UNIT-4: PRICING

Pricing is the amount of money charged for a product or service or the sum of the values that the consumers exchange for the benefits of having or using the product or service.

OBJECTIVES:

1. Revenue Generation: Pricing can be used to maximise total revenue by finding the optimal balance between price and quantity sold. This objective is particularly relevant when a business aims to capture a larger market share.
2. Market Ruler: A business would want to rule the market and acquire a significant share in the market against its rival firms. For this, it will try to increase its revenue and customer base. In order to do the same, the company will need to agree on an optimal price for its product/service that the customers can afford.
3. Survival: Pricing decisions focus on generating revenue which helps the firm to survive in the market. Without revenue and profits, a firm can not survive for a longer period. Pricing generates revenue and revenue is used in further production in order to produce goods.
4. Profit Maximisation: One of the primary objectives of pricing is to generate maximum profit for the business. Pricing strategies are designed to ensure that the revenue generated from sales exceeds the costs incurred in producing and marketing the product or service.
5. Attraction and Retention of Customers: Having a proper and affordable pricing strategy helps the business in acquiring new customers and retention of previous customers. A more customer base means more revenue.

FACTORS INFLUENCING PRICING:

• Customer's Perception of Value: The customers' expectation of the price of the product plays an important role in deciding the price of the product. Customers only bear the cost of a product that they can afford. If a business keeps the price of its product/service very high, it will have a very small customer base.
• Competitors: Competitors' pricing strategies, market share, and positioning can significantly impact how a product is priced. Businesses may choose to price their products at a premium, match competitors' prices, or use other strategies to differentiate themselves.
• Government Law and Regulations: Pricing decisions are also affected by federal and state regulations. Some laws prevail in order to protect the customers from getting exploited at the hands of manufacturers, promotion of ethical behaviours from the end of manufacturers, etc.
• Economy: Economic environment like fluctuations in the general price level, interest rates, and unemployment level also affects the pricing strategy of firms.
• Product Costs: The total cost that the manufacturer incurred in the production of the product affects the pricing decision. Production costs can be of several types, like fixed costs, variable costs, semi-variable costs, etc. Also, promotional costs, distribution channel costs, packing costs, etc., are considered while deciding the price.
• Market Demand: The level of demand for the product at different price points affects pricing decisions. High demand might allow for higher prices, while low demand could require competitive pricing to attract customers.
• Elasticity of Demand: Price elasticity measures how sensitive demand is to price changes. Inelastic demand allows for price increases without significant drops in demand, while elastic demand requires more cautious pricing adjustments.
• Market Segmentation: Different customer segments may have varying willingness to pay. Businesses can tailor pricing strategies to target specific segments and maximize revenue from each.

METHODS OF PRICING:

1. Cost-Based Pricing
   This method focuses on covering the costs of production and adding a markup for profit.
   • Cost-Plus Pricing: The business calculates the total cost of producing a product (including fixed and variable costs) and adds a fixed percentage as profit.
   • Markup Pricing: Often used in retail, this involves adding a standard markup to the cost of the product.
2. Value-Based Pricing
   Here, the price is based on the perceived value of the product or service to the customer rather than its cost.
   • Perceived Value Pricing: Used when customers are willing to pay more for products, they believe provide superior value (e.g., luxury goods or innovative technology).
   • Demand-Based Pricing: Prices are set according to what customers are willing to pay based on their demand for the product.
3. Competition-Based Pricing
   Competition-based pricing is a pricing strategy where a business sets its prices based on what its competitors are charging. This strategy focuses on the market and the competition, rather than on production costs or consumer demand.
   • Penetration Pricing: Setting a low price to attract customers and gain market share, often used for new products.
   • Price Matching: refers to matching a lower product price from a store in a competitive market.
   • Undercutting: Setting prices slightly lower than competitors to lure their customers.
4. Dynamic Pricing
   is a revenue management strategy that involves adjusting prices for products or services based on current market conditions. It's also known as demand pricing, surge pricing, time-based pricing, or variable pricing.
   • Peak Pricing: is a business strategy that involves charging more for goods or services when demand is high. The goal is to regulate demand and maximize profits.
   • Auction Pricing: is the price a buyer pays for an item at an auction, or the price an advertiser pays for an ad impression after participating in an auction.
5. Psychological Pricing
   This method leverages customers' psychological responses to certain price points.
   • Charm Pricing: also known as psychological pricing, is a strategy that involves setting prices for goods or services that end in odd numbers, usually 9 or 5
   • Prestige Pricing: a pricing strategy in which prices are set at a high level, recognising that lower prices will inhibit sales rather than encourage them and that buyers will associate a high price for the product with superior quality; also called Image Pricing.
6. Bundle Pricing
   Selling a combination of products or services together at a reduced price compared to buying them separately.
7. Geographic Pricing
   Adjusting prices based on the customer's location due to differences in shipping costs, taxes, or purchasing power.
8. Freemium Pricing
   a pricing strategy where a business offers basic product features at no cost while charging a premium fee to access advanced or additional features.
9. Subscription Pricing
   Subscription pricing is a business model where customers pay a recurring fee to access a product or service. It's a popular model in industries like software, streaming, and e-commerce
10. Skimming Pricing
    Starting with a high price when a product is newly launched and lowering it over time as demand wanes or competition increases.
11. Penetration Pricing
    Setting an initially low price to gain market share quickly and increasing prices once a customer base is established.

PROMOTION:

is a key component of the marketing mix, focused on communicating the value of a product or service to customers. It involves using various strategies and tools to inform, persuade, and remind customers about a brand or product.

Promotional Mix:

a collection of marketing strategies and techniques that a business uses to communicate its value proposition to its target audience. The goal of a promotional mix is to create brand awareness, influence purchasing decisions, and drive sales.

TOOLS:

Advertising

Any paid form of non-personal presentation and promotion of goods and services by an identified sponsor is known as Advertising. It is one of the most common tools of promotion. Information regarding benefits, price, features, etc., of products and services, is provided with the help of advertising. It is an impersonal method of promotion because there is no direct contact between the customer and the advertiser. It targets a large number of people at a time.

Sales Promotion

Short-term incentives, which are offered to encourage the buyers to make an immediate purchase of a product or service is known as Sales Promotion. It helps to boost the sales of a company. It also aids other promotional efforts, such as advertising and personal selling. All the activities that provide short-term incentives to boost sales are included in sales promotion.

Personal Selling

The process of informing customers and persuading them to purchase the products through personal communication is known as personal selling. Two-way communication and face-to-face contact are involved in the case of personal selling. Under this, sales staff are used to create product awareness and preferences and sell products. It helps in building personal rapport with the customers, which increases the sales of the business.

Public Relations:

Public Relations is the art and social science of analysing trends, predicting their consequences, counselling organisational leaders and implementing planned programme of action which will serve both the organisation and the public interest.

OBJECTIVES:

• Increasing Sales: The primary goal of promotion is often to boost sales figures.
• Creating Awareness: Informing potential customers about new or existing products.
• Building Brand Loyalty: Encouraging repeat purchases and fostering customer loyalty.
• Encouraging Trial: Motivating customers to try a new product or service.
• Differentiating Products: Highlighting unique features to stand out from competitors.

MEDIA SELECTION:

refers to the process where news producers choose to prioritize certain types of news, such as crime news, over others based on factors like newsworthiness, public interest, and market appeal.

MEDIA MANAGEMENT:

is the strategic use of media resources and operations to achieve business goals. It involves managing a variety of media channels, including print, broadcast, digital, and social media, to:

• Create and distribute content
• Engage with audiences
• Maintain a brand image
• Generate revenue
• Adapt to emerging technologies and consumer trends