Price and Pricing policy

Price and Pricing policy

Meaning of Price and Pricing
Price and Pricing policy
• Price theory is the key stone in the economic theory
• pricing has always been treated as one of the central problems
• Pricing is a key element in both the factor market and product market
• Pricing policy is influenced by many.
• The firm should consider the reactions of many
• Pricing is the most important aspect of managerial decision making
• Therefore formulating a sound policy and selection of the right
method of pricing is a key stone to a business firm
Meaning of price and Pricing
• Though it is easy to define the price the meaning of the word price is
not that simple
• For economist-it is the exchange value of a product or service always
expressed in money
• To the ultimate buyer-it represents a sacrifice of purchasing power
• To the seller/manufacturer-it is the cost+profit, the source of revenue, a
prime determinant of profit
• To the marketing manager-it is the product feature i.e. the quality and
the quantity of the product
• It is not absolute but relative in terms of variables
Meaning of price and Pricing (contd).
• It is the amount of money to be paid in return for a bundle of utilities
• It is the money value of a thing-value expressed in terms of money
(Value means the worth of a commodity -the quantum of other things
it can get in exchange) where as
• Pricing is the art of translating in to quantitative terms the value of
the product or a unit of service to customers at point in time- the
process of setting objectives determining the available flexibility
developing strategies setting prices and engaging in implementation
and control
Objectives of pricing policy
• Adam smith-the invisible hands of the market or price mechanism keeps every
thing in order in a competitive free market economy
• Benham-Price mechanism harmonises producers motive for higher profits and
consumers desire to maximise the satisfaction
• May be short term or long term pricing policy must aim towards one or more
of following. (Kotler suggested empirical work based objectives are also
included)
1. To achieve a target return on investment
2. To limit the competition from rival firms
3. To maintain at least a particular level of price stability
4. To fix the price in such a manner to capture a larger share of the market
 Objectives of pricing policy(contd.)
5. to maintain or increasing the existing share of the firm
6. To aim at discouraging the entry of new firms in to the industry
7. To choose and adopt a price policy which fits in to the market conditions faced by
the different products in the product line
8. To fix a price though not give a maximum return a smaller and satisfactory return
9. To fix a price which ensures rapid cash recovery specialy when the firm is faced
with the problem of liquidity
10. To take advantage of the market situation through market skimming
11. To take maximum profit on the entire range of products
12. To improve the image of the firm
13. To earn the good will of the customers
14. To survive and to maintain ability to withstand cyclical variations in the business
15. To mobilise the resources as much as it can