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Banking Marketing Aptitude Pricing Marketing Aptitude - Pricing

Marketing Aptitude - Pricing

Category : Banking

 

Introduction

 

Pricing is the most crucial aspect of marketing management since it has significant economic and social implications. Price is the amount of money and/or other item with utility needed to acquire a product. The businessmen want to get the highest possible price for the products, he sells whereas the consumer wishes to pay the least possible price for his purchases.

 

  • Importance of Pricing in Business
  • Price determines the demand of a product.
  • Prices also help the business system in allocating its scarce resources economically.
  • In a free market system, price mechanisms consider able impact upon the competitive strength of different firms.
  • Price is very important element in determining both the revenue and profit of the enterprise.
  • Pricing can regulate the competition in the market.
  • Price affects the total sales, total revenue and the total profit of the organisation.

 

Factors Affecting Pricing Decisions

 

Pricing decisions can be affected by two factors which are as follows

  • Primary Factors
  • Demand of a product
  • Cost of a product
  • Secondary Factors
  • Characteristics of a product
  • Aims of the producer
  • Benefit perception
  • Marketing method
  • Characteristics of consumers
  • Business traditions
  • Economic and political environment
  • Governmental laws or regulations
  • Delivery route of the product
  • Market competition
  • Discount

 

Sometimes companies offer different types of discount to boost the sales.

They are

(1) Cash discount           

(2) Seasonal discount

(3) Trade discount

(4) Quantity discount

 

Most companies will adjust their list price and give discounts and allowances for early payment, volume purchases and off-season buying.

 

Types of Pricing Policies

 

Pricing policies can be categorised as

  • Variable Policy

It is a marketing approach that permits different rates to be extended to different customers for the same goods or services. This pricing policy is applicable in retail trade.

 

  • One Price Policy

It is the pricing strategy in which the same price is offered to every customer who purchases the product under the same conditions. A one price policy may also mean that prices are set and cannot be negotiated by customers.

 

Different Ways of Price Policy

 

Different ways of price policy are as follows

  • Based on Flexibility
  • One price policy flexibility
  • Price policy

 

  • Based on Characteristics
  • Predictory pricing policy
  • Value line price policy
  • Complete line pricing policy
  • Leader price policy
  • Market penetration pricing policy
  • Psychological price policy
  • Unit price policy
  • Loss leader pricing policy

 

  • Based on Price Level
  • Union competition pricing policy
  • Below the market price policy
  • Above the market price policy

 

  • Based on Geographical Ground
  • Some delivery pricing policy
  • Regional delivery pricing policy
  • Center-based pricing policy
  • Production center pricing policy

 

Process of Pricing

 

Steps in setting a pricing policy are

Step 1 Selecting the pricing objective.

Step 2 Determining demand.

Step 3 Estimating costs.

Step 4 Analysing competitors costs, prices and offers.

Step 5 Selecting a pricing method.

Step 6 Selecting the final price.

 

Methods of Pricing

 

Methods of pricing are as follows

  • Cost plus Pricing Method

Under this method, set the price at production cost, including both cost of good and fixed costs at current volume, plus a certain profit margin.

\[\text{Per}\,\,\text{Unit}\,\,\text{Cost=}\frac{\text{Total}\,\,\text{Cost}}{\text{Total}\,\text{Production Cost}}\]

  • Marginal Cost Method

Under this method, variable costs and semi-fixed costs are added in price of a product then the product will be purchased.

  • Market Penetration Method

Under this method, a product is widely promoted and its introductary price is kept comparatively low. The strategy aims to encourage comsumers to switch to the new product because of the lower price.

  • Fixed Cost

It is not related with the volume of production, e.g., interest, tax, rent, salaries, etc.

  • Variable Cost

It is related with the volume of production. e.g., wages, fuel, commission, etc.

  • Mark-up Method

Under this method, fixed amount of the sales value is added to the per unit cost of the product.

\[\text{Sales Value=}\frac{\text{Average}\,\,\text{Cost}\,\,\text{Per}\,\text{Unit}}{\text{ }\!\!%\!\!\text{ }\,\text{of}\,\text{Anticipated}\,\text{Mark-up}}\]

 

Some Important Terms Barter

 

The oldest form of exchange trading of products is known as barter, the buyer and seller directly exchange goods, with no money and no third party involved,

  • Psychological Pricing

It is a pricing or marketing strategy based on the theory that certain prices have a psychological impact on the consumer.

  • Prestige Goods

Items that are perceived as being very high quality and thus warrant a higher price based on the added value that the purchaser feels, he will obtain from the product.

  • Fixed Assets

It is a term used in accounting for assets and property that cannot easily be converted into cash. Building, real estate, equipment and furniture are good examples of fixed assets.

  • Monopoly Market

A type of market that features the traits of a monopoly like high price levels, supply constraints or excessive barriers to entry is known as monopoly market.

  • Competition Based Pricing

            This is used by a business firm that wants to price their products at or lower than their competition's price.

  • Market Penetration

It occurs when a company penetrates a market in which current or similar products already exist.  The best way to achieve this by gaining competitor's customers.

  • Trade Discount

It is the amount by which a manufacturer reduces the retail price of a product when it sells to a reseller, rather than to the end customer. Trade discount is given to a purchaser for performing activities such as transporting, storing and selling.

  • Fixed Costs

They are defined as expenses that do not change as a function of the activity of a business, within the relevant period, e.g., a retailer must pay rent and utility bills irrespective of sales,

  • Time Pricing

Sometimes prices are varied by season, day or hour e.g., commercial airlines charge higher fares during the festival season in India.

  • Channel Pricing

Company fixes different prices for their products depending on the place from where consumer buys it, The price of the same cold drinks varies in a fine restaurant, a fast food restaurant or in an airport. 

 

Tit-Bits

 

  • Competition based approach is used to avoid the problem of over pricing and under pricing.
  • Value-based pricing is a setting price of a product on the buyer's perception of value rather than on the seller's cost.
  • In market skimming pricing strategy, initially price is higher then it is reduced,
  • The perception of price depends on a product's actual price and consumer's expectations regarding price.

 

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