Pricing Strategies of Small Scale Industries

Topics: Pricing, Marketing, Marketing mix Pages: 14 (4679 words) Published: March 26, 2012
Pricing Strategies of Small Scale Industries With Reference to Mid Western Development Region of Nepal 1.General Introduction
1.1Pricing Strategies
In general terms price is a component of an exchange or transaction that takes place between two parties and refers to what must be given up by one party (i.e., buyer) in order to obtain something offered by another party (i.e., seller). Yet this view of price provides a somewhat limited explanation of what price means to participants in the transaction. In fact, price means different things to different participants in an exchange: * Buyers’ View – For those making a purchase, such as final customers, price refers to what must be given up to obtain benefits. In most cases what is given up is financial consideration (e.g., money) in exchange for acquiring access to a good or service. But financial consideration is not always what the buyer gives up. Sometimes in a barter situation a buyer may acquire a product by giving up their own product. * Sellers’ View - To sellers in a transaction, price reflects the revenue generated for each product sold and, thus, is an important factor in determining profit. For marketing organizations price also serves as a marketing tool and is a key element in marketing promotions. Price is commonly confused with the notion of cost. Technically, though, these are different concepts. Price is what a buyer pays to acquire products from a seller. Cost concerns the seller’s investment (e.g., manufacturing expense) in the product being exchanged with a buyer. For marketing organizations seeking to make a profit the hope is that price will exceed cost so the organization can see financial gain from the transaction. Pricing involves three major activities: setting the price; adopting the price; and initiating and responding to price change. A firm must set a price for the first time when it develops a new product, introduces its regular products into a new distribution channel or geographical areas, and enters bids on new contract work. In setting a product's price, marketers follow a six-step procedure: (1) selecting the pricing objective; (2) determining demand; (3) estimating cost; (4) analyzing competitors' costs, prices, and offers; (5) selecting a pricing method; and (6) selecting the final price. The final price for a product may be influenced by many factors which can be categorized into two main groups: * Internal Factors - When setting price, marketers must take into consideration several factors which are the result of company decisions and actions. To a large extent these factors are controllable by the company and, if necessary, can be altered. However, while the organization may have control over these factors making a quick change is not always realistic. For instance, product pricing may depend heavily on the productivity of a manufacturing facility (e.g., how much can be produced within a certain period of time). The marketer knows that increasing productivity can reduce the cost of producing each product and thus allow the marketer to potentially lower the product’s price. But increasing productivity may require major changes at the manufacturing facility that will take time (not to mention be costly) and will not translate into lower price products for a considerable period of time. * External Factors - There are a number of influencing factors which are not controlled by the company but will impact pricing decisions. Understanding these factors requires the marketer conduct research to monitor what is happening in each market the company serves since the effect of these factors can vary by market. Companies usually do not set a single price, but rather a pricing structure that reflects variations in geographical demand and costs, market segment requirements, purchase timing, order level, delivery frequency, guarantees, service contracts, and other factors. As a result of discount, allowances and promotional support,...

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