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Factors Effecting Pricing

Submitted By : Group 5

Manoj Bhoye 15PGP087Nithin Manuka 15PGP088Shruti Mate 15PGP089Jaffar MD 15PGP090Nabil Abdulla 15PGP091Nikita Rokde 15PGP092

Marketing Management -II

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Factors Affecting Price Decisions

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INTERNAL FACTORS

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Marketing Objectives & Marketing Mix Strategies

• Survival: companies strive to survive against intense competition and changing consumer wants. The company stays in the business so long as the prices cover variable costs and some fixed costs.

• Maximum current profit: companies estimate the demand and costs associated with alternative prices and choose the price that produces maximum profits, cash flows and return on investment.

• Maximum market share: companies believe that a higher sales volume will lead to lower unit costs and higher long run profits. Hence they set the lowest price……often termed as penetration pricing

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Marketing Objectives & Marketing Mix Strategies

• Maximum market skimming: here the company unveiling the new technology favor setting high prices to maximize market skimming. Here the price start high and slowly drop over time.

• Product quality leadership: here in some brands position themselves as leaders in quality with a premium pricing and a very loyal customer base . For instance MERCEDES AND BMW CARS, TAJLUXURY HOTELS.

• OTHER OBJECTIVES: Non profit and public organizations may have other objectives. For example a university, a charitable hospital, social institutions etc.

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Marketing Objectives & Marketing Mix Strategies

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Costs• Depends on it product life cycle• The costs of the product—its inputs—including the amount

spent on product development, testing, and packaging required have to be taken into account when a pricing decision is made. So do the costs related to promotion and distribution.

• For a product to be profitable it must attain a break even point• Its where a company recovers the money it has spend on a

product and start attaining profits• Break even point is generally attained during growth or

maturity stage

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Costs• Total cost = Fixed cost + Variable cost• Company tries to attain lower fixed cost per product by

increasing its sales

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Organizational Consideration• It is the duty of the management who sets the price• Management must decide who within the organization

should set prices. Companies handle pricing in a variety of ways.

• For Small companies: CEO or top management• For Large companies: Divisional or product line managers• Price negotiation is common in industrial settings• Some industries have pricing departments.

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Organizational Consideration• In industries in which pricing is a key factor (aerospace,

steel, railroads, oil companies), companies often have a pricing department to set the best prices or help others in setting them.

• This department reports to the marketing department or top management.

• Others who have an influence on pricing include sales managers, production managers, finance managers, and accountants.

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EXTERNAL FACTORS

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Nature of Market and Demand• In a perfect competition where the goods are similar and

customers can switch from one product to another, the prices should be kept low or risk losing customers to competitors.

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Nature of Market and Demand• In a monopolistic competition, where goods are similar

with many market players but slight differentiation is possible, the product can be priced at small premium.

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Nature of Market and Demand• In a Oligopolistic competition where a few players

dominate the market, the price sticks at a certain level and the company loses customers if it tries to increase price and if it decrease price to attract customers, the competitors will also decrease price leading to loss in revenue

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Nature of Market and Demand• In a pure monopoly market, as there are no competitors,

the company can charge high premium charges. In real, pure monopoly seldom exists.

• When a new product is launched by Apple, it is priced high till the competitors introduce similar products at which point Apple reduces the price drastically

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Competition• Consider competitors’ costs, prices, and possible reactions

when developing a pricing strategy • Pricing strategy influences the nature of competition– Low-price low-margin strategies inhibit competition– High-price high-margin strategies attract competition

• Benchmarking costs against the competition is recommended

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Other Environmental Factors

Factors Influencing

Pricing

Price Quality Relationship

Product Line Pricing

Explicability

Competition

Negotiating Margins

Effect On Distributors & Retailers

Political Factor

Earning Very High Profits

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Other Environmental FactorsExample:Product Line Pricing

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THANK YOU