Unit 4

PRICE
Notes

BBA Semester 2
Subject – Principles of Marketing Management
Prepared By: Prof. Devendra Bisen

Topics Covered
1. PRICE
2. PROMOTION
3. MARKETING INFORMATION SYSTEMS
4. CONSUMER BEHAVIOUR
 Price

Meaning of Pricing:
Pricing is a process of fixing the value that a manufacturer will receive in the exchange of services
and goods. Pricing method is exercised to adjust the cost of the producer’s offerings suitable to both
the manufacturer and the customer. The pricing depends on the company’s average prices, and the
buyer’s perceived value of an item, as compared to the perceived value of competitors’ products.
Every businessperson starts a business with a motive and intention of earning profits. This ambition
can be acquired by the pricing method of a firm. While fixing the cost of a product and services the
following point should be considered:

 The identity of the goods and services

 The cost of similar goods and services in the market
 The target audience for whom the goods and services are produces
 The total cost of production (raw material, labour cost, machinery cost, transit, inventory cost
etc).
 External elements like government rules and regulations, policies, economy, etc.,

Objectives of Pricing:

 Survival- The objective of pricing for any company is to fix a price that is reasonable for the
consumers and also for the producer to survive in the market. Every company is in danger of
getting ruled out from the market because of rigorous competition, change in customer’s
preferences and taste. Therefore, while determining the cost of a product all the variables
and fixed cost should be taken into consideration. Once the survival phase is over the
company can strive for extra profits.
 Expansion of current profits-Most of the company tries to enlarge their profit margin by
evaluating the demand and supply of services and goods in the market. So the pricing is fixed
according to the product’s demand and the substitute for that product. If the demand is high,
the price will also be high.
 Ruling the market- Firm’s impose low figure for the goods and services to get hold of large
market size. The technique helps to increase the sale by increasing the demand and leading
to low production cost.
 A market for an innovative idea- Here, the company charge a high price for their product and
services that are highly innovative and use cutting-edge technology. The price is high because
of high production cost. Mobile phone, electronic gadgets are a few examples.

Factors Influencing Pricing

Internal factors:

 Objectives relating to the mission statement and corporate objectives, e.g. does the firm
want to profit maximise or seek market share?
 Liquidity requirements may mean that a firm will set price low to generate higher sales levels
and cash availability.
  The image required by the firm may underpin the pricing strategy. A firm wanting to be seen
as a premium product will attempt to charge a premium price if they can be persuade their
target market that the product has a unique selling proposition and is fundamentally superior
to its rivals.
 Management attitudes to risk and growth. Traditional management may be more
conservative in pricing decisions.

The mission statement is likely to be the basis of pricing decisions.

External factors:

 Pricing decisions by competitors.

 Economic conditions will influence what customers are prepared to pay.
 High barriers to entry will allow prices to be set at a higher level than markets which are
vulnerable to new, leaner competitors.
 Pricing will change as a product moves through its life cycle.
 Regulation may play an important role in price setting in certain industries such as utilities
where government regulators may have the power to restrict price increases or even demand
reductions.

What is Pricing Method?

Pricing method is a technique that a company apply to evaluate the cost of their products. This
process is the most challenging challenge encountered by a company, as the price should match the
current market structure and also compliment the expenses of a company and gain profits. Also, it
has to take the competitor’s product pricing into consideration so, choosing the correct pricing
method is essential.

Types of Pricing Method:

The pricing method is divided into two parts:

 Cost Oriented Pricing Method– It is the base for evaluating the price of the finished goods,
and most of the company apply this method to calculate the cost of the product. This method
is divided further into the following ways.
 Cost-Plus Pricing- In this pricing, the manufacturer calculates the cost of production
sustained and includes a fixed percentage (also known as mark up) to obtain the selling
price. The mark up of profit is evaluated on the total cost (fixed and variable cost).
 Markup Pricing- Here, the fixed number or a percentage of the total cost of a product
is added to the product’s end price to get the selling price of a product.
 Target-Returning Pricing- The company or a firm fix the cost of the product to achieve
the Rate of Return on Investment.
 Market-Oriented Pricing Method- Under this category, the is determined on the base of
market research
 Perceived-Value Pricing- In this method, the producer establish the cost taking into
consideration the customer’s approach towards the goods and services, including
other elements such as product quality, advertisement, promotion, distribution, etc.
that impacts the customer’s point of view.
  Value pricing- Here, the company produces a product that is high in quality but low in
price.
 Going-Rate Pricing- In this method, the company reviews the competitor’s rate as a
foundation in deciding the rate of their product. Usually, the cost of the product will
be more or less the same as the competitors.
 Auction Type Pricing- With more usage of internet, this contemporary pricing method
is blooming day by day. Many online platforms like OLX, Quickr, eBay, etc. use online
sites to buy and sell the product to the customer.
 Differential Pricing- This method is applied when the pricing has to be different for
different groups or customers. Here, the pricing might differ according to the region,
area, product, time etc.

What is Promotion? Types of Promotion

Meaning of Promotion
“What is Promotion?” Promotion is a marketing tool, used as a strategy to communicate between
the sellers and buyers. Through this, the seller tries to influence and convince the buyers to buy their
products or services. It assists in spreading the word about the product or services or company to
the people. The company uses this process to improve its public image. This technique of marketing
creates an interest in the mind-set of the customers and can also retain them as a loyal customer.
Promotion is a fundamental component of the marketing mix, which has 4 Ps: product, price, place,
and promotion. It is also an essential element promotional plan or mix, which includes advertising,
self and sales promotion, direct marketing publicity, trade shows, events, etc.
Some methods of this procedure contain an offer, coupon discounts, free sample distribution, trial
offer, buy two items in the price of one, contest, festival discounts, etc. The promotion of a product
is important to help companies improve their sales because customers’ reaction towards discounts
and offers are impulsive. In other words, promotion is a marketing tool that involves enlightening
the customers about the goods and services offered by an organization.

Explain the concept of Promotion Mix.

Meaning of promotion mix

 It refers to the sum of promotional tools that are used by the marketer to inform and
persuade the buyers to buy the product.
 These tools/elements are used in different combinations depending upon the necessity of
information.

Tools / Elements of the promotional mix

Advertising
Advertising means to advertise a product, service or a company with the help of television, radio or
social media. It helps in spreading awareness about the company, product or service. Advertising is
communicated through various mass media, including traditional media such as newspapers,
magazines, television, radio, outdoor advertising or direct mail; and new media such as search results,
blogs, social media, websites or text messages.

Direct Marketing
Direct marketing is a form of advertising where organizations communicate directly
to customers through a variety of media including cell phone text messaging, email, websites, online
adverts, database marketing, fliers, catalog distribution, promotional letters and targeted television,
newspaper and magazine advertisements as well as outdoor advertising. Among practitioners, it is also
known as a direct response.

Sales Promotion
Sales promotion uses both media and non-media marketing communications for a pre-determined,
limited time to increase consumer demand, stimulate market demand or improve product availability.

Personal Selling
The sale of a product depends on the selling of a product. Personal Selling is a method where companies
send their agents to the consumer to sell the products personally. Here, the feedback is immediate and
they also build a trust with the customer which is very important.

Public Relation
Public relation or PR is the practice of managing the spread of information between an individual or
an organization (such as a business, government agency, or a non-profit organization) and the public.
A successful PR campaign can be really beneficial to the brand of the organization.

Promotion Mix – 5 Possible Objectives

1. Build Awareness
2. Create Interest
3. Provide Information
4. Stimulate Demand
5. Reinforce the Brand

Promotion Mix – 6 Major Factors that Helps Marketing Manager in Deciding the Promotional Mix

1. Stage of a Product Life Cycle

2. Type of Product
(a) Consumer Goods
(b) Industrial Goods
3. Target of Promotion
(a) Promotion to Wholesalers
(b) Promotion to Retailers
(c) Promotion to Industrial Consumers
(d) Promotion to Final Consumers
4. Size of Budget
5. Push and Pull Strategy
6. Organisational Philosophy

Marketing Information Systems

CONSUMER BEHAVIOUR
Consumer Behaviour is the study of how individual customers, groups or organizations select, buy,
use, and dispose ideas, goods, and services to satisfy their needs and wants. It refers to the actions
of the consumers in the marketplace and the underlying motives for those actions.
Importance of Studying Consumer Behaviour:
1. Modern Philosophy: It concerns with modern marketing philosophy – identify consumers’ needs
and satisfy them more effectively than competitors. It makes marketing consumer-oriented. It is the
key to succeed.
2. Achievement of Goals: The key to a company’s survival, profitability, and growth in a highly
competitive marketing environment is its ability to identify and satisfy unfulfilled consumer needs
better and sooner than the competitors. Thus, consumer Behaviour helps in achieving marketing
goals.
3. Useful for Dealers and Salesmen: The study of consumer Behaviour is not useful for the company
alone. Knowledge of consumer Behaviour is equally useful for middlemen and salesmen to perform
their tasks effectively in meeting consumers’ needs and wants successfully. Consumer Behaviour,
thus, improves performance of the entire distribution system.
4. More Relevant Marketing Programme: Marketing programme, consisting of product, price,
promotion, and distribution decisions, can be prepared more objectively. The programme can be
more relevant if it is based on the study of consumer Behaviour. Meaningful marketing programme
is instrumental in realizing marketing goals.
5. Adjusting Marketing Programme over Time: Consumer Behaviour studies the consumer response
pattern on a continuous basis. So, a marketer can easily come to know the changes taking place in
the market. Based on the current market trend, the marketer can make necessary changes in
marketing programme to adjust with the market.
6. Predicting Market Trend: Consumer Behaviour can also aid in projecting the future market trends.
Marketer finds enough time to prepare for exploiting the emerging opportunities, and/or facing
challenges and threats.
7. Consumer Differentiation: Market exhibits considerable differentiations. Each segment needs
and wants different products. For every segment, a separate marketing programme is needed.
Knowledge of consumer differentiation is a key to fit marking offers with different groups of buyers.
Consumer Behaviour study supplies the details about consumer differentiations.
8. Creation and Retention of Consumers: Marketers who base their offerings on a recognition of
consumer needs find a ready market for their products. Company finds it easy to sell its products. In
the same way, the company, due to continuous study of consumer Behaviour and attempts to meet
changing expectations of the buyers, can retain its consumers for a long period.
9. Competition: Consumer Behaviour study assists in facing competition, too. Based on consumers’
expectations, more competitive advantages can be offered. It is useful in improving competitive
strengths of the company.
10. Developing New Products: New product is developed in respect of needs and wants of the target
market. In order to develop the best-fit product, a marketer must know adequately about the
market. Thus, the study of consumer Behaviour is the base for developing a new product
successfully.
11. Dynamic Nature of Market: Consumer Behaviour focuses on dynamic nature of the market. It
helps the manager to be dynamic, alert, and active in satisfying consumers better and sooner than
competitors. Consumer Behaviour is indispensable to watch movements of the markets.
12. Effective Use of Productive Resources: The study of consumer Behaviour assists the manager to
make the organisational efforts consumer-oriented. It ensures an exact use of resources for
achieving maximum efficiency. Each unit of resources can contribute maximum to objectives.
Factors Influencing Consumer Behaviour:
1. Economic Factors: Price, Income, Distribution of Income, Competition with substitute, utility and
Consumer preferences are the factors categorised as Economic factors.
2. Social Factors: Culture, Attitude of society, social values, Life-style, personality, Size of family,
Education, health standards are the factors categorised as Social factors.
3. Psychology: It decides the personality, taste, attitudes of individuals or groups, life style,
preferences especially on occasions like marriage. The demonstration influence is also dependent
upon psychology of an individual.
4. Anthropology & Geography: Climate, region, history all effect, consumer behaviour. In hot
countries like India certain products which keep us cool like squashes, sarbatas, are demanded but
they have no demand in cold regions. Culture is also influenced by climate.
5. Technology: In case of equipment’s whether for consumer use or industrial use is affected by
technological innovations and features. Even in case of perishable goods the shelf life etc are
determined by technological developments. Innovations and introduction of new product also
depends upon technological development.
6. Others: Knowledge-technical or otherwise and information. Government decisions, laws,
distribution policies, production policies have also big effect on consumer behaviour.

Advantages of Study of Consumer Behaviour:

1. Saves from Disaster
2. Helps in Formulating Right Marketing Strategy
3. Segmentation of Market is easier
4. Helps in Development of New Products
5. Helps in Product Orientation
6. Helps in Reorientation of Packaging
7. Helps Consumers to Study their Behaviour
Limitations of Study of Consumer Behaviour:
1. Inconsistency
2. Limited Buyer Interest
3. Social and Cultural Influences
4. Applying Stimuli