Pricing Decisions:

Factors Affecting Price Determination

 Presented by: Group 3
● Ayush (119023) ● Bhupendra Mahananda (119028)
● Ayushi (119024) ● Biswajit Nayak (119029)
● Bathula Stuthi Geetam (119025) ● Boda Anand (119030)
● Bhavyata (119026)
● Chandan Kumar (119031)
● Bheem Kumar Meghwal (119027)
● Chhavi (119032)
INTRODUCTION
What is Price ?

● Price is the value that is put to a product or service

and is the result of a complex set of calculations,
research , understanding and risk taking ability.
● It is the money or other considerations including
other products and services exchanged for the
ownership or use of a product or service.
A well chosen price should do three things:

1. achieve the financial goals of the company (i.e. profitability)

2. fit the realities of the marketplace (will customers buy at that

price)

3. support a product's market positioning and be consistent

with the other variables in the marketing mix

PRICING
PRICING

 PRICING is the act of determining the exchange value between the

purchasing power utility or satisfaction acquired by an individual, group or
an organization through the purchase of goods, services, ideas, rights etc.

 It is one of the critical decision making areas in marketing.

 It involves many activities performed within an organization to determine

the exchange value, such as setting the base price, determining discounts
and commissions, and formulating pricing objectives, policies and strategies.
Pricing Equation

Buyers are more willing to pay extra fees than a higher list price. So, sellers use
add-on charges as a way of having the consumers pay more without raising the list
price.

All the factors that increase or decrease the final price of an offering help construct a
“price equation”

The price equation can be written as follows:

Final Price = [List Price] – [Incentives + Allowances] + [Extra Fees]

FACTORS INFLUENCING PRICING
DECISIONS
Factors Influencing Pricing Decisions

Internal Factors External Factors

• Cost  • Competition
• Company Objectives    • Demand 
• Organizational Factors • Suppliers
• Marketing Mix  • Economic Conditions
• Product Differentiation
• Consumers 
• Government 
 Internal Factors

This factors are mostly

The internal factors
in relation with the
are factors that can be
organization business
control, determine and
level strategy and
process by the
greatly influenced by
organization.
the nature of business.
 ●  Major factor that determine price.

● This is the cost (TC= FC+VC) incurred by

the organization in the production of goods
or service.

●  The cost of production is largely influence

 
1. Cost by the supplier cost, macroeconomic trends
and the nature of business.

● In an economy with high inflation rate, the

cost of production will rise except where the
organization has monopoly of its supply.
Xiaomi or MI keeps the cost of its smartphones very low

But How?
 Xiaomi is able to make price concessions by the combination of a
small portfolio and longer average selling time per device.

 Xiaomi continues to sell older devices at reduced prices even after

it releases newer models.

 The longer runway for devices gives Xiaomi leverage to secure

better component deals with its suppliers.

 The reason behind price cuts is they have managed to negotiate

component cost decrease with their suppliers over time, which
ends up leaving a bigger margin for them.

 Xiaomi maintains software updates, spare parts and other services

that customers require, longer than most companies would.
2. Company Objective
● Some organization set a cost plus pricing. In
such case, a percentage is added to the cost of
production in order to arrive at the price.

● The argue here is that, the company's objective

is profit maximization and therefore a pricing
decision must be that will consider that profit
maximization objective.

● When pricing decisions are made, they must be

in line with the overall company objectives, as
this is what will inform what the pricing
objective really is, so that the pricing decisions
made will not be against the company objective.
 PhonePe is the first payments' app to have
started charging for transactions.

 PhonePe will also begin charging processing

fees for payments made through credit
cards.

 Earlier they were providing their services

free of cost to capture a larger market.

 It has recorded over 165-crore UPI

transactions on its platform in September,
clocking over 40 per cent share among the
app segment.

 But now company's objective is profit

maximization and hence they are going to
charge a nominal fee.
 A central part of the decision-making in a company is whether

decisions are made on a top management level or on the

operative level of the firm

Organizational● Centralization : Having a centralized firm means that all
3.Organizational
Factors – decisions are made by a very small number of people that the
Factors –
Centralization rest of the firm have to follow. In the case of pricing it could

Centralization
Vs show itself in the way that one person sets the prices for all

Vs
Decentralization
products or that one group sets the prices for all international
markets.
Decentralization
● Centralization brings the advantage of avoiding
misunderstandings in the internal communication because it
is easier to coordinate the components of the firm.
● Decentralization : . This means that the lower level
employees in the operating part of the firm make all decisions.
A decentralized pricing process could mean that the sales
force has complete power over the end price and that they
only receive advice or suggestions from top management.

● With a decentralized organization you can more easily

optimize your relationship with your customers because each
sales person or account manager can personally negotiate and
change a deal. The decentralization also makes it easier to
respond to the customers’ wishes and demands.

● A disadvantage for decentralized organizations is that the

internal structure becomes more complicated as each division
and/or department can decide and create their own rules.
●  Autotube is a subcontractor to the automotive industry that produces
complex air and fluid distribution systems for cars, trucks and buses. All
customers are B2B clients and some of their biggest clients are Volvo
Cars, Volvo Trucks, Scania, Ford and Jaguar. They have three main
business areas, which they categorize as Cars, Trucks and buses.

● Autotube has three different business areas but the pricing process is the
same for all of them and they do not see any other viable alternative due
to the nature of their customer deals.

● They have a very centralized pricing process that is based on

negotiations with the customer and internal discussions within the top
management group. The top management group that discusses what
prices to demand consists of the CEO, the CFO and the Sales Manager
for the business area. They also receive input from the sales person who
has established the initial contact with the customer.
 Price is the important element in
marketing mix.
4.Marketing
Mix A shift in any one of the elements has
an immediate effect on the other three -
Production, Promotion and Distribution.

The effort for implementing strategies

will not succeed unless the price
change is combined with a total
marketing strategy that supports it.
 KFC is an American fast-food giant which first
opened in Bangalore in 1995 and from there the
numbers increased in India.
 Being the first foreign fast-food restaurant chain to
enter the Indian market after the introduction of the
liberalisation policy, KFC was not supported in
many parts of India because of the belief in the old
customs, traditions and food habits.
 But with the help of marketing mix, today KFC is the
most loved fast-food restaurant.
 Pricing strategy is the strategy used by firms to set the prices of their
goods so that they can capture the attention of the market effectively and
efficiently.
 KFC uses a discriminating pricing policy with all its products.
 The products are of different pricing and ratings.
 The products sold in India are affordable and are highly bought by the
Indian audience.
 KFC used the price skimming technique and the market penetration
technique of marketing.
 This means that when the competitors entered the market, KFC lowered
down its prices to a huge extent And while introducing new products, KFC
keeps its prices bare minimum compared to the later stages to grab
attention respectively.
 ● The price of the product also depends
upon the characteristics of the product.
5. Product
Differentiation ● In order to attract the customers,
  different characteristics are added to the
product, such as quality, size, color,
attractive package, alternative uses etc.

● Generally, customers pay more prices

for the product which is of the new style,
fashion, better package etc.
 A major aspect of a product differentiation comes from
product design.

 Products that display a different visual style, include

different features or handle different tasks stand out
from those offered by the competition.

 Apple has made product design a hallmark of its

differentiation strategy since the company's origins.
When Apple introduced the iPod, iPhone, and iPad,
there were no similar consumer electronics products
that included so many features in one distinctive,
iconic package.

 Apple creates top-notch product with a price

proportionate to its level of quality while maintaining
high profit margins.
 Apple has been among the most successful
technology companies in the development of
loyalty to a brand.

 Loyal Apple customers will wait in line to purchase

the latest iPhone, download music through iTunes,
watch their favorite television shows on Apple TV
and play games on their iPads.

 The company's efforts toward building brand

loyalty have allowed Apple to differentiate itself
from Microsoft, Samsung and other competitors in
its various arenas.

 And hence able to charge brand royalty.

 ● The external factors are those factors that are not
within reach of the organization. They are external

External because there are many parties that determine and

control these factors.

Factors ● The business organization is a party to the external

factor and cannot control or determine the
aggregate indicators of these factor.
 ● Competition is a crucial
factor in price
determination.

1. Competition  ●  A firm can fix the price

equal to or lower than that
of the competitors, provided
the quality of product, in no
case, be lower than that of
the competitors.
Now, Rs 399/84GB = Rs 4.75 per 1GB

All thanks to JIO revolution

 2. Demand
● For a new product, there is need to price such product strategically in such a way that it
penetrates the market, even if it will be at par with the total cost, while for a highly
demanded product, an increase in price may not really have a high effect on the demand
for such products, so is the need for management when making pricing decisions to
consider the demand for the product.

● Some companies who receive order from customers may decide to reduce their price per
unit or increase their discount, when it is noted that demand from a customer is high, and
this may be on the other way round, depending other factors considered by the
management.
 In India Oct to Dec are festive seasons.
 This is also the marriage season as high number of weddings occur during these months.
 So demand for casuals decreases as the demand for bridal costumes ,ethnic wear,traditional dresses
increase.
 So the big players like Reliance retail, Vmart, Fabindia launch offers, provides discounts inorder to sell the
undemanded products in off seasons.
 In this way price of products or services fluctuate with the change in demand.
 Suppliers of raw materials and
other goods can have a significant
effect on the price of a product.

The price of a finished product is

3.Supplier intimately linked up with the price
s of the raw materials.

Scarcity or abundance of the raw

materials also determines pricing.
 In January, the company hiked prices of its
cars by up to Rs 34,000 on some models,
and it was followed by an average 1.6 per
cent price rise in April.

 Global chip shortage is one of the reason.

 commodity prices have been increasing

dramatically in the past one year.

 Steel, which was ₹38 per kg, went up to

about ₹72 per kg.

 Copper, which was at USD 5,200 per tonnes,

also went up to USD 10,400 per tonnes.

 The prices of other precious metals like

palladium, platinum and rhodium have also
gone up by up to almost two-three times.
4. Economic Conditions

• The inflationary or
deflationary tendency
affects pricing.

• The prices are increased

in boom period to cover
the increasing cost of
production and
distribution. To meet the
changes in demand, price
 One of the key drivers have been upstream
cost increase due to raw material and
production costs.
 With rise in inflation the production costs
increases due to hike in prices of raw
materials and other charges.
 In this covid, as consumers are forced to stay
indoors, their monthly grocery bills have gone
up.
5.Consumers/Customers

 The various consumers and

businesses that buy a company's
products or services may have
an influence in the pricing
decision.

  Their nature and behavior for

the purchase of a particular
product, brand or service etc.
affect pricing when their
number is large.
YES ,there are other costs which includes
 Marketing costs
 Distribution costs
 They build their own OS
 Software updates
 Research & Development

 But still they sell their products at a high margin

because they are aware of nature of consumer and
they play with the psychology of consumers.

 Whenever they launch any product, it makes huge

impact on our mind & people all over the social media
talk about their product.

 Apple products shows status symbol. Owning apple

products shows you are wealthy.
INTERNET
 In UAE, one has to pay
extra Rs 1000 per month if
you are looking to use
whatsapp audio video calls.

 So monthly 4G plan is Rs
5000 per month for 22GB.

 In india, one has to pay less

than Rs 200 per month for
45GB.

 India is a price sensitive

market, People want more
in as less as possible.
6. Government
• Price discretion is also affected by the price-
control by the government through enactment of
legislation, when it is thought proper to arrest the
inflationary trend in prices of certain products.

• The prices cannot be fixed higher, as

government keeps a close watch on pricing in
the private sector. The marketers obviously can
exercise substantial control over the internal
factors, while they have little, if any, control over
the external ones.
 Petrol price in 2016 was Rs 67 while in

2021 it crossed Rs 115.

 Government taxes is one of the major

reason for such a huge hike in prices.