Price Flashcards
chp2
What is price according to Philip Kotler?
cost- to make the product [expense for firm]
price - the one seller set
Price is the amount of money charged for a product or a service.
Which element generates revenue for organisation?
out of the marketing mix elements
PRICE ELEMENT
What is right price?
Level of price that covers all expenditures [on production/promotion/sales] and brings some profit to the firm.
What are the factors affecting the price of the product ?
give examples for everything
-Price of raw material [if PORM increases Price of product will automatically increase and vice versa as porm is an expense for the firm]
-Cost of manufacturing is high, then price will increase and vice versa. eg: labor machines, exp on power.
-Market condition [+ve = high price, as there is purchasing power , -ve / depression= low price , discounts ]
-Competition in the market [high competition the price is lowered and vice versa as when there r many comp in mrkt many opts , so for consumers to choose u , ull need to lower price]
-Brand and quality of product [good quality of product and high brand value= high price eg. chandni chowk low price of ornaments and kalyan jewellers/tanishq high price ]
What are the objectives of pricing?
3 major [draw flowchart for main points then write long answer]
SURVIVAL is the basic objective of any business.
-
Profitability objectives :-
1] Target rate of return on investment or net sales :
The price of a product should cover the cost of production and give adequate rate of return on capital employed/investment.
2] Profit maximization :
In economic theory profit maximization is important objective of any business .
In recent times business has started to think from the perspective of the society and have incorporated business with other activities that fulfil societal obligations. -
Market- Related objectives :-
1] Meeting or preventing competition in the market :
Firms fix prices at competitive levels to meet competition in the market.
They even follow ‘Below cost pricing’ - charging less than the cost which will prevent new firms from entering the market.
2] Maintaining or improving market share :
Market share is a meaningful measure of the success of a firms marketing strategy. It is the indicator of the firms effectiveness. This objective is followed by firms operating in expanding markets. A firm might be earning a reasonable return on investment but its market share could be decreasing. Therefore it is worthwhile pricing objective for expanding markets.
3] Price stabilization :
Price stabilization as an objective is prevalent in industries that have a price leader. eg: in an oligopoly [ 2 or more firms in competition] where firms follow the price leader. No firm is willing to engage in price wars. Thus price stability is important for *planned and regular production in the long run *. -
Public relations objective :
1] Enhancing Public image of the firm:
A company’s public image is important to its success. Suppose a company with well established public image launches a new product to a different market segment. If the segment hasn’t tried the product but it is aware of its prestige and brand value, they will desire to purchase the product, Here the price of the product no long is a deterrent factor [affecting factor] . Similarly a firm known for its high quality and high priced products will loose their current customers if they lower the quality and price . Thus the firms well established image is very important factor.
2] Resource mobilization :
Creating resources for either self development or reinvestment in the firm. Here prices are deliberately set high to generate surplus. This is to reinvest in the same firm. eg: price of petrol increases in developed countries as it generates surplus for the government.
What is the importance/significance of pricing for a firm?
1] Determine firms competitive position and market share:
-Pricing policy of a firm is a major determinant of a firms success as it affects the firms competitive position and share in the market.
-If prices are too high business is lost, If prices are too low firm may be* lost. *
2] To achieve financial goals;
-With the help of price a firm can make estimates of *expected revenue *and *profits. *
3] To determine the quantum[quantity] of production
-Firm makes estimate of profits to choose the best combination of production , volume and price.
4] To determine the product positioning and distribution in the market
-Sale of product is supported by different types of advertising which incurs a cost, thus to determine how much cost will be incurred depends on the revenue earned by the firm and thus the price of the product.
5] To determine the quality and variants on production
-when managers explore price of product they introduce various product models to fit different market segments. eg Samsung offers Samsung grand for medium income group and Galaxy S7 edge for high income group.
6] To establish consistency with other variables in the marketing mix[4ps]
-Type of prodcut , promotion and distribution policies are all influenced by the price. eg. if the price is kept high the quality of product will also be kept high as price would cover cost of production eg2 promotional expenses.
7] Helpful in maintaining system of free enterprise and long run survival of firms
8] Improvement in company’s image.
A company’s public image is important to its success. Suppose a company with well established public image launches a new product to a different market segment. If the segment hasn’t tried the product but it is aware of its prestige and brand value, they will desire to purchase the product, Here the price of the product no long is a deterrent factor [affecting factor] . Similarly a firm known for its high quality and high priced products will loose their current customers if they lower the quality and price . Thus the firms well established image is very important factor.
What is the importance of pricing for a consumer?
1] Helpful in decision making
2]Helps in satisfaction of needs [value of his/her money spent and maximizes satisfaction and welfare.
3] Helps determine the purchasing power and standard of living *of the consumer.
4]Enhancement in social welfare.
What is differential pricing method?
Diff customers have diff sdesires and wants. Factors that affect differential pricing method:
A] TIME OF PURCHASE:
Hotel charge diff amount for diff seasons. Taxi charge diff for day and night.
B]LOCATION:
Similar products can be sold at diff prices to customers in diff places.eg in a rural market or a 5 star hotel.
C]PRODUCT VERSION:
A book can be sold for diff prices by slight variations like changing the cover.
D]CUSTOMER:
In theatre , customers are willing to pay more for comfortable seat viewing the same film.
E]BARGAINING ABILITY:
high BA = low price
F]LEVEL OF KNOWLEDGE:
level of knowledge of product fetures also affect the price paid by customer.
G]AVAILIBILITY OF PRODUCT: [bidding]
when there are many cutomers for the product the seller can set a higher price. the one who is willing to pay more will get the product. eg auctions
