PRICE AS A PART OF MARKETING MIX
BY
SMART LEARNING WAY
CONTENTS
- Introduction
- Definition of marketing management
- Definition of pricing
- Pricing objectives
- Benefits and price
- Bases of pricing
- Conclusion
- Bibliography
INTRODUCTION
Marketing is the delivery of
customer satisfaction at a profit. The twofold goal of marketing is to attract
new customer by promising superior value and to keep current customers by
delivering satisfaction. Sound marketing is critical to success of any
organization-large or small, for-profit or non profit, domestic or global.
Large for profit firms such as McDonald's, Sony FedEx, wall-mart and marriott
use marketing; but so do nonprofit organization such as colleges, hospitals,
museums, symphonies, and even churches.
Even in eastern Europe and other
parts of the world in which marketing has long had a bad name, dramatic
political and social changes have created new opportunities for marketing
Business and government leaders in most of these nation are eager to learn
everything they can about modern marketing practices.
We begin by defining
marketing and its core concept, describing the major philosophies of marketing
thinking and discussing some of major new challenges that marketers now face.
DEFINITION OF MARKETING
MANAGEMENT
‘’Marketing, more than any other
business function, deals with customers. Creating customers value and
satisfaction are the heart of modern marketing thinking and practice’’.
‘’Marketing is the delivery of
customer satisfaction at a profit. The twofold goal of marketing is to attract
new customer by promising superior value and to keep current customers by
delivering satisfaction’’.
‘’Marketing as a social and managerial process
by which individuals and groups obtain what they need and want through creating
and exchanging products and value with others’’.
‘’Marketing is the process of
planning and executing the conception pricing, promotion and distribution and
ideas goods services to create exchange
that satisfy individual and organizational goals’’.
DEFINITION OF PRICING
1. For many product, the buyer is
interested not only in the physical
entity called the product but also in a host peripheral elements. The buyer is
interested in the ‘price’ of the whole ‘package’ consisting of the physical product accessories,
after-sales service, replacement parts,
trade-in privileges, and technical guidance.
2. Prices sometimes vary by the type of
customers. Wholesalers pay a lower price than retailers who in turn pay
somewhat less than ultimate consumers. Bulk buyers often get discounts. A buyer
is interested in knowing which price he
would end up paying: list price, retail price, wholesale price ex- factory
price, etc..
3.Price can vary depending on whether it is
delivered price or price at the originating point.
4.The buyer would view a price
quite differently on when it is to be paid. The amount of credit, the repayment
schedule, and the interest rates influence the buyer’s perception of price.
PRICING OBJECTIVES
These should be derived form an
organization’s overall objectives. These are essentially some tasks to be
achieved. Quite often a product has a multiple number of pricing objectives,
with some implicit understanding of priorities. Generally they provide
guidelines to the operating manager. The probable pricing objectives are
to:
1.Earn a certain return on
investment in the subsequent period
2.Achieve a certain amount of
market share in the foreseeable
3.Attain a certain amount of
growth in sales
4.Stabilize the market ,i.e. to
restore order in a fluctuating market
5. Undermine the efforts of new
entrants to gain footholds
6. Prevent competitors from
entering into one ‘s territories
7.Make competitors accept one as
the price leader
8. Avoid government investigation
and control
9. Maintain the loyalty of
middlemen and get their sales support
10. Augment the sale of weak
items in the product line
11. Enhance the image of one’s
product and firm
12.Recover the investment made
within a set period of time; and
13. To set the price at a level
that will maintain the employment level.
BENEFITS AND PRICE
Throughout this book
we have suggested that in any purchase decision the customer is seeking to
acquire benefits. A product must bring
with it the promise of performing certain tasks of solving identified problems or even of providing specific
gratifications. Thus the product is not bought for the particular components or
materials that go into its manufacture per se, but rather it is bought for
what, as an entity, it can do.
The implication
of the benefits concept form a pricing point of view is that
the company must first identify the benefits the customer perceives the product
to offer and then attempt to ascertain the value that the customer places upon
them. The key issue here is that it is the customer perception that is
important. It may be for example that two competing companies offer product
that are technically identical to all intents and purposes and yet one company
can command a premium price. Why should this be?
It may be that additional
benefits offered by one company in the way of technical advice or after sales
service are perceived to be superior to those offered by another. Or it may
just be that the image of that company is seen as superior. Whatever the reason
there are many cases of this type of differential advantage that cannot be
explained simply in technical or quality terms.
strong brands have always been able to
command a price premium designer labels on fashion garments or obvious examples
of the impact of brand image. Even in industrial markets the power of the brand
can be significant.
Another way to look at
this price advantage is to think of the maximum price at which the product
could be sold as being the sum of two
elements. First there is the commodity price element which is the base price
for the generic product this can be determined by supply and demand in the
market place. On top of this should be added the premium price differential
which reflects the totality of the customer perceives will be acquired through
purchase of that product.
The existence of this premium
price differential can only be explained in terms of perceived benefits. The
task of the pricing decision maker therefore, becomes one of identifying these
benefits and placing a customer value upon them.
It
is in reality a ‘bundle’ of benefits and
so the first step in this suggested
approach to pricing is to ‘unbundle’ the product and identity the
individual benefits components that together constitute the totality. the
challenge to the pricing decision –maker is to shift the emphasis away from
price towards a wider concept of the
total cost of ownership.
This idea is based upon
the fact that with many product, the customer will incur many costs other than
the initial price over the lifetime of the product. Thus in buying a motor car
there are significant costs other than
the initial price over the lifetime of the product. Thus in buying a motor
car there are significant cost beyond the
‘sticker price’ such as running cost, insurance, service and depreciation.
The Korean car manufacturer Daewoo has
achieved considerable success in its European marketing campaign by
highlighting the true cost of ownership of its model as compared to competitors models,
for example.
- Bases of pricing
- Need based pricing
- Cost based pricing
- Market- based pricing
Need based pricing
1. Ability to pay
2.Comparative reasonable price
3. Pricing by norm
4. Poorest can afford
1. Ability to pay:
the price may be
determined according to the ability of the consumer to pay. This method of
pricing is used in the pricing of state health service, some of the schooling service, housing provided by
government or public sector companies, etc..
2. Comparative reasonable price:
In some cases,
price Is determined by using a comparative and reasonable ‘open market’ price
as reference.
3. Pricing by norm:
A norm may be
developed. For example food in an institutional cafeteria may be priced on the
basis of a paisa per calorie norm.
4. Poorest can afford:
sometimes
pricing of an essential commodity or
service is done on the basis that the poorest section of the society should be
able to afford the product. Rationed sugar or grain and controlled cloth are
priced based on such consideration.
Cost based pricing
Cost- based pricing can
be done on the basis of full costs or variable cost. Full –cost pricing is
simple if costs are known with accuracy and certainty. However, this type of
pricing should be used with caution because the demand may not be equal to
targeted output. Variable-cost pricing is used in special cases where it is
desirable to stimulate demand and generate some contribution towards fixed
overheads which are irreducible in the short run.
For example,
readymade garments which go out of fashion are often sold at cut prices so as
to recover the direct variable costs and may contribute a little to the
overheads.
Market based pricing
Any pricing policy which takes demand factors
into consideration and seeks to maximize revenues or profits is called market
based pricing is fraught with uncertainties of demand estimation and market
response, the problem is often divided into small, structured manageable steps,
each of which the executive can hope to tackle with judgment. The following
steps may be used:
- Selection of target markets for the product under consideration.
- Choosing a product image consistent with the product quality and target consumers.
- Composing a marketing mix to achieve desired image and position.
- Selecting a broad pricing strategy consistent with above steps.
5. Arriving at a specific price
which judgmentally appears to be the
profit- maximizing price.
Conclusion
The pricing
decision is one of the most important issues to be faced by the marketing
Manager. Almost every market is influenced
to some extent or another by the relative price of the products that compete in
that market.
When customer buy
products they are making choices based upon
their perception of the relative value of competing offers. The maximum
price at which a product or service can
be sold can be no greater than its perceived value.
In this chapter we have
proposed that price should be related to the value of benefits that our product
or service delivers. Techniques such as trade off analysis can be utilized to
assist in reaching pricing decisions, particularly in the valuation of
benefits.
BIBLIOGRAPHY
Philip kotler
Gary Armstrong
Prentice hall of India private limited,
New Delhi
2. Marketing management
Crenifield school of management
Nikhilesh
Dholakia
Rakesh Khurana
Labdhi Bhandari
Abhinandan K JAin
Macmillan India limited
4. Product management in India
Ramanuj Majumdar
prentice hall of India private limited, New
Delhi
5. Principles of marketing
Philip kotler
Gary Armstrong
prentice hall of India private limited, New
Delhi
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