SETTING THE PRICE

GUIDELINES TO BE FOLLOWED:

1.SELECTING THE PRICING OBJECTIVE

2.DETERMINING DEMAND

3.ESTIMATING COST

4.ANALYZING COMPETITORS’ COST,PRICES AND OFFERS.

5.SELECTING A PRICING METHOD.

6.SELECTING THE FINAL PRICE

SELECTING THE PRICING OBJECTIVE

COMPANIES PURSUE FOR SURVIVAL IF CLUSTERED WITH:•OVER CAPACITY•INTENSE COMPETITION

1.SURVIVAL

2.MAXIMUM CURRENT PROFIT

•ESTIMATION OF DEMAND AND COST •PRODUCING HIGH CASH FLOW AND ROI

SELECTING THE PRICING OBJECTIVE

3.MAXIMUM MARKET SHARE FAVOURABLE CONDITIONS-• HIGHLY PRICE SENSITIVE• PRODUCTION AND DISTRIBUTION COSTS• LOW PRICE

SELECTING THE PRICING OBJECTIVE

4.MAXIMUM MARKET SKIMMING

FAVOURABLE CONDITIONS:-•HIGH CURRENT DEMAND•HIGH INITIAL PRICE•IMAGE OF A SUPERIOR PRODUCT

SELECTING THE PRICING OBJECTIVE

5.PRODUCT QUALITY LEADERSHIP• AFFORDABLE LUXURIES• SERVICES CHARACTERIZED BY PERCEIVED QUALITY• EXAMPLE-ROLLS ROYCE,BMW

SELECTING THE PRICING OBJECTIVE

DETERMINING DEMAND

1.PRICE SENSITIVITY:-• PRODUCT IS MORE SENSITIVE• BUYERS ARE LESS AWARE OF SUBSTITUTES• BUYERS CANNOT STORE THE PRODUCT

2.ESTIMATING DEMAND CURVES:-•SURVEYS•PRICE EXPERIMENT•STATISTICAL ANALYSIS

DETERMINING DEMAND

3.PRICE ELASTICITY OF DEMAND:-•ELASTIC OR INELASTIC•SHORT RUN OR LONG RUN

DETERMINING DEMAND

ESTIMATING COST

DEMAND SETS THE CEILING AND COST SETS THE FLOOR

1.TYPES OF COST:-•TOTAL COST •FIXED COST•VARIABLE COST

2.ACCUMULATED PRODUCTION

ESTIMATING COST

3.TARGET COSTING

ESTIMATING COST

ANALYZING COMPETITORS’ COSTS PRICES AND OFFERS

VALUE OF COMPETITOR’S OFFER

HOW CAN A FIRM ANTICIPATE A COMPETITIOR’S REACTION ?

ANALYZING COMPETITORS’ COSTS PRICES AND OFFERS

SELECTING PRICING METHOD

MARKUP PRICING:-

MARKUP PRICE = ( UNIT COST ) / ( 1-DESIRED RETURN ON SALES )

TARGET – RETURN PRICING:-

TARGET RETURN PRICE=UNIT COST + ( DESIRED RETURN * INVESTED CAPITAL )/UNIT SALES

PERCEIVED -VALUE PRICING:-

PERCEIVED VALUE PRICE = ( PRICE EQUIVALENT TO COMPETITIOR + PRICE ADDED DUE TO VALUES ATTACHED WITH PRODUCT )

SELECTING PRICING METHOD

VALUE PRICING:-

VALUE PRICE = LOW PRICE FOR HIGH QUALITY PRODUCTS

SELECTING PRICING METHOD

GOING RATE PRICING:-PRICE BASED ON COMPETITORS’ PRICES.

AUCTION – TYPE PRICING:-•ENGLISH AUCTION.•DUTCH AUCTION.•SEALED-BID AUCTION.

SELECTING PRICING METHOD

SELECTING THE FINAL PRICE

IMPACT OF MARKETING ACTIVITIES:-PREMIUM/HIGHEST/LOWEST

COMPANY PRICING POLICIES:-PRICES REASONABLE TO USERS & PROFITABLE TO COMPANY

GAIN AND RISK SHARING PRICING:- IMPACT OF PRICE ON OTHER PARTIES:-

SELECTING THE FINAL PRICE

SUMMARY

SIX STEP PROCEDURE OF PRICE SETTING POLICY A COMPANY SHOULD FOLLOW –

• SELECTING PRICING OBJECTIVE

• ESTIMATING THE DEMAND CURVE

• DETERMINATION OF PROBABLE QUANTITIES THAT WILL BE SOLD AT EACH POSSIBLE PRICE

• ESTIMATING COST VARIATION AT DIFFERENT LEVELS OF OUTPUT

• ESTIMATING COST VARIATION AT DIFFERENT LEVELS OF ACCUMULATED PRODUCT EXPERIENCE • DIFFERENTIATED MARKETING OFFERS

AKASH RANJAN PRADHANNIT ROURKELADURING A MARKETING INTERNSHIP BY PROF.SAMEER MATHUR IIM LUCKNOWWWW.IIMINTERNSHIP.COM

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