BM/U3 Topic 4 Price and Pricing Decision for Business Markets: Pricing Process
Some of the major steps involved in price determination process are as follows:
(i) Market Segmentation
(ii) Estimate Demand
(iii) The Market Share
(iv) The Marketing Mix
(v) Estimate of Costs
(vi) Pricing Policies
(vii) Pricing Strategies
(viii) The Price Structure.
Decisions on pricing are taken in the light of marketing opportunities, competition and many other valuables influencing pricing.
The Price decision must take into account all factors affecting both demand price and supply price.
(i) Market Segmentation:
In market segments, marketers will have firm decisions on:
(a) The type of products to be produced or sold.
(b) The kind of service to be rendered.
(c) The costs of operations to be estimated.
(d) The types of customers or market segments sought.
(ii) Estimate Demand:
Marketers will estimate total demand for the product based on sales forecast, channel opinions and degree of competition in the market. Prices of comparable rival products can guide us in pricing our products. We can determine market potential by trying different prices in different markets.
(iii) The Market Share:
Marketers will choose a brand image and the desired market share on the basis of competitive reaction. Market planners must know exactly what his rivals are charging. Level of competitive pricing enables the firm to price above, below or at par and such a decision is easier in many cases.
Higher initial price may be preferred, in case of smaller market share is anticipated, whereas, in the expectation of a much larger market share for the brand, marketer will have to prefer relatively lower price. Proper pricing strategy is evolved to reach the expected market share either through skimming price or through penetration price or through a compromise, i.e., fair trading or fair price- to cover cost of goods, operating expenses and normal profit margin.
(iv) The Marketing Mix:
The overall marketing strategy is based on an integrated approach to all the elements of marketing mix.
(a) Product-market strategy
(b) Promotion strategy
(c) Pricing Strategy
(d) Distribution Strategy
Marketers will have to assign an appropriate role to price as an element of marketing- mix. Promotional strategy will affect pricing decisions.
The design of marketing mix can indicate the role to be played by pricing in relation to promotion and distribution policies. Price is critical strategic element of the marketing mix as it influences the quality perception and enables product or brand positioning. Price is also a good tactical variable. Changes in price can be made much faster than in any other variable of marketing mix. Hence, price has a good tactical value.
(v) Estimate of Costs:
Straight, cost-plus pricing is not desirable always as it is not sensitive to demand. Marketing must take into account all relevant costs as well as price elasticity of demand.
(vi) Pricing Policies:
Pricing policies are guidelines to carry out pricing strategy. Pricing policy may be fixed or flexible. Pricing policies must change and adopt themselves with the changing objectives and changing environment.
(vii) Pricing Strategies:
Strategy is a plan of action to adjust with changing condition of the– market place. New and unanticipated developments such as price cut by rivals, government regulations, economic recession, changes in consumer demand etc. may take place, and then changes all for special attention and relevant adjustments in the pricing policies and producers.
(viii) The Price Structure:
Developing the price structure on the basis of pricing policies and strategies is the final step in price determination prices. The price structure will now define the selling prices for all products and permissible discounts and allowances to be given to distributor’s co-dealers as well as various types of buyers.