Pricing Method
Price is more than simply a number on a label. It occurs in a variety of shapes and serves a variety of purposes. Rent, tuition, tickets, fees, rates, tolls, retainers, salaries, and commissions are all part of the cost of goods and services.
Factor Influencing Pricing Decision
Pricing decisions are complex, influenced by multiple factors that marketers must consider while finalizing the price of the product. Some of these factors are within the organization’s and the marketing manager’s control; others are outside of the organization’s and out of the marketer’s control but can have an equal impact on the pricing method.
Internal Factor
Internal factors are those that are under the control of the organization.
Organization Objective
Every company has goals. These objectives include increasing the firm’s market share and productivity, as well as performance metrics that are used to analyze the results of various parts of the business in order to determine if the organization is accomplishing its stated mission. Pricing can help achieve both long-term and short-term company goals in this regard.
Advertising and Prices Objectives
Marketers may achieve success if they can establish and differentiate their products and brands from the competition. To do so, they must address the problem of the price at all times and throughout the life of their products and services. As a result, marketers want price goals that are precise, achievable, and quantifiable.
Cost
The product’s expenses include the money spent on product research and development, testing, packaging, and promotion and distribution. For example, when a new service is introduced, its advertising expenses might be rather costly since people must be made aware of its existence.
The company must also evaluate its cost of manufacturing because it does not want to sell below its cost of production in the long term.
Marketing mix Variable
As previously said, greater costs are typically connected with higher quality. Customers’ perceptions of a brand’s product or service are influenced by the price-quality connection. As a consequence, people may be willing to pay a premium for Armani pants if they feel it is a high-status product with a high perceived value.
External Factor
Because external variables are outside the organization’s direct control, they must be accommodated. Pricing decisions method are influenced by external variables such as customers , demand and price elasticity, legal and regulatory issues, distribution networks, and rivals.
Consumer Perception
Companies must strive to figure out how price-sensitive their consumers are. Given the product’s pricing, will buyers purchase it? Or will they feel the value is not comparable to the cost and choose a different product or service? It is also vital to consider how much buyers are prepared to pay for the product. Predicting how customers will react to pricing changes requires market research.
Market Structure, Demand, and Competition
Factors like manufacturing costs, the type and strength of demand, and rival pricing all have an impact on the pricing method. The final price is frequently a mix of all three components.
Distribution Channel Member
A producer must evaluate what members of the distribution channel would anticipate. These middlemen or channel members very definitely expect to be compensated for the services they provide. The amount of profit is determined by the amount of time and resources invested, as well as an evaluation of what might be earned if a rival product was handled instead.
Legal and Regulatory Issues
The government may use some legal action to control pricing. Such precautions are made to safeguard the general public’s interests. Prices of utility commodities such as fuel, gas, electricity, and so on are set by the government, and so the customer must pay the price that has already been set by the government.
Pricing Method
When it comes to pricing methods, a business has several alternatives. Prices are determined by three factors: cost, demand, and competition.
Cost-Based Pricing
In cost-based pricing method, the marketer establishes a floor price, which is the lowest price acceptable to the business in order to meet a stated profit target.
Full Cost Pricing
Full-cost pricing aims to determine a price that includes all relevant manufacturing expenses. To determine the selling price, the marketing manager considers the total average cost of manufacturing of a product and adds a profit margin.
Direct Cost
Only costs that can be clearly linked back to the production of specific goods or services are included in direct-cost pricing. The emphasis is on direct costs like labor and raw materials, as well as a mark-up to arrive at the selling price. In the context of retailing, the retailer adds goods and retail operational costs to these values and then adds a profit margin. Normally, it is not considered customer-oriented pricing.
Competition Based Pricing
Competition-based pricing is a pricing method in which an organization considers the prices of its rivals’ products while determining the prices of its own products. When using this approach, the marketer may charge the same as, more than, or less than its primary rivals. The following are the primary types of competition-based pricing:
Competitive Benchmarking
The provider compares prices to key rivals and decides whether to sell at the same, higher, or lower price. Other factors, such as product quality and consumer perception, will influence price decisions in this case.
Going-rate Rates
Producers are compelled to accept the going rate when there is no product differentiation, as in the case of bread or newspapers. However, there is always the possibility of offering something unique about a product.
Competitive Bidding
The provider will price in accordance with the purchaser’s specifications. Rather than using cost or competition as the foundation for establishing pricing, marketers may base it on the strength of demand as indicated by consumers or users of a specific product.
Pricing by Market Segment
Some marketers charge various pricing for their goods and services in different geographic locations. Some services, such as movies or hairdressers, are less expensive for older persons or children.
Prices by Product Segment
The full version of the software is sold at a premium price and is written from the top down. For less sophisticated users, however, software vendors may remove functionality at little extra expense and charge a lesser price.
Prices by Time
Price discrimination is used by travel firms to charge extra for peak-time/rush-hour commuters and travelers whose demand is inelastic at specific times and periods of the day or year. Off-peak flight deals and phone costs are two more examples.
Demand-based Pricing
Demand-based pricing determines the price of an goods and service based on customer demand. The price of a product is determined by its demand. When there is a strong demand for a product, an organization chooses to set high prices for it in order to earn handsome profit; when there is a low demand for a product, cheap prices are charged in order to attract buyers.
The capacity of marketers to evaluate demand is critical to the success of demand-based pricing.
Pricing like this may be found in the hotel and tourism industries. For example, airlines charge lower rates during periods of low demand than during periods of strong demand. Demand-based pricing allows an organization to generate more profit if buyers accept the product at the price they set.
Differentiated Pricing
Various businesses may charge different prices for the same product or service.
Time Pricing
In this case, different rates are charged for the same product or service at various times of the year or season. It includes off-peak pricing, which charges cheap fees during low-demand tunings or seasons.
Location Pricing
Various prices are charged in different market locations for the same commodity. For example, in order to attract clients in a new market, a company may charge a cheaper price.
Product Form Pricing
Different variants of the product are priced differently in this case, but not in proportion to their relative expenses. Soft drinks of 200, 300, 500 ml, and so on, for example, are priced using this method.
Image Pricing
Some businesses charge varying prices for the same product depending on visual variations. A perfume maker may put a smell in a bottle, give it a name and a picture, and charge $10 per ounce. The identical perfume in a different container with a different name and picture might get $30 per ounce.
Channel Pricing
Coca-Cola costs various amounts depending on whether the consumer buys it at a nice restaurant, a fast-food restaurant, or a vending machine.
Promotional Pricing
Companies can employ a variety of price method to encourage early purchase:
Loss-leader Pricing
Supermarkets and department shops frequently reduce the price of well-known brands in order to increase store traffic. This is advantageous if the money from extra sales compensates for the reduced margins on the loss-leader goods. Manufacturers of loss-leader brands generally protest since this approach might weaken the brand image and result in complaints from merchants charging the list price.
Manufacturers attempted to discourage intermediaries from employing loss-leader pricing by campaigning for retail-price-maintenance regulations, but these laws were repealed.
Special Event Pricing
Sellers will set special prices throughout particular seasons in order to attract more buyers. Back-to-school sales occur every August.
Special Customer Pricing
Sellers will give unique pricing to specific consumers only. Members of Road Runner Sports’ Run America Club receive “exclusive” online deals with price savings that are twice as large as those offered to normal consumers.
Cash Rebates
Automobile manufacturers and other consumer goods firms provide cash rebates to promote the purchase of their goods within a certain time period. Rebates can assist in clearing stocks without lowering the declared list price.
Low-interest Financing
Rather than lowering its prices, the firm can provide low-interest financing. To entice more customers, automakers have employed no-interest financing.
Longer Payment Terms
Sellers, particularly mortgage banks and car dealerships, stretch loans over longer periods of time, lowering monthly payments. Consumers frequently worry less about the interest rate and more about whether they can afford the monthly payment.
Warranties and Service Agreements
Businesses may boost sales by including a free or low-cost warranty or service contract.
Product Life Cycle and Price
Introduction Stage
Management may set high pricing at the launch stage, in part to swiftly recover development costs and in part to cater to the core market, which may not be price sensitive. If the target market is extremely price-sensitive, the pricing will be set at or below the market level.
Growth Stage
At this point, the product may be appealing to a larger market, and rivals may have entered the market, boosting supply. Cheaper costs result from economies of scale, and the savings are passed on to customers in the form of lower pricing.
Maturity Stage
As a result of competition, prices continue to fall during the mature stage. Competitors with high operating costs are also removed. Those who are left in at later stages of maturity provide comparable prices. Any price rises are cost-driven rather than demand-driven. Furthermore, price reductions at this point may not always increase demand.
Decline
There may be a scramble among the surviving rivals to capture the final areas of demand. Prices for some items or brands may climb if they enter a specialty product category, such as vinyl records.