WHAT IS PRICE?

PRICING METHODS AND STRATEGIES

PRICE

 Price is any value or amount that is equivalent to a product or services given to a customer.
 Price is one of the most important and effective factors that helps companies to attract customers
and keep up their loyalty and satisfaction.

PRICING

Pricing simply means determining the price for a good or service. It is an activity that needs to be
repeated and is a continuous process. This continuity is due to environmental changes and the lack of
stability in market conditions, which justifies the need to repeat this process.

IMPORTANCE OF PRICING

A firm must be able to price its products and services in such a way that it can generate revenues
proportional to the value provided to the customer

PRICING OBJECTIVES AND POLICY

PRICING OBJECTIVES

Pricing objectives or goals give direction to the whole pricing process. Determining what your objectives
are is the first step in pricing.

(i) Achieving a Target Return on Investments

The most important objective of a concern is to achieve a certain rate of return on investments and frame
the pricing policy to achieve it. Targets may be short-term or long-term, but it is important to have a long-
term target if the actual profit rates may exceed the target return.

(ii) Price Stability

Stability of prices is an important objective of an enterprise, but in practice it cannot be achieved due to
changing costs. Price is set by one producer and others follow him, acting as a leader in price fixation.
PRICING OBJECTIVES

(iii) Achieving Market Share

Market share is the share of a company in the total sales of a product in the market. Companies aim to
achieve a larger share in the market by selling their products at lower prices. This is done to gain more
reputation and goodwill, as well as to eliminate competitors from the market.

(iv) Prevention of Competition

Pricing is an effective way to fight against competition and business rivalries, as firms cannot afford to
charge fewer prices over a long period of time.

(v) Increased Profits

Maximization of profits is one of the main objectives of a business enterprise. A firm can adopt such a
price policy which ensures larger profits.

PRICING POLICY
A pricing policy is a company's approach to determining the price at which it offers a good or service to
the market. Pricing policies help companies make sure they remain profitable and give them the
flexibility to price separate products differently.

Competition: Your business likely understands who its competitors are and what they charge consumers.
Pricing policies heavily consider competition with other firms in the market.

Profit goals: You might choose a pricing policy to meet a specific profit goal for your company.

Sales totals: Pricing policies directly affect how many people buy your company's product and how much
they purchase.

Firm health: The financial circumstances of your company may enable it to prioritize market strategy
over immediate profit, or you may need to earn revenue as soon as possible to remain in business.

Flexibility: Companies often react to market shifts by changing prices. Your company might consider if
your initial price enables you to respond to the market without losing profitability.

Government regulation: To protect consumers, the government regulates the pricing of certain goods
and services. Depending on your industry, this may be irrelevant or a central concern in pricing policy.

Method of price adjustment: Increasingly, companies that sell vast amounts of goods may automate
pricing with specialized software. Pricing policies consider how your company intends to change prices.

Sales venue: If your company sells the same product in wholesale, retail or other venues, pricing policies
may differ for each one.

B. PRICE SETTING IN THE BUSINESS

What is the price setting? Why is it important?

Price setting is among the most crucial duties in a business. Your prices must be high enough to
compensate the team and keep the company profitable. At the same time, your prices must be reasonable
to attract and convince customers. And even if you do it right the first time, you must still keep a close
eye on the market and cost trends.

How does a good price setting process look like?

Here’s a step-by-step guide on how to set your prices:

1. Choosing a pricing objective

Establishing a pricing objective entail knowing ahead of time what the firm wishes to accomplish by
providing its products.

2. Evaluation of the target market’s price perception and purchasing power

Pricing teams and business managers can improve pricing by analyzing the target market's price appraisal
to determine how far above the competition a firm's prices can be set. This helps the organization to
assess the purchasing power and essentiality of a product to customers. Price Setting in the Business
World

3. Predicting the demand

Demand for a product is affected by price set levels, and the price-quantity relationship is inverse,
indicating customers are sensitive to prices.

4. Checking your expenses

All businesses should analyze their manufacturing, distribution, and other expenses as demand elasticity
when establishing prices. It must set prices that cover all of its costs in order to remain in operation.
5. Monitoring the costs, prices, and offers of your rivals

Companies need to understand their competitors' costs, prices, and responses in order to set acceptable
prices. Price Setting in the Business World 6. Setting your pricing strategy When deciding on a price, a
firm must choose a pricing technique that takes into account cost considerations, rival prices, alternative
costs, and customers’ assessments of unique product qualities.

7. Applying the set price

The ultimate price will be based on various pricing systems or the one chosen by the firm during the fifth
phase of price setting. But every business must weigh a couple of extra factors while setting the final
price. These include psychological pricing, pricing factors from other marketing aspects, company pricing
regulations, and price impacts on third parties.

C. PRICING STRATEGIES TOOLS AND TECHNIQUES

PRICING STRATEGIES

Pricing strategy in marketing, in simple terms, is adjusting prices according to market determinants. A
pricing strategy considers market conditions, consumer willingness to pay, competition, trade margins,
costs incurred, etc. Pricing involves setting a price for ownership and usage of goods.

PRICE SKIMMING

Skimming pricing strategy is a pricing technique used by businesses to maximize profit in emerging
markets. It is ideal for businesses that are the first to introduce or market a product or service, making a
profit in the early stages until other competitors enter and supply increases.

PRICING FOR MARKET PENETRATION

Penetration pricing is the opposite of price skimming, where it uses low prices to enter the market. It
depends on the ability of the business to bear losses in the initial years, and is used by big MNCs to gain a
foothold in developing countries.

PREMIUM PRICING

Premium pricing strategy involves businesses that create high-quality products and market them to high-
income or net-worth individuals. The key here is to manufacture unique, high-quality designs and
products that convince the users to pay such huge amounts. The premium pricing strategy targets the
luxury goods market.

ECONOMY PRICING

The strategy targets customers who prefer to save money. Big companies employ the strategy to make
customers feel they are in control. Walmart in the U.S. is an example where they offer deals that please
customers. This does depend on the overhead costs and the value of the products.

BUNDLE PRICING

It is a strategy where a business sells a bundle of goods together. This helps in moving the inventory and
selling the stocks that are left over. The strategy has the potential to make profits or save from losses.

VALUE-BASED PRICING

Here, the business decides the price based on the customer’s valuation of the product’s worth. This is best
suited for unique products.

DYNAMIC PRICING
Here, the business decides the price based on the customer’s valuation of the product’s worth. This is best
suited for unique products.

D. PRICING WITHIN A COMPETITIVE INTERNATIONAL MARKET

Pricing within a Competitive International Market

Pricing on global markets is more difficult than in domestic markets due to the lack of familiarity with
foreign markets and the variety of them. In international markets, pricing strategies can be challenging
due to differences in customer response, government limits, and competition. To compete effectively,
companies should consider pricing, local conditions, and other factors such as exchange rate fluctuations,
currency, government control, and economic and cultural factors.

A company must have a clear understanding of the international marketing environment before deciding
to expand its activities abroad. Managers must consider external and internal factors, as well as the
political, cultural, linguistic, economic and legal differences in each market.

E. ISSUES THAT LIMIT PRICING DECISIONS

INTERNAL FACTORS

Organizational Factors: Two management levels decide the pricing policy, one is the price range and the
policies are decided by the top-level managers while the distinct price is fixed by the lower-level staff.

Marketing Mix: For implementing a price, the marketing mix needs to be in sync, without matching the
marketing mix, consumers will not be attracted to the price. The marketing mix should be decisive for the
price range fixed, meaning the marketing mix needs to maintain the standard of the price of the product.
Issues that limit.

Cost of the Product: Cost and Price are closely related. With the cost of the product, the firm decides its
price. The firm makes sure that the price does not fall below the cost lese they will run on losses. The cost
of the price includes the input cost that a company spends on raw materials, wages for laborers,
advertisement cost, promotion cost and salaries for the employees.

Product Differentiation: In today’s market, it is uncommon to find a unique product, hence the
differentiation lies in the nature, feature and characteristics of the product. The added features like quality,
size, color, packaging, and its utility all force the customers to pay more price regarding other products.
Issues that limit

EXTERNAL FACTORS

Competition: The prices are required to be competitive without any compromise on the quality of the
product. While in a monopolistic market, the prices are fixed irrespective of the competition.

Demand: The market demand of a product has an impact on the price of the product, if the demand is
inelastic then a higher price can be fixed, if the demand is highly elastic then less price is to be fixed.
When the demand for the goods is more and the supply of the goods is constant, the price of the goods
can be increased and if the demand for the goods decreases the price of the goods should be decreased to
survive in the market.

Supplies: If the supplies condition, the easy availing option of the raw materials are available, then the
price of the product can be moderate. Once the raw materials supply price heightens then the price also
rises. In the period of recession, price is lowered so that easy purchase is guaranteed. While in boom
periods, prices shoot up high as now they can earn profit.
Promotion Mix: Push Strategy & Pull Strategy

Promotion Mix

“A blend of various promotional tools that companies use to communicate with their target audience.

Push Strategy

“Company promotes its products or services to wholesalers, retailers, or other intermediaries in the
distribution channel to encourage them to stock and sell the product.

Push Strategy

Taking the product directly to the customer via whatever means, ensuring the customer is aware of your
brand at the point of purchase.

"Taking the product to the customer."

Push Strategy

Create demand for the product at the distribution level, which will, in turn, generate demand at the
consumer level.

Effective for products that have a short shelf life or are seasonal.

Examples of Push Strategy

 Trade show promotions to encourage retailer demand

 Direct selling to customers in showrooms or face to face
 Negotiation with retailers to stock your product
 Efficient supply chain allowing retailers an efficient supply
 Packaging design to encourage purchase
 Point of sale displays

Pull Strategy

“A company promotes its products or services directly to the end consumer to create demand for the
product at the consumer level.

Pull Strategy

Motivating customers to seek out your brand in an active process.

"Getting the customer to come to you."

Pull Strategy

Create brand awareness and loyalty among the consumers, which will, in turn, generate demand at the
distribution level.

Effective for products that have a long shelf life or are not seasonal.

Examples of Pull Strategy

 Advertising and mass media promotion

 Word of mouth referrals
 Customer relationship management
 Sales promotions and discounts

Significant Role of Management Accountants in Push/Pull Strategy

  Analyze the costs and benefits of each strategy.
 Recommend the most appropriate strategy based on the company's objectives and budget.
 Monitor the effectiveness of the promotional strategy and adjust as necessary to ensure that the
company is achieving its goals.

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Establishing an Effective Promotional Mix

1. Target Audience
2. Nature of its products and services
3. Budget
4. Marketing objectives

Elements of Promotion Mix

Advertising

A paid form of promotion, where companies use mass media such as TV, radio, print, billboards, and
online ads to reach a large audience.

Personal Selling

One-on-one interaction between a company's sales representative and a customer, with the goal of
convincing the customer to make a purchase.

Sales Promotion

Short-term incentives that companies offer to customers to encourage them to make a purchase, such as
discounts, coupons, rebates, free samples, and contests.

Public Relations

Managing the relationship between a company and its stakeholders, including customers, investors, and
the media.

Direct Marketing

Reaching out to customers directly through email, mail, phone, or text message.

Importance of Promotion Mix

 Create brand awareness and loyalty

 Generate demand for its products or services
 Increase sales and profits

Factors Affecting Promotion Mix

Target Audience

The promotion mix should be tailored to the characteristics of the target audience, such as their age,
gender, income, and buying behavior.
Product Characteristics

The nature of the product, such as its complexity, price, and level of brand awareness, can also affect the
promotion mix.

Competitive Environment

The level of competition in the market can impact the promotion mix. In a highly competitive market,
businesses may need to invest more in advertising and sales promotion to stand out from their
competitors.

Budget

The available budget can also influence the promotion mix. Businesses with limited budgets may need to
rely more on low-cost promotion tools like social media and public relations.

Legal and Ethical Considerations

Businesses must also consider legal and ethical issues when selecting their promotion mix.

Elements a Company Should Consider While Formulating a Marketing Programmed

Target market: A company should clearly identify its target market, including demographic, geographic,
and psychographic characteristics, to tailor its marketing program to the needs and preferences of its
potential customers.

Product: A company should develop a product or service that meets the needs and wants of its target
market. This includes determining the product's features, benefits, and positioning in the market.

Price: A company should set a price that is competitive, but also reflects the value of the product or
service to its target market.

Promotion: A company should select appropriate promotion tools to communicate the benefits of its
product or service to the target market.

Place: A company should ensure its product or service is available in the right place at the right time,
through the appropriate channels of distribution.

Competitive environment: A company should analyze the competitive environment to understand the
strengths and weaknesses of its competitors and identify opportunities to differentiate itself in the market.

Budget: A company should allocate its marketing budget appropriately, based on the goals of the
marketing program and the available resources.

Evaluation: A company should monitor and evaluate the effectiveness of its marketing program regularly
to make necessary adjustments and ensure the program is achieving its goals.

How to Use Promotional Mix

 Determine its marketing objectives and budget.

 Identify its target audience.
 Select the most appropriate promotional tools to reach that audience.
 Monitor the effectiveness of the promotional mix.
 Make adjustments as necessary to ensure that it is achieving its marketing objectives.

Push Strategy

Advantages

 Useful for manufacturers seeking distributor for product promotion.

  Useful for those manufacturing or those selling low value items as a distribution who is likely to
place bulk items.
 Creates product exposure in potentially large retail environments.
 Good way to test new products in the market. Push Strategy

Disadvantages

 The distributor may source alternative products (cheaper, faster delivery) once your product has
established the market need.
 Distributors may not organize a formal contract, so no guarantee of regular orders.
 Distributors may demand financial contribution towards promotion.
 Distributors may demand lower prices to fit in with their promotional campaign.
 Distributors can establish dependence and then request price reductions
 Distributors can demand lengthy credit terms.

Pull Strategy

Advantages

 Direct contact with customers.

 Instant payment as customers do not have credit facilities and pay online or in store at the
checkout.
 Greater margins as no discount needed.
 Customers can generate ideas for new product development.
 Ideal for premium priced products.

Disadvantages

 Greater administration required in-house to fulfil customers’ orders.

 Many smaller and one-off orders.