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ROLE AND IMPORTANCE OF PRICINGThe only element that generates revenuePrice and sales volume together decide the revenue of any business.Major determinant of a buyer’s choice.In the last few decades, non price factors become quite importantStill it remains an important factor in determining sales and profitability.
CHANGING PRICING ENVIRONMENT ‘We want LG to be an aspirational brand’ Repositioning of LG Electronics “Value for money” “Aspirational”Source- http://www.thehindubusinessline.in/catalyst/2007/11/22/stories/2007112250010100.htm
INTERNAL FACTORSCorporate and marketing objectives of the firmThe image sought by the firm though pricingThe characteristics of the productThe stage of the product in its life cycleUse patterns and turnaround rate of the product
INTERNAL FACTORSCosts of manufacturing and marketingExtent of distinctiveness of the product and extent of differentiation practicedOther elements of marketing mix and their interaction with pricingComposition of the product line of the firm
EXTERNAL FACTORS Market characteristics Price elasticity of demand of the product in particular Buying behaviour of the customers of the product Bargaining power of major customers Bargaining power of major suppliers
EXTERNAL FACTORS Competitors’ pricing strategies Government controls/regulation on pricing Other relevant legal aspects Societal views Understanding reached, if any, with competitors/ price cartels
PRICING OBJECTIVESProfit maximization in the short termProfit optimization in the long termA minimum return on investmentA minimum return on sales turnoverAchieving a particular sales volume
PRICING OBJECTIVESAchieving a particular market shareDeeper penetration of the marketEntering new marketsTarget profit on the entire product line, irrespective of profit level of individual product
PRICING OBJECTIVESKeeping competition out, or keeping it under checkKeeping parity with competitionFast turnaround and early cash recoveryStabilizing the prices and margins in the market
PRICING OBJECTIVESProviding the commodity/service at prices affordable by the weaker sectionsProviding the commodities/services at prices that will stimulate economic development
GEOGRAPHIC PRICINGPoint of origin policyFreight-absorption policyUniform Delivered policyZonal-Delivered price policyBase point price policy
RESPONDING TO COMPETITORSThrough Price and Non-price variables
PRICE VARIABLESCost reduction using new technology or by using cheaply available raw materialTwo alternatives based competitive market conditions – reduce the market price of product or raise the market price
PRICE VARIABLESLowering price – too low price leads to loss, same policy can be adopted by rival producers/ competitorsRaising price – Reduce market demand considerably
NON-PRICE VARIABLESNot concerned with priceProduct modification, effective advertising and sales promotion measuresPriority to non price variables for facing competition and capturing market
NON-PRICE VARIABLESProduct differentiation – Registered trade mark, copy right, patents right, Change in appearance of the product i.e. colour, packaging, etc., Provision of supplementary services
NON-PRICE VARIABLESSelling costs – Expenditure incurred on advertising, sales promotion, discounts, Incentive measures to sales force and so on. Persuade customers to prefer firm’s products as against the products of competitors
PRODUCT LIFE CYCLE & PRICING DECISIONSIntroduction stageRapid skimming strategy – High price and heavy promotional expensesSlow skimming strategy – High price and low promotional expensesRapid penetrations strategy – Low price and heavy promotional expensesSlow penetration strategy – Low price and low promotional expenses
PRODUCT LIFE CYCLE & PRICING DECISIONSGrowth Stage Penetration pricing as increase in sales volume and competitionMaturity stage Pricing based on what consumers can bear and best competitor’s offerings Extended warranties, lowering of priceDeclining stage Low pricing