PRICING METHODS AND STRATEGIES:

PRICE -is any value or amount that is equivalent to a product or services given to
a customer.
Price is one of the most important and effective factors that helps companies to
attract customers and keep up their loyalty and satisfaction.

PRICING- simply means determining the price for a good or service. It is an

activity that needs to be repeated and is a continuous process. This continuity is
due to environmental changes and the lack of stability in market conditions,
which justifies the need to repeat this process.

IMPORTANCE OF PRICING- A firm must be able to price its products and

services in such a way that it can generate revenues proportional to the value
provided to the customer.

Pricing objectives or goals give direction to the whole pricing process.

Determining what your objectives are is the first step in pricing.

PRICING OBJECTIVES:
(i) Achieving a Target Return on Investments The most important objective of
a concern is to achieve a certain rate of return on investments and frame the
pricing policy to achieve it. Targets may be short-term or long-term, but it is
important to have a long-term target if the actual profit rates may exceed the
target return.
(ii) Price Stability Stability of prices is an important objective of an enterprise,
but in practice it cannot be achieved due to changing costs. Price is set by one
producer and others follow him, acting as a leader in price fixation.
(iii) Achieving Market Share Market share is the share of a company in the total
sales of a product in the market. Companies aim to achieve a larger share in the
market by selling their products at lower prices. This is done to gain more
reputation and goodwill, as well as to eliminate competitors from the market.
(iv) Prevention of Competition Pricing is an effective way to fight against
competition and business rivalries, as firms cannot afford to charge fewer prices
over a long period of time.
(v) Increased Profits Maximization of profits is one of the main objectives of a
business enterprise. A firm can adopt such a price policy which ensures larger
profits.
PRICING POLICY-A pricing policy is a company's approach to determining the
price at which it offers a good or service to the market. Pricing policies help
companies make sure they remain profitable and give them the flexibility to price
separate products differently.

PRICING POLICY:
Competition: Your business likely understands who its competitors are and what
they charge consumers. Pricing policies heavily consider competition with other
firms in the market.
Profit goals: You might choose a pricing policy to meet a specific profit goal for
your company.
Sales totals: Pricing policies directly affect how many people buy your
company's product and how much they purchase.
Firm health: The financial circumstances of your company may enable it to
prioritize market strategy over immediate profit, or you may need to earn revenue
as soon as possible to remain in business
Flexibility: Companies often react to market shifts by changing prices. Your
company might consider if your initial price enables you to respond to the market
without losing profitability. Government regulation: To protect consumers, the
government regulates the pricing of certain goods and services. Depending on
your industry, this may be irrelevant or a central concern in pricing policy.
Method of price adjustment: Increasingly, companies that sell vast amounts of
goods may automate pricing with specialized software. Pricing policies consider
how your company intends to change prices.
Sales venue: If your company sells the same product in wholesale, retail or
other venues, pricing policies may differ for each one.

What is the price setting? Why is it important?

Price setting is among the most crucial duties in a business. Your prices must
be high enough to compensate the team and keep the company profitable. At the
same time, your prices must be reasonable to attract and convince customers.
And even if you do it right the first time, you must still keep a close eye on market
and cost trends.
What does a good price setting process look like?
Here’s a step-by-step guide on how to set your prices:

1. Choosing a pricing objective. Establishing a pricing objective entails

knowing ahead of time what the firm wishes to accomplish by providing its
products.
2. Evaluation of the target market’s price perception and purchasing power.
Pricing teams and business managers can improve pricing by analyzing the
target market's price appraisal to determine how far above the competition a
firm's prices can be set. This helps the organization to assess the purchasing
power and essentiality of a product to customers.
3. Predicting the demand. Demand for a product is affected by price set levels,
and the price-quantity relationship is inverse, indicating customers are sensitive
to prices.
4. Checking your expenses. All businesses should analyze their manufacturing,
distribution, and other expenses as demand elasticity when establishing prices. It
must set prices that cover all of its costs in order to remain in operation.
5. Monitoring the costs, prices, and offers of your rivals. Companies need to
understand their competitors' costs, prices, and responses in order to set
acceptable prices.
6. Setting your pricing strategy. When deciding on a price, a firm must choose
a pricing technique that takes into account cost considerations, rival prices,
alternative costs, and customers’ assessments of unique product qualities.
7. Applying the set price. The ultimate price will be based on various pricing
systems or the one chosen by the firm during the fifth phase of price setting. But,
every business must weigh a couple of extra factors while setting the final price.
These include psychological pricing, pricing factors from other marketing
aspects, company pricing regulations, and price impacts on third parties.

PRICING STRATEGIES
Pricing strategy in marketing, in simple terms, is adjusting prices according to
market determinants. A pricing strategy considers market conditions, consumer
willingness to pay, competition, trade margins, costs incurred, etc. Pricing
involves setting a price for ownership and usage of goods.
PRICING STRATEGIES:

PRICE SKIMMING Skimming pricing strategy is a pricing technique used by businesses

to maximize profit in emerging markets. It is ideal for businesses that are the first to
introduce or market a product or service, making a profit in the early stages until other
competitors enter and supply increases.
PRICING FOR MARKET PENETRATION Penetration pricing is the opposite of price
skimming, where it uses low prices to enter the market. It depends on the ability of the
business to bear losses in the initial years, and is used by big MNCs to gain a foothold
in developing countries.
PREMIUM PRICING Premium pricing strategy involves businesses that create
high-quality products and market them to high-income or net-worth individuals. The key
here is to manufacture unique, high-quality designs and products that convince the
users to pay such huge amounts. The premium pricing strategy targets the luxury goods
market.
ECONOMY PRICING The strategy targets customers who prefer to save money. Big
companies employ the strategy to make customers feel they are in control. Walmart in
the U.S. is an example where they offer deals that please customers. This does depend
on the overhead costs and the value of the products.
BUNDLE PRICING It is a strategy where a business sells a bundle of goods together.
This helps in moving the inventory and selling the stocks that are left over. The strategy
has the potential to make profits or save from losses.
VALUE-BASED PRICING Here, the business decides the price based on the
customer’s valuation of the product’s worth. This is best suited for unique products.
DYNAMIC PRICING Here, the business decides the price based on the customer’s
valuation of the product’s worth. This is best suited for unique products.

PRICING WITHIN A COMPETITIVE INTERNATIONAL MARKET

Pricing on global markets is more difficult than in domestic markets due to the lack of
familiarity with foreign markets and the variety of them. In international markets, pricing
strategies can be challenging due to differences in customer response, government
limits, and competition. To compete effectively, companies should consider pricing, local
conditions, and other factors such as exchange rate fluctuations, currency, government
control, and economic and cultural factors.

A company must have a clear understanding of the international marketing environment

before deciding to expand its activities abroad. Managers must consider external and
internal factors, as well as the political, cultural, linguistic, economic and legal
differences in each market.
ISSUES THAT LIMIT PRICING DECISIONS

INTERNAL FACTORS
Organizational Factors: Two management levels decide the pricing policy, one is the
price range and the policies are decided by the top-level managers while the distinct
price is fixed by the lower-level staff.

Marketing Mix: For implementing a price, the marketing mix needs to be in sync,
without matching the marketing mix, consumers will not be attracted to the price. The
marketing mix should be decisive for the price range fixed, meaning the marketing mix
needs to maintain the standard of the price of the product.

Product Differentiation:In today’s market, it is uncommon to find a unique product,

hence the differentiation lies in the nature, feature and characteristic of the product. The
added features like quality, size, color, packaging, and its utility all force the customers
to pay more price regarding other products.

Cost of the Product: Cost and Price are closely related. With the cost of the product,
the firm decides its price. The firm makes sure that the price does not fall below the cost
lese they will run on losses. Cost of the price includes the input cost that a company
spends on raw materials, wages for laborers, advertisement cost, promotion cost and
salaries for the employees.

EXTERNAL FACTORS

Competition: The prices are required to be competitive without any compromise on the
quality of the product. While in a monopolistic market, the prices are fixed irrespective of
the competition.

Demand: The market demand of a product has an impact on the price of the product, if
the demand is inelastic then a higher price can be fixed, if the demand is highly elastic
then less price is to be fixed. When the demand for the goods is more and the supply of
the goods is constant, the price of the goods can be increased and if the demand for the
goods decreases the price of the goods should be decreased to survive in the market.

Supplies: If the supplies condition, the easy availing option of the raw materials are
available, then the price of the product can be moderate. Once, the raw materials
supply price heightens then the price also rises.In the period of recession, price is
lowered so that easy purchase is guaranteed. While in boom periods, prices shoot up
high as now they can earn profit.
Promotion Mix: Push Strategy & Pull Strategy

Promotion Mix - A blend of various promotional tools that companies use to

communicate with their target audience.

Push Strategy- Company promotes its products or services to wholesalers, retailers,

or other intermediaries in the distribution channel to encourage them to stock and sell
the product.

● Taking the product directly to the customer via whatever means, ensuring the
customer is aware of your brand at the point of purchase. 6 "Taking the product to the
customer."
● Create demand for the product at the distribution level, which will, in turn, generate
demand at the consumer level.
● Effective for products that have a short shelf life or are seasonal.

Examples of Push Strategy:

❑ Trade show promotions to encourage retailer demand
❑ Direct selling to customers in showrooms or face to face
❑ Negotiation with retailers to stock your product
❑ Efficient supply chain allowing retailers an efficient supply
❑ Packaging design to encourage purchase
❑ Point of sale displays

Push Strategy Advantages

❖ Useful for manufacturers seeking distributor for product promotion.
❖ Useful for those manufacturing or those selling low value items as a distribution who
is likely to place bulk items.
❖ Creates product exposure in potentially large retail environments.
❖ Good way to test new products in the market.

Push Strategy Disadvantages

❖ The distributor may source alternative products (cheaper, faster delivery) once your
product has established the market need.
❖ Distributors may not organize a formal contract, so no guarantee of regular orders.
❖ Distributors may demand financial contribution towards promotion.
❖ Distributors may demand lower prices to fit in with their promotional campaign. ❖
Distributors can establish dependence and then request price reductions
❖ Distributors can demand lengthy credit terms.
Pull Strategy- A company promotes its products or services directly to the end
consumer to create demand for the product at the consumer level.

● Motivating customers to seek out your brand in an active process.

"Getting the customer to come to you."
● Create brand awareness and loyalty among the consumers, which will, in turn,
generate demand at the distribution level.
● Effective for products that have a long shelf life or are not seasonal.

Examples of Pull Strategy:

❑ Advertising and mass media promotion

❑ Word of mouth referrals
❑ Customer relationship management
❑ Sales promotions and discounts

Pull Strategy Advantages

❖ Direct contact with customers.
❖ Instant payment as customers do not have credit facilities and pay online or in store
at the checkout.
❖ Greater margins as no discount needed.
❖ Customers can generate ideas for new product development.
❖ Ideal for premium priced products.

Pull Strategy Disadvantages

❖ Greater administration required in-house to fulfill customers’ orders.
❖ Many smaller and one-off orders.

Significant Role of Management Accountants in Push/Pull Strategy

✓ Analyze the costs and benefits of each strategy.
✓ Recommend the most appropriate strategy based on the company's objectives and
budget.
✓ Monitor the effectiveness of the promotional strategy and adjust as necessary to
ensure that the company is achieving its goals.

Establishing an Effective Promotional Mix:

1. TARGET AUDIENCE
2. NATURE OF ITS PRODUCTS AND SERVICES.
3. BUDGET
4. MARKETING OBJECTIVES
Elements of Promotion Mix:

● Advertising -A paid form of promotion, where companies use mass media such as
TV, radio, print, billboards, and online ads to reach a large audience.
● Personal Selling -One-on-one interaction between a company's sales representative
and a customer, with the goal of convincing the customer to make a purchase
● Sales Promotions - Short-term incentives that companies offer to customers to
encourage them to make a purchase, such as discounts, coupons, rebates, free
samples, and contests.
● Public Relations -Managing the relationship between a company and its
stakeholders, including customers, investors, and the media.
● Direct Marketing- Reaching out to customers directly through email, mail, phone, or
text message.

Importance of Promotion Mix

➢ Create brand awareness and loyalty
➢ Generate demand for its products or services
➢ Increase sales and profits

Factors Affecting Promotion Mix:

● Target audience- The promotion mix should be tailored to the characteristics of the
target audience, such as their age, gender, income, and buying behavior.

● Product characteristics - The nature of the product, such as its complexity, price,
and level of brand awareness, can also affect the promotion mix.

● Competitive Environment - The level of competition in the market can impact the
promotion mix. In a highly competitive market, businesses may need to invest more in
advertising and sales promotion to stand out from their competitors.

● Budget - The available budget can also influence the promotion mix. Businesses with
limited budgets may need to rely more on low-cost promotion tools like social media and
public relations.

● Legal and ethical considerations- Businesses must also consider legal and ethical
issues when selecting their promotion mix.
Elements a Company Should Consider While Formulating a Marketing
Programme

● Target market: A company should clearly identify its target market, including
demographic, geographic, and psychographic characteristics, to tailor its marketing
program to the needs and preferences of its potential customers.
● Product: A company should develop a product or service that meets the needs and
wants of its target market. This includes determining the product's features, benefits,
and positioning in the market.
● Price: A company should set a price that is competitive, but also reflects the value of
the product or service to its target market.
● Promotion: A company should select appropriate promotion tools to communicate
the benefits of its product or service to the target market.
● Place: A company should ensure its product or service is available in the right place
at the right time, through the appropriate channels of distribution.
● Competitive environment: A company should analyze the competitive environment
to understand the strengths and weaknesses of its competitors and identify
opportunities to differentiate itself in the market.
● Budget: A company should allocate its marketing budget appropriately, based on the
goals of the marketing program and the available resources.
● Evaluation: A company should monitor and evaluate the effectiveness of its
marketing program regularly to make necessary adjustments and ensure the program is
achieving its goals.

How to Use Promotional Mix

➢ Determine its marketing objectives and budget.
➢ Identify its target audience.
➢ Select the most appropriate promotional tools to reach that audience.
➢ Monitor the effectiveness of the promotional mix.
➢ Make adjustments as necessary to ensure that it is achieving its marketing
objectives.

Enterprises that uses Push and Pull Strategy:

BRILLIANT SKIN
JOLLIBEE
SHOPEE