Total cost method
Mark-up pricing
Absorption cost pricing
Marginal cost pricing
BEP pricing
II. DEMAND/ MARKET BASED PRICING:
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What the market can bear pricing
Skimming
Penetration
The concept of price elasticity of demand

7. III. COMPETITION BASED PRICING:
• Premium pricing
• Discount pricing
• Parity pricing
Kinds of pricing decisions/ prices:
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Odd pricing
Psychological pricing
Customary pricing
Pricing at prevailing pricing
Prestige pricing
Price lining
Geographic pricing
Dual pricing

8. 
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Administered pricing
Monopoly pricing
Skimming pricing
Penetration
Expected pricing
Sealed bid pricing
Negotiated pricing
Mark–up pricing
Discriminatory pricing

9. STEPS INVOLVED IN PRICING PROCEDURE:
• Identify the target customer segments & draw up
their profiles
• Decide the market position & price image that the
firm desires for the brand
• Determine the extent of price elasticity of demand
of the product & extent of price sensivity of target
customer groups
• Take into a/c the life cycle stage of the product
• Analyse competitors prices
• Analyse other environmental factors
• Choose the pricing method to be adopted taking all
he above factors into account
• Select the final price
• Periodically review the pricing method as well as
procedure.

10. PRICING FOR EXPORT MARKETING:
1. It is extremely sensitive factor in export trade
2. Individual exporters have no control on price
3. Understand the varied marketing situations from
country to country, product to product, time to
time.
4. Concept of marginal costing is better
5. Incase of dumping, marginal cost only works, fixed
cost already covered and there is extra plan
capacity. So, they fix marginal prices.

11. PRICING FOR SERVICES:
• Services are intangible in nature
• Services are perishable in nature
FACTORS INFLUENCING ARE :
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Structure of the market
Type of organization
Prices charged by competitors
The life cycle stage of the service
Organisational objective
Regulations of government or trade associations

12. PRICING STRATEGIES OF SERVICES:
1. Skimming pricing
2. Penetration pricing
3. Mixed pricing
 Cost plus pricing
 Marginal pricing
 Promotional pricing
 Flexible pricing
 Market oriented pricing

13. *** v. imp PRICING FOR NEW PRODUCTS:
I. Skimming:
To skim the market and to take the cream, by
pricing the new product high and concentrating on
market segments which are not price sensitive.
II. Penetration:
If the new product is likely to be highly price
sensitive and if there is no effluent market for it,
penetration pricing is resorted to penetration pricing
is resorted to penetrate a large market by using low
prices

14. III.Price discrimination:
Monopoly price discrimination
• First degree price discrimination e.g: doctor
• Second degree price discrimination e.g: electricity
• Third degree price discrimination e.g: air lines
IV.Price bundling:
1. Pure bundling [ 2 products together]
2. Mixed bundling
3. Tying – complementary & additional products

15. IMPORTANT Q’S:
1. Define price? What are the factors influencing
pricing decisions?
2. What is the role of pricing in marketing mix?
Explain the objectives of pricing?
3. What are the methods/approaches of pricing?
4. Explain the new product pricing methods?
5. Explain the steps involved in pricing a product &
service?