Pricing Strategy

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Pricing Strategy
Steps in Setting Price:
Following are the steps in setting price for a product:
1. Selecting the pricing objectives;
2. Determining the consumers' demand;
3. estimating costs;
4. Analysing the competitors' costs, prices and offers;
5. Selecting a pricing method; and
6. Selecting the final price.
1. Selecting the pricing objectives: Before selecting a suitable price for a product, the marketer is needed to review the company's objectives. The more clearer the company's objectives, the more easier to set a price. Following are the possible pricing objectives:

a) survival,
b) maximum current profit,
c) maximum market share,
d) maximum market skimming, and
e) product quality leadership.
The decision whether to select high price or low price depends on various factors: (i) Price susceptibility of market,
(ii) Number of competitors in the market, and
(iii) Production cost per unit.
The price level also depends on the type of marketing strategy adopted for the product. The possible marketing strategies are listed below:
(a) Rapid Skimming: It refers to launching a new product at a high level of price with high level of sales promotion. It refers to the product which is of high quality, but not known to the buyers. As soon as the product is known to the buyers, the buyers are willing to purchase them even at a higher price. It may also refer to the market where there are strong potential competitors.

(b) Slow Skimming: It refers to launching a new product at a high price with low level of promotion. It also refers to the situation where the company's brand is known to the buyers and they are willing to purchase them even at a higher price. It may also refer to the market where there are few competitors.

(c) Rapid Penetration: It refers to launching a new product at a low price with high level of promotion. This marketing strategy is adopted where the company's brand is unknown in the market and where there are strong potential competitors. (d) Slow Penetration: Under the slow penetration market strategy, the company

launches a new product at a low level price with low level of promotion. The brand of the company is known and there are few competitors in the market. 2. Determining the consumer's demand: The next step is determining the consumer's demand. At this stage, marketer analyses the different level of demand at different prices. Therefore, it leads to the study of law of demand, elasticity of demand, demand curve, etc. In normal case, the demand and price are inversely related, i.e, the higher the price, the lower the demand, and vice versa. But some goods have 'elastic' or 'inelastic' demand. For example, demand for automobiles, perfumes, etc. are elastic; whereas the demand for rice, flour, eggs, etc. are inelastic. 3. Estimating costs: Demand sets a ceiling on the price and the costs set the floor. The company wants to charge a suitable price covering the cost of production, selling and distribution, and administration. Costs taken into two forms, i.e, variable costs and fixed costs. Variable costs vary directly with the variation in production, but remain fixed per unit of production. However, the fixed cost does not vary with the change in production units, but it does not remain fixed per unit, as the production units varies. In other words, the fixed cost remain fixed in total and decreases in Rs. per unit with the increase in the production units or increases in Rs. per unit with the decrease in the production units.

4. Analysing the competitors' costs, prices and offers: For a marketer, the next step in setting a price for a product is to analyse the costs and prices of the product and after-sales services and different other services offered by the competitors of the company. A deep analysis may enable a marketer to discover the strengths and weaknesses of the competitor and the tastes or the purchasing trends of buyers. 5. Selecting a pricing method: The company has to...
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