PRINCIPLES OF MARKETING

UNIT-IV

PREPARED BY

Dr.L.SHANTHI
Assistant Professor,
Department of Business Administration
Government Arts College(Autonomous)
Coimbatore-641018

REFERENCE BOOKS:

1. Marketing Management- Dr.Radha

2. Marketing Management Global Perspectives- Ramaswamy & Namakumari
3. https://blog.pricebeam.com/strategies-for-product-lifecyle-pricing
 PRICE:

According to Kotler, ‘Price is the amount of money charged for a product or service. It may be
the sum of values that consumers exchange for the benefits of having or using the product or
service’

According to Prof.K.C.Kite, “Pricing is a managerial task that involves establishing pricing

objectives, identifying the factors governing the price, ascertaining their relevance and
significance, determining the product value in monetary terms and formulation of price policies
and the strategies, implementing them and controlling them for the best results.

Pricing Meaning to Buyer and Seller.

Pricing is often a major source of confrontation between sellers and buyers. Sellers obviously
want to sell a product for as much as possible, while buyers would love to get the products they
want for free. Somewhere between these two extremes, sellers and buyers must find a way to
meet. Marketers also look at the relationship between pricing and revenue, which is an important
consideration in pricing strategy.

OBJECTIVES OF PRICING DECISIONS:

Objectives of pricing decision

Ensuring Market share Preventing Maximising Ability of the Resource

target return competition the profit customers mobilisation

1 Ensuring target return: Most well established firms are fixing the prices for their
products in terms of “Return on Investment” i.e., R.O.I. Here the target of the firm is
determined in terms of investments.
2 Market share; A good market share is the best indicator of progress. Market share
and return on investment are closely related because a large market share will
increase profitability due to greater economies of scale market power etc.
3 Preventing competition: Meeting competition is also one of the important objectives
of pricing particularly if the product is introduced in a competitive market. In such
cases, a low price policy can attract customers and can get a good market share.
 4
Maximising the profit: If a pricing policy with an aim of maximising profit in the
short run is formulated, the company will loosen its place in the market very soon.
Therefore, the pricing decision should be made with a view to maximise the profit in
the long run.
5 Stabilising the price: A stable price policy can win the confidence of the public. So,
the prices should not be allowed to fluctuate very often. Even during periods of
depression the prices should not be allowed to rise beyond a certain level.
6 Ability of the customers: Sometimes prices decisions may be taken according to the
ability of the customers to pay for the products. Generally doctors, lawyers, etc. adopt
this type of policy.
7 Resource mobilisation: In the case of firms having resource mobilisation as one of its
pricing objectives the products are priced in such a way to make use of all available
resources for the expansion, etc., of the concern.
FACTORS INFLUENCING PRICING DECISIONS

Objectives of
business
Promotional Cost of the
strategy product

Market
Stages in
product
Pricing demand
lifecycle Decisions

Prices of
competitors
Economic
environment

Government Distribution
policy channels
 1. Objectives of business: The objectives of the firm are the real deciding factor. There may
be different objectives of the firm namely, target return, market share, and stabilising the
price.
2. Cost of the product: Cost of the product is one of the most decisive factors. Generally,
prices will not be less than the cost of its manufacture and it will be fixed in such a way
to cover the entire cost of the product and to give a reasonable profit to the manufacturer.
3. Market demand: In modern concept of marketing which is consumer oriented, the
consumer influence the price. Therefore, consumer satisfaction is another important
factor, which influences the pricing decision.
4. Prices of competitors: Manufactures while fixing prices for their products should first
consider the competitive conditions prevalent in the market. He should also consider the
prices fixed and quality maintained by the competitors for their goods.
5. Distribution channels: Another factor which influences pricing decision is distribution
channel policy.
6. Government policy: Sometimes government may announce a general policy regarding
pricing of goods or enact legislations to arrest the inflationary trend in prices of curtain
products. in such cases, management should follow the public policy strictly while fixing
prices for its products.
7. Economic environment: The economic environment of the country also affects the
pricing decision.
8. Stages in product life cycle: The amount of freedom a management has in making its
pricing decisions varies with the stage in the product life cycle.
9. Promotional strategy: Promotional strategy also affect pricing decisions.
10. Buyer psychology and behaviour: The effectiveness of relative price as an aid in making
sales varies with buyer psychology and behaviour.
Kinds of pricing types of pricing policy

Kinds of pricing
Dual pricing

Administered pricing

Monopoly pricing

Expected pricing

Negotiated pricing
Sealed bid pricing
Geographical pricing

Cost –plus pricing

Price lining
Odd pricing

Customer pricing

prevailing prices
Pricing at the
Psychological pricing

Skimming pricing
Penetration pricing
Prestige pricing
1. Odd pricing: Odd pricing refers to a price ending in an odd number or a price just under
a round number. for example, Bata shoe company priced its products at Rs.199.93
2. Psychological pricing: Some people prefer high priced goods, considered to be of high
quality. For instance, a trader may place its product along with costly products to imply
that it belongs to the same class.
3. Customary pricing: Under this method prices are fixed in such a way to suit local
conditions. Generally soft drinks are priced under this method.
4. Pricing at the prevailing prices: This type of pricing is done with a view to meet the
competition. It is also known as “pricing at the market”.
5. Prestige pricing: Generally prestige pricing is applicable to luxury goods because only for
such products the seller can create prestige successfully.
6. Penetration pricing: Penetrating pricing is intended to help the product penetrate into
markets to hold a position. This is done by adopting a low price in the initial stages. Due
to the low prices, sales volume goes up, competition falls down.
7. Skimming pricing:Under this method a very high price is fixed for a new product initially
and later the price is reduced gradually when competitors enter the market. W.J. Stanton
calls this type of pricing as “skim - the- cream-pricing”.
8. Pricing lining: The retailers generally follow this kind of pricing. Under this method
pricing decisions are made only initially and remain constant for a long period.
9. Geographical pricing: Geographical pricing involves decisions as to how to price its
products to customers in different location whether the company charge high prices to
distant customers to cover the higher transportation charges or the company charge the
same price to all customers irrespective of location, etc.
• FOB Origin pricing: Under this method each customer pays its own cost of
transportation. In this case a distant customer has to incur heavy amount of cost of
transit.
• Uniform delivered pricing: This method is just opposite to the FOB origin pricing.
Under this method the company charges the same price plus freight to all customers
irrespective of their location.
• Zone pricing: Under this method firm establishes two or more zones. All customers
within a particular zone will pay the same price and this price is higher for more –
distant zones.
• Basing – point pricing : Here some city is designated as a basing point and all
customers are charged the freight cost from that city to the location of the customer
irrespective of the city from which the goods are actually transported.
10. Dual pricing:- If a manufacture sells the same product at two or more different prices it
is known as dual pricing. Dual pricing is possible only if different brands are marketed in
the same market. Dual pricing is adopted in railways. This is also known as
“Discriminatory pricing”.
 11. Administrated pricing: - Administrated price is fixed not on the basis of cost, demand
competition and government policy but on the basis of managerial decisions.
12. Monopoly pricing: - As no competition is present, the seller has a free hand in fixing the
price. Monopoly price will maximise the profits because there is no pricing problem.
13. Expected pricing: - Here the price which will be accepted by the consumers is found out.
The minimum price quoted is accepted and the work is assigned to the party.
14. Sealed bid pricing: - This method is adopted for specific job works. The expenditure
anticipated is worked out in detail and the competitors offer a price which is known as
contract price. The minimum price quoted is accepted and the work is assigned to the
party.
15. Negotiated pricing:- Here the price is not fixed. The price to be paid on sale depends
upon bargaining.
16. Cost-plus pricing:- This method is also known as mark up pricing. Middlemen such as
wholesalers, retailers etc., generally follow this method. On receipt of goods the retailer
adds a certain percentage to the price of manufacture to arrive at the retail price.

STRATEGIES FOR PRODUCT LIFECYLE PRICING

Products go through several phases throughout their lifetime and companies need to
know how to price accordingly. When a product is introduced, it will go through periods of
growth, maturity and the inevitable decline. This is referred to as a product lifecycle and
companies that understand how they work will be better equipped at pricing their products at the
different phases throughout a product's life. Products will go through introductory phase, growth
phase, maturity phase, and the decline phase. Here are some pricing strategies for businesses to
consider at each stage of the process.

Introduction phase- prestige pricing or promotional pricing

This is the phase when the product is introduced to a market when it can either succeed or
fail. If the product finds buyers that are interested in the product, then it will move onto the next
phase, the growth phase. There are a few ways to price a product that is in the introduction
phase. The business can demand customers to pay a premium for their product if there have been
technological advances added to the new product or if the product is an entirely new piece of
technology. However, if the product is so unique that customers need some time to really
understand its potential, then a high price for the product is not ideal. A reduced introductory
price, even a freebie, works well in these situations as it allows customers to ease into a product
they are unfamiliar with.

Growth phase- price skimming

The growth phase occurs when a product is gaining traction and discovering new markets
and customer demographics. After a certain period of time, that growth with plateau due to
market saturation. Throughout the growth phase, businesses will be able to increase production,
which reduces the cost per unit. If a company can reduce its product prices while maintaining
healthy profits, then the popularity of the product will continue to drive high profits. The high
profits will also allow companies to expand into new markets and new distribution channels.

Maturity phase- competitor-based pricing

The maturity phase comes into effect when the growth of a product plateaus. Adding to
that, the market has been fully penetrated and the product is stable. A contributing factor of the
maturity phase is that competitors may have started offering something similar. The maturity
phase is also the best time for companies to make the most money because they will have plenty
of information about the marketplace and the production costs are no longer an issue. As long as
companies find ways to stand out from their competition, they will continue to cash in on their
product. If competitors start using cost-cutting tactics, the business should do the same since
they'll still be able to profit.

Decline phase- price reduction

This is the phase where the product that was initially hailed as groundbreaking starts to
become edged out by the market or better products within the market. New products and new
technologies will also come along and sales for the original product will begin to dip. Companies
know all there is to know about the manufacturing process and costs are as low as they will ever
be. They are in a position where they can lower price to keep the product as low as
possible. Companies have other products going through different parts of the product lifecycle so
a drop in demand for the older product won't lead to many problems within the business.

The contents in this E- Material has been taken from the text and reference books as given in the syllabus.