12

Pricing
 Companies that are effective in generating consumer value through other
marketing mix efforts should still retain some of that value in their prices. According
to Kotler and Armstrong (2019), the price of a product or service is the amount of
money charged for it. A piece of apparel, for example, costs a specific amount of
money. Alternatively, a computer specialist may charge a fee to repair a computer.
 It's also the total of all the values people forego in exchange of the
advantages of owning or using a product or service. Price may not always
imply monetary value. Bartering is the practice of exchanging commodities or
services in exchange for other goods or services.
 The single aspect of the marketing mix that generates income is price; all other
elements are costs. It's also one of the most flexible aspects of the marketing mix.
Prices, unlike product features and distribution channels, may be easily modified and
copied. It is also a vital factor in determining a company's market share and profitability.
A small percentage change in pricing might result in a significant boost of earnings.
 Despite the fact that the question "How much?" may be rephrased as "How much does it
cost?" The terms price and cost are not interchangeable. Whereas the price of a product is
the amount the customer, must pay to receive it, the cost is the amount the company must
pay to manufacture it. When someone inquires about the price of a product or service, the
person is really asking how much he or she will have to give up in acquiring it.
 IMPORTANCE OF PRICE
Price is significant to marketers because it reflects their evaluation of the value customers see in a
product or service and their willingness to pay for it. Although the other aspects of the marketing mix
(product, place, and promotion) may appear to be more attractive and thus receive more attention,
choosing the price of a product or service is one of the most critical management choices.
Although product, place, and promotion have an impact on costs,
price is the sole factor that has an impact on revenues and, thus,
profits. Price can determine whether a company thrives or falls.

Changing the price has a significant effect on marketing

approach, and based on the product's price elasticity, it can also
alter demand and sales. Both an excessively high and an
excessively low price might stifle growth. The inappropriate price
might also have a negative impact on cash flow and sales.

Price influences how customers view a product or service,

therefore if the marketer fails to choose a price that fits the other
aspects of the marketing mix and the business goals, problems
might arise. A high price denotes a high level of quality. The word
"luxury" springs to mind. A company that wants to promote itself
as a low-cost provider, on the other hand, will charge cheap
rates. Consumers know exactly what to assume when they see
cheap prices, just as they do with high-end providers.
 FACTORS
AFFECTING
PRICING
A. Cost of Production
The fundamental component of price is the cost of production. No
business may sell its goods or services for less than what it costs to make
them. Thus, prior on a price decision process, information on the cost of
production must be gathered and taken into account.
 There are two main types of costs: Fixed costs (such as building rent, permanent
employee salaries, etc.) and Variable costs (e.g., Material, Labour, etc.). At the
very least, the pricing should be able to recover the variable cost, given the fixed
cost is incurred regardless of whether or not manufacturing occurs.
B. Demand for Product
Before deciding on a price, an in-depth analysis of market demand for products and services should be undertaken.
Higher prices can be established if demand is greater than the supply.

C. Price of Competitors
Prior to deciding on a pricing, it is crucial to acknowledge and analyze the prices of rival firms' products. When there is
fierce competition, it is preferable to keep prices low.
D. Purchasing Power of Customers
What is the customer's purchasing power, and how much and at what price can they buy? These should be taken
into account as well.

E. Government Regulation
It should also be considered whether the price of the item and services is to be set according to government
regulations.
F. Company’s Objectives
A specific amount of profit is
generally added to the cost of manufacturing
at the stage of price fixation. If the company's
goal is to generate more revenue, it may
increase the amount of money it invests.

G. Marketing Method Used

Price is also determined by the
company's marketing strategy; for example,
commission paid to middlemen for the selling
of items is reflected in the price. Similarly, if
consumers are to be supplied with "after-sale
service," those costs are included in the price.
MAJOR PRICING STRATEGIES
The company must designate a price for each product. However, determining
the price can be done in a range of techniques. Above all, it should adhere to a
predetermined approach. The company's price will be somewhere between one that is
too low to earn a profit and one that is too expensive to generate any demand.
Customers’ perceptions of the product’s value set the
price ceiling. They will not purchase a product if they
believe the price is higher than the value they will
obtain from buying it. On the other extreme, product
costs set the price floor. If a business sells a product
for less than it costs, its profits will decline.

Kotler and Armstrong state three major

pricing strategies namely: customer value–based
pricing, cost-based pricing and competition-based
pricing. These will assist the company in finding the
most suitable price between these two extremes.
Customer Value–Based Pricing
Pricing considerations, like the rest of the marketing mix, must begin with customer
value. When customers purchase goods, they are trading something of value (the price) in
exchange for something of value (the advantages of owning or utilizing the product).
Determining how much value customers place on the advantages they acquire from a product
and setting a price that conveys that value is key to successful customer-oriented pricing.
Customer value–based pricing focuses price on the
buyers' perceptions of value. Value-based pricing
implies that a marketer cannot create a product and
marketing strategy before deciding on a price.

Customer demands and value perceptions

are first evaluated by the organization. The target
price is then determined based on customer
perceptions of value. Judgements on what costs can
be incurred and the final product design are driven by
the targeted value and price. As a result, pricing
begins with an examination of consumer demands and
value perceptions, with the price determined to
correspond to perceived value.
Customers' perceived value for a company's product is often difficult to quantify.
Calculating the cost of ingredients in a dinner at a fine restaurant, for example, is
relatively simple. Other aspects of satisfaction, such as flavor, atmosphere,
relaxation, conversation, and status, are more difficult to value. Such worth is
subjective; it fluctuates depending on the consumer and the context.
 There are two types of
value-based pricing: good-
value pricing and value-
added pricing.
Good-value pricing is providing the right combination of quality and outstanding service at
a reasonable price. In many cases, this has meant introducing lower-cost versions of well-
known brand names or new lower-price lines. In other situations, good-value pricing entails
restructuring pre-existing brands in order to provide better quality for a set rate or the same
quality for a lower price. Some businesses flourish by providing less value at a lower price.
 Value-based pricing does not merely mean charging what customers desire or
setting cheap prices to compete. Rather, many businesses use value-added
pricing techniques. Rather than decreasing prices to match competitors, they
distinguish their offerings by adding quality, services, and value-added features,
which helps to justify their higher prices.
For products with a high added value, customer value-based pricing works
quite effectively. There are numerous examples of this sort, particularly
among manufacturers who sell their products online and have a strong
brand (iPhone, for example), a large following (All Star or Levi's), etc.
Cost-based pricing
The most basic pricing technique is cost-based pricing. Cost-based pricing entails
determining prices based on the product's production, distribution, and selling expenses, as
well as a reasonable rate of return for the company's effort and risk. The costs of a firm may
play a significant role in its pricing strategy.
 Cost-plus pricing is popular since it's simple to
compute and involves minimal information. It's
especially beneficial when demand and cost data
aren't readily available. This additional data is
required to develop accurate marginal cost and
revenue estimations.

To get at the selling price, a company

assesses the cost of creating the goods and then adds
a percentage (profit) to it. Essentially, this strategy
establishes prices that cover the expenses of
manufacturing while also allowing the company to
achieve its target rate of return. It's a method for
businesses to figure out how much profit they'll make.
 Break-even pricing (or a variation known as target return pricing) is another cost-oriented
pricing strategy. The company determines a price at which it will break even or achieve the
desired return on product development and marketing costs. At a given level of production, it
is the price that generates enough income to cover all costs. There is no profit or loss at the
break-even point.
Competition-Based Pricing
Competition-based pricing is a pricing
strategy in which the company determine its
prices in reference to its competitors' prices.
This contrasts with other pricing systems such
as value-based pricing or cost-plus pricing, in
which prices are established by assessing
other factors such as consumer demand or
manufacturing costs. Competition-based
pricing is primarily based on publicly available
information regarding competitor prices,
rather than consumer value. Customers’
assessments of a product’s worth depend on
the prices charged by competitors for similar
 The business can charge a higher
price if customers trust that the
company's product or service is of
better value. If customers perceive
less value in comparison to
competitors' items, the firm must
either drop the price or change
consumer attitudes in order to
support a higher price.
If the firm is up against a slew of smaller
competitors that are charging excessive prices
for the value they provide, it may reduce its
prices to push weaker competitors out of the
market. If the market is dominated by larger,
lower-cost competitors, a company may
choose to target underserved market niches
by delivering higher-priced value-added
product and service offerings.

The objective is not to match or beat

the prices of competitors. The purpose is to
set prices based on the relative value created
in comparison to competitors. Higher prices
are reasonable when a company provides
FACTORS AFFECTING PRICE:
A. Cost of Production
B. Demand for Product
C. Price of Competitors
D. Purchasing Power of Customers
E. Government Regulation
F. Company’s Objectives
G. Marketing Method Used
MAJOR PRICING STRATEGIES
A. Customer Value–Based
Pricing
(VALUE BASED
PRICING,VALUE ADDED
PRICING)

B. Cost-based pricing