Price is the quantity of payment or compensation given by one party to another in return for goods or services
Fixing a good price is vital component in the marketing mix.
It is the only P in the marketing mix that generates revenue.
- Maximize long-run profit.
- Maximize short-run profit.
- Increase sales volume (quantity)
- Increase monetary sales.
- Increase market share.
- Obtain a target rate of return on investment (ROI)
- Obtain a target rate of return on sales.
- Preventing competition.
- Increase reputation.
Factors influencing Pricing
- Cost of production
- Competition
- The predetermined objective
- Government control
- Economic conditions (e.g recession)
- Amount of Channel of distribution
Methods of pricing
- Cost based pricing
- Demand based pricing
- Competition based pricing
- Psychological pricing
- Promotional pricing
- Penetration pricing
- Skimming pricing
Cost based pricing
A pricing method in which a fixed sum or a percentage of the total cost is added (as income or profit) to the cost of the product to arrive at its selling price.
Type of cost based pricing
- Mark up pricing
Markup is the difference between the cost of a good or service and its selling price.
(cost + markup) = Selling price - Target pricing
Companies add a rate of return at a certain level of output/sales - Full cost pricing
is a practice where the price of a product is calculated by a firm on the basis of its direct costs per unit of output plus a markup to cover overhead costs and profits. - Contribution cost (marginal pricing)
Demand based pricing
Any pricing method that uses consumer demand - based on perceived value - as the central element. This depends on the elasticity of demand for that product.
Competition pricing
The firm will base its price on that of its competitors. Different strategies can be used:
- Price leadership
- Predatory pricing
The firm try to force out competition - Consumer or market based pricing
• Perceived value pricing
• Price discrimination: pricing strategy that charges customers different prices for the same product or service.
Psychological pricing
pricing/marketing strategy based on the theory that certain prices have a psychological impact. Retail prices are often expressed as "odd prices": a little less than a round number, e.g. Rs 19.99 or Rs 2.98.
Penetration pricing
It is the practice of offering a low price for a new product or service during its initial offering in order to attract customers away from competitors.
Skimming pricing
It is a pricing strategy in which a marketer sets a relatively high price for a product or service at first, then lowers the price over time. It is a temporal version of price discrimination/yield management.
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