Pricing strategy and scenario of “RFL PLASTICS (JUG)

A REPORT ON THE
PRICING
STRATEGY OF RFL
PLASTICS(JUG)
An Analysis of Pricing Scenario
GROUP : CANNONBOLT ,DATE-10th MAY,2013

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A REPORT ON
“Pricing strategy and scenario of “RFL PLASTICS (JUG)”
Course no: 412
Submitted to:
Moutushi Tanha
Assistant Professor
Department of Marketing
University of Dhaka
Submitted by:
Group: CANNONBOLT
B.B.A. (16th
Batch)
Section: B
University of Dhaka
Date of submission: May 10th
, 2013
Name of Members Roll no.
Md .Afshanul Hossain 44
IrfanulHaq 80
Shaikh Md. Rasel 82
Md. Asaduzzaman 162
Md. MurshedulAlam 172
Md. Saddam Hossain 258

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Acknowledgments:
"We would like to thank our course teacher, Moutushi Tanha, for the valuable advice and
support she has given us in the writing of this report. We would also like to thank our librarian
for his attempt to help us. Thanks also to our all group mates for collaboration. Our deepest
thanks go to our internet service providers for good services as well as the Maj. Gen. Amjad Khan
Chowdhuryof the RFLwho referred with precious information which was inevitable to accomplish
this practical research.”

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Letter of Transmittal
Date: May 10, 2013
To
Moutushi Tanha
Assistant Professor
University of Dhaka
Dear Madam,
It is honor and great pleasure for us to present our Project Report on“Pricing strategy of
RFL plastic (jug).”
This report was assigned to us as a partial requirement of the “Pricing policies and procedures”
(course-412) in the 4th
year 1th
semester.
The project program was an experience of rediscovering our potentials and full excitements.
This report has given us an opportunity to apply our theoretical expertise, sharper our views,
ideas, and communication skills, and bridge them with the real world of practical experience,
which will be a good head start for our future professional career.
During the preparation of the report we faced some problems that have been erased out with
your profound lecture and assistance. Without your cooperation and guideline this report
would have been an incomplete one.
Finally, thank you for your supportive thought and kind consideration for formulating an idea.
Lastly we would be thankful once again if you please give your judicious advice on our effort.
Sincerely yours,
The members of
Group- Cannonbolt
University of Dhaka

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Executive Summary
In our entire report we have tried to focus on the pricing strategies practices of RFL plastic (jug) in
Bangladesh. We have divided the topics of the report into different segments. First we have discussed
about the origin of the report, objective and scope of the study, the method of preparing the report,
limitations of the study. Then we have given the theoretical idea about the topics we are going to
discuss so that the reader can understand the topics clearly. Thereafter we have discussed about plastic
industry in Bangladesh in brief. Then we have entered into the core part of the report that encompasses
various perspectives how RFLarrives at their prices and strategies. Finally, we drew a conclusion on the
basis of whole report.

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Table of contents:
Serial no Topics Page
1 Introduction 06
2 Company background 07
3 Introduction of product 07
4 The nature of pricing process 08
5 Critical factor in pricing 09-10
6 Factors affecting pricing decision 10-12
7 Price structure 12-13
8 Price-quality relationship 15-17
9 Allocation of cost 17-19
10 Cost volume relationship 19-22
11 Break-even analysis 23-26
12 Pricing decisions 26-29
13 Retail pricing 29-31
14 Pricing and legal issues 31-33
15 Pricing in international market 33-36
16 Appendices 37

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Introduction
Origin of the Report:
As a partial requirement of BBA Program we are required to study the “pricing policies and
procedures”. In the classroom we get the opportunity to know the theoretical part of the
subject. But without practical orientation it is somewhat difficult to grasp the core concept, we
are required to prepare a report on practical situation, So, in order to enhance the
understanding of the core concept, we are required to prepare a report on practical situation to
understand how to implement and practice the theoretical part in real life situation and for the
social welfare.
Objectives of the study:
General Objective:
The general objective of this report is to find out the pricing strategies, policies and procedures
of RFL
Specific Objectives:
 To measure the usage of core management.
 To identify the importance of cost in pricing decisions
 To identify the level of practices and strategies of the RFL
 To Identify how it affect their work
 To measure the performance
Scope of the Study:
The topic of our report is “Pricing strategies and scenario of RFL”. So the report will only be
applicable for pricing other than the report will not work at all for others. Because we just work
only based on the RFL and internet information.We didn’t use imaginary or irrelevant ideas. All
of our ideas and information based on facts.
Methodology:
The report in this study is basically on inductive one. The report is based on both primary and
secondary information.

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Primary Information:
The primary data have been added from our class lecture and from the books.
Secondary Information:
The secondary information has been extracted from various brochures and prospects of RFL
and company visit information . Other notable information that was used for this report was
the information gathered from internet.
Company Background
RFL Plastics is a sister concern of PRAN-RFL group. The group has a turnover in the vicinity of
USD $0.5 billion. Primarily Rangpur Foundry Ltd (RFL) was founded by Maj. Gen. Amjad Khan
Chowdhury(Retd) in 1981 with a vision to leveraging the farmer in irrigation through cast iron
products like centrifugal pump as well as ensuring drinking water through Tube well. After that
it commenced its operation in plastics business in 2003. The factory sites are in company
owned industrial parks of 300,000 sq meters, which is fully equipped with state of the art
injection molding machines with a conversation capacity of over 10,000 tons per month.
RFL Plastics currently utilizes 1200 molds through 250 machines having own tooling facilities.
RFL is a very strong organization of 10,000 employees dedicated to supplying customized and
quality plastic products globally.
Product introduction:
In this report we will only focus on a particular product of RFL plastic –“jug”. RFL has various
types of jug namely-
1. Conical jug
2. Trans blue juice jug
3. Two color jug
4. Beauty jug
5. Blue designed jug

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6. Trans blue decorator
7. Blue design
8. Prism jug
9. Dolphin design jug
10. Trans blue orcid
11. Cristal jug
12. Designed jug
The nature of the pricing process of RFL:
Of all the decisions made by the management of RFL, pricing is undoubtedly the most visible
because it’s direct impact on its performance in the market place and overall level of
profitability. Price of Jug is quite visible in nature as consumers know well what they are paying
for the required product. RFL considers many factors in determining a pricing strategy. One
useful approach categorizes these as intrinsic and extrinsic factors.Intrinsic factors are the
baseline needs, such as costs, product characteristics, and soon, and the regulatory system
which places limitations on how those needs can be met.Extrinsic factors are related to the
economic and operating environment of procurement, including product differentiation,
demand, and the number of firms involved. Besides, there are some factors that contributed to
making the marketplace much more difficult place for RFL to do business:
 Globalization
 Accelerated changes socially and demographically in customers.
 Shifts in public policy
 Technological changes
By considering the customer satisfaction and cost consideration RFL can come about through
the premise that increases in quality resulting in increased customer satisfaction can lead to
reduced costs through improving market place performance .As a result successful pricing
bridges the gap between internal costs and external market demand to achieve a positional
advantage. The strategic options for RFL are defined by:
 Cost structure of the firm: RFL sells provide reasonable product with reasonable price.
 Competitive status of the firm: RFL is the market leader in the plastic industries.
 Marketing strategies based on competition: RFL usually formulates marketing strategies
based on the competitors in the relevant field such TALUKDAR plastic, TANIN plastics
etc.

9
 Organizational capabilities: Being the market leader, RFL possess enough resources that
is their competitive advantage.
Critical factors in the pricing decision of RFL:
 Effective cost information: Management of RFL needs to look carefully at the costs
involved in the allocation of resources to create and define the product. This means not
only manufacturing and distribution cost but special marketing and technological costs.
 Customer valuation: Rather than compete on price alone, marketers of RFL think in
terms of total value as perceived by the customer combination of features and
experiences that create a total customer perception of value. What a customer will pay
for a product or products does not relate solely to physical features or performance as
well as symbolic features. Customers of RFL not only pay for the exactproduct(Jug) price
but also for symbolic features like: durability, stylish design, status and prestige .
price price
features
features
Figure: Conceptualization of providing total value to customers(4)
 Market targets: The total market for RFLplastics(Jug) can be segmented because of the
differences between groups and needs of customers. RFL offers various types of plastic
Jugs including difference in color, shape, design and sizes. These difference may allow
for product and pricing differentials whereby no segment is buying the same product or
paying the same price as another.
 Competitive dynamics: It is important for RFL to know who are their competitors.The
major competitors of RFL areTanin plastics, Talukdar plastics, Bangalplastics,Thai plastic.
It is important for RFL to observe the reaction pattern of the price cut and price increase
Customer
segment
Marketers
competitors
value
value
Cost and
differentiation

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among their competitors. Besides they also observe the previous record of the industry
pattern, capacity and price structure.
 Pricing strategies:
 Scale:RFL observe the size of their the plastics (Jug)purchases pricing separately
for individual customers.
 Consumer knowledge:RFL observes whether their actual and potential
customers are aware of their products.
 Demand:RFL observe how the law of demand is working in case of their
customers. Besides they observe whether price can influence the purchasing
decision of the consumers.
 Information: In this case the marketers are to know about the micro and macro
environment factors of pricing their plastics(Jug).
 Competitive substitute: The major competitors of RFL are Tanin plastics,
Talukdar plastics, Bangalplastics,Thai plastic. RFL constantly compare its price
with these companies.
 Patronage:RFL observe whether customers will favor their competitors for non-
price reasons. In that case RFL consider their product, promotion and place to
fight with.
Factors Affecting Pricing Decision
Pricing the product is one of the important elements in marketing mix. Bresnahan (1989)
argued that until recently it has been one of the most neglected areas. Even today, pricing in
some firms is simply based on the concepts of cost, market position, competition and necessary
profits.

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Figure 1: Critical factors that affect the pricing decision
Objectives of the Business: There may be various objectives of the firm such as getting a
reasonable rate of return, to capture the market, maintenance of control over sales and profits
etc. A pricing policy thus, should be established only after proper consideration of the
objectives of the firm.
Cost of the Product:Kullback (1959) analyzed cost and price of a product are closely related.
Normally, the price cannot or shall not fix below its cost (including the product, administrative
and selling costs). Price also determines the cost.
Market Position: The prices of the products of different producers are different either because
of difference in quality because of the goodwill of the firm. A reputed concern may fix may fix
higher prices for its products on the other hand, a new producer may fix lower prices for its
products. Competition may also affect the pricing decisions.
Competitors Prices: Competitive conditions affect the pricing decisions. The company considers
the prices fixed and quality maintained by the competitors for their products.
Distribution Channels Policy: Miller (1994) discussed that the nature of distribution channels
used and trade discounts which have to be allowed to distributors and the distribution
expenses also affect the pricing decisions.
Price Elasticity and Demand Elasticity: Price elasticity affects the decisions of price fixation.
Price elasticity means the consequential change of demand for the change for the change in the
Factors
Affecting
Pricing Decision
•Objectives of the Business
•Cost of the Product
•Market Position
•Competitors Prices
•Distribution Channels Policy
•Price Elasticity and Demand Elasticity
•Product’s Stage in the Life Cycle of the Product
•Product Differentiation
•Buying Patterns of the Consumers
•Economic Environment
•Government Policy

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prices of the commodity. If demand is elastic, the firm should not fix high prices rather it should
fix lower prices than that of the competitors.
Product’s Stage in the Life Cycle of the Product:Mittelhammer and Cardell (1997) claimed that
Pricing decision is affected by the stage of product in its life-cycle. In the introductory stage of
the product, it is the price strategy which determines the price of the product.
Product Differentiation: The price of the product also depends upon the characteristics of the
product. In order to attract the customers different characteristics are added to the product
such as quantity, size, color, alternative uses, etc.
Buying Patterns of the Consumers: If the purchase frequency of the product is higher, lower
prices should be fixed to have a low profit margin. It will facilitate increasing the sale volume
and the total profits of the firm (Bresnahan and Peter, 1991).
Economic Environment: In recession period, the prices are reduced to a sizable extent to
maintain the level of turnover. On the other hand, the price and increased in boom period to
cover the increasing cost of production and distribution.
Government Policy: Price discretion is also affected by the price control by the government
through enactment of legislation when it is thought proper to arrest the inflationary trend in
prices of certain commodities.
Price structure:
Price structure is defined as a series of the price levels that represent how a product will be
priced.Generally price of a product/product varies with market-segmentation. The more sub-
segments the more marketers can serve their customers properly.In this case RFL can serve its
customers properly as they have some sub-segments of their customers on the basis of
products features. Here they get some benefits:
 Greater flexibility in pricing
 Rapid adjustment to competitive trends in the market place
 Enhancement of market segmentation strategies

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Constraints on pricing practice:
Although market valuation and costs of products are major pricing determinants for RFL.Still
there some other constraints:
 Industry membership: As a market leader RFL has to always apply
defensive pricing strategy.
 Structure of the marketplace: The more competitive the industry, the
easier is the pricing decision. This has resulted in the increase use of
different forms of non-price competitions for RFL such as customer
satisfaction, product design and status symbol.
 General economic conditions: It is difficult for RFL to increase price during
the time of recession as the purchasing power of consumer at that time is
not good enough to pay increased prices for the its product(Jug).
 Legal constraints: RFL has to abide by some legal constraints set by the
government such as: increase in raw materials price.
Market interpretation of price:
Price as a part of marketing mix:
Price as an element of the marketing mix generates revenues to the firm. Effectiveness in
pricing is viewed in terms of product positioning and total profitability. Firm with high relative
quality with relative price has significant return on investment that RFL follows. Marketing
management weigh the behavioral aspects of price and then juggle all the elements of
marketing mix, including price as an effort to attain the goals set forth. The elements of the
marketing mix are synergistic that is the actions of elements taken together increase each
other’s effectiveness. So, price is not an isolated fact rather it’s an accumulated decision.
Effective combinations high of price and quality can produce a favorable strategic position in
turn higher profits . Firms classified as having high relative quality with low relative price report
the highest return on investment; they are followed closely by firms designated as having high
relative quality and high relative price. Interestingly enough, the return on investment for high
quality, high price firms tops that of low quality, low price firms by ,more than a two-to-one
margin or 34% to 15 % .The poorest performance are medium-quality, medium-price firms,
with only 2% return.

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Table: Return on investment as a function of quality and price
Relative price Relative quality
Low(%) Medium(%) High(%) Average(%)
Low 15 11 36 21
Medium 9 2 16 9
High 17 18 34 23
Average 14 10 29 17
Price as purchasing information:
Price is set for both functional aspects and non-functional aspects by RFL. So, RFL works on the
value seeking customers. They transfers the intangible facts of pricing into tangible facts.
Customers are always concerned about the psychographic features. They also use price to sort
products into group of categories by doing so they lost convey impressions about their
products. Whether or not price provides information to the customer depends upon the
inferred relationship between price and the product and also the reliability of that relationship.
That means the product price of the RFL convey the message that as the price of the products
are high enough for the customer, it conveys that the product provided by the RFL can be
depended upon. RFL associates higher price with better quality and so their pricing is justified
enough.
Usually the greater the variation between brands, the greater the tendency to pay a higher
price as a payment for some identifiable product characteristics. Thus the customers of RFL are
ready to pay a higher price as a payment for some identifiable characteristics compared to
other contemporary brands with RFL. As the social importance of product choice increases, the
relationships and their dependability of price as information increases proportionately. A higher
price by excluding a large portion of the market defines status and differences in that RFLis able
to possess their product.

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Figure: Reliability of price/quality relationship(9)
LowHigh
High substitutability
High
Consumer interpretation of the price of RFL:
Time implications: Customers always consider delays in getting product a time cost. As a result
products that are readily available command a premium price as a trade-off with time costs.
RFL always strictly maintain their quality with price for their customer’s convenience and
satisfaction.
Psychological implications: It means customers do value some non-economic functions of the
product they get. As a non-economic function, RFL provide the feeling of prestige to their
customers that they reallycare for. So here RFL make their full justification to high quality with
high price.
The Price-Quality Relationship:
Research shows that the consumer's perception of product quality is related closely to the
item's price. The higher the price of the product, the better its perceived quality.RFL is taking
the advantage of high price here. They provide high quality product with high price and
Necessities Convenience
Staples
Shopping goods
or products
Positional goods or
products

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customers are willing to pay for this high price for high quality product. It is possible to measure
quality, then quality difference can be compared to price differences. Comparative value can be
determined by following formula:
=
–
Where is the comparative value or the relative differences in value between a high-priced
product (H) and the lower price product (L) is the quality dimension of (H), QLis the quality
dimension of L, is the price of L.
Here is a comparison of RFL with other competitive brands based on quality rating and list price
of plastic Jug:
Brand Quality rating List price(jug)BDT
RFL 97 150
Talukdar 89 140
Tannin 76 140
Bengal 71 130
Rahamat 63 125
Thai 50 100
Figure: Quality rating and list price of brands(8)
Factors considering for fixing price by RFL:
One of the determining factors for plastic product prices is the production cost.Other reasons
are as follows:
a) Cost of raw materials
b) Machineries cost
c) Advertising and promotional cost
d) Competitors reaction
e) Distribution cost
Price adjustment by RFL:
(a) Changes in operating costs and revenue since the last price adjustment;

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(b) Forecasts of future costs, revenue and return;
(c) The need to provide the producer with a reasonable rate of return;
(d) Public acceptability and affordability; and
(e) Quantity and quality of service provided.
Role of costs in pricing:
RFLalways tries to reduce the price, extend the operation and improve the product. They
reduce the price to a point where they believe more will result. The new price forces cost down.
Using cost to determine price may be scientific in the narrowest sense, but not in the broader
sense.
Impact of cost on pricing:
RFLtreats cost management as synonymous with pricing in elaborating the four P’s (product,
price, place, promotion) of marketing in strategy formulation. A watchful eye on cost and how
they affect pricing and in turn margins is necessitated by two conditions.
global competition
constant streams of new ways to contain cost and become more cost effective market
RFLtook their all salespeople off the road and made them online based. The result was a 10%
reduction in selling expense with a doubling of sales volume.
Cost structure pricing:
While some cost can be easily detected, calculated and allocated to the price calculations of the
RFL plastic(jug), others may either escape the attention of the management or be of such a
nature that the prediction of their probable impact on price is almost impossible to make with
any degree of accuracy. Examples include
1. service liability cost
2. recall cost
3. Costs of services rendered unsalable by noncompetitive circumstances.
Allocation of cost:
As market becomes more complex, product lines proliferate and competition becomes
increasingly diverse, firms cannot afford allocation scheme that paint vague and inaccurate
portrayals of their respective cost structures.

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There are two approaches of cost allocation followed by RFL
 allocation of cost on the basis of activities
 allocation of cost key determinants of the competitive advantage
Forecasting cost;
Past cost are less important than current costs and current costs are less important than what
costs will be in the future.
Steps followed by RFL —
Cost concept:
Looking at cost from the standpoint of their use in pricing, normally two types of questions are
asked by management body of RFL. They are-
 What type of costs is involved?
Variable cost
Fixed cost
 What costs have the greatest impact on customer?
Features or benefits
Individually or collectively
Reflection in pricing
Determination of the relative positions of the cost categories currently
Forecast the change in the relative cost position
Forecast the extent of changes within each of the respective categories

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Fixed and variable cost:
Fixed costs are the cost of being in business for a period of time and only vary time to time.
Fixed costs are, as the name suggests, those costs that you will incur regardless of how much
business you do. A typical example would be office space or salary costs of permanent
members of staff. While all costs are actually variable over time, the essence is to include those
costs which it is very difficult to remove and that don’t vary widely according to how much
business a company do.
Cost-volume relationship:
Cost
Volume
Fixed cost
Variable cost
Figure :cost –volume relationship(10)
From the above graph,we can conclude that if RFL produces more number of jugs, the variable
cost will be distributed among the produced volume which will ultimately result in cost
reduction in every product(jug).
Structural factors influencing cost:
The more predominant structural factors affecting product cost can be grouped under several
headings.
These include:
I. Economies associated with volume
II. Economies of scope

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III. Core linkages
IV. Outsourcing and balancing
Economies associated with volume:
There are several reasons why utilization of capacity impact product cost.
The variable cost accompanying increasing volume are relatively small or
inconsequential in comparison with fixed cost
The saving from purchasing needed materials, supplies and services in quantity
The savings from utilization of unproductive time
More efficient utilization of manpower in all areas of the firm
Limitations of economies of scale:
Growing heterogeneity of most markets
Growing diversity
Lack of growth in markets
Saturated markets
Economies of scope:
Different between volume and variety
Emphasis on software rather than hardware
Production of multiple products by using same machinery
Emphasis on specialized machinery and equipment
High volume of production
Experience curve
Unitcost
Accumulated volume
Figure: a typical experience curve(11)

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Core linkages:
Core linkages are relationships between activities where the way one is performed materially
impacts cost of performing the other.
In RFL the purchase of a higher quality raw materials and the use of latest technologies in
production reduces both manufacturing cost and time . Savings from core linkages results from
two factors-
Coordination
Optimization
Basic approaches to pricing:
Actually there are three basic approaches to pricing. They are—
Cost oriented
Demand oriented
Competition oriented
RFL basically follows the cost-oriented approach to pricing.
Cost-oriented pricing:
Cost-oriented pricing is the most elementary pricing method. It involves the calculation of all
the cost that can be attributed to a product whether variable or fixed and then adding to this
figure a desirable markup as determined by management.
Features of cost-oriented approach:
Simplicity
Cost-justification defense of price discrimination
Widely accepted method
Delivering the desired result in a relatively short period of time
Why RFL uses cost-oriented approach?
1. Cost-oriented approaches are defensible on ethical grounds
2. Cost-oriented approaches use readily available data
3. Absence of knowledge more sophisticated technique
4. Industry wide accepted practice

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In following cost-oriented approaches RFL faces some sort of weaknesses.
They are--
Ignoring marketing environment
Incorrect or distorted cost information
The circular reasoning phenomenon
The volume fulfillment assumption
Failure to recognize competitive forces
Overlooking price as a strategic options
Possibility of having to rise price when sales volume falls below expectation
Volume assumptions for purpose of cost calculations:
An important point to bear in mind that changes in volume will affect per unit cost. There are
four different approaches to the question of volume.
An assumption of low volume: this approach is a conservative one. Management is
cautious about the future sales performance of the product and assumes a low volume.
This approach results in higher overhead of per unit output leading to higher prices.
Assuming the continuation of current volume: this approach can be reasonably sound
particularly for industries which experience little or no cyclical fluctuations in their
business. This is applicable only to industries with existing operation and not to new
products and firms.
Using the best estimate of future volume: it is highly optimistic and risky approach. The
weakness of this approach is its dependency on circular reasoning in arriving at the
price. In order to able to forecast future sales, it is necessary to have a price. Per unit
costs are a functions of volume which at this point is unknown.
Using a standard volume approach: standard volume is a projection of unit volume
taking into consideration the varying condition over time in the firm as well as the
cyclical fluctuation in the business condition demand and capacity utilization.
RFL:
Actually RFL maintains a standard volume in the case of projection of unit volume. They
think this approach is designed to be representation of volume that is expected to prevail
under normal or average condition adjusted periodically to reflect to favorable or
unfavorable market condition.

23
Break – even analysis:
A management tool commonly associated pricing is cost-volume analysis or it is commonly
known as break-even analysis. The break- even point is the point where there is no profit or
loss. It is a portrayal or how many units of the product are to be sold if the firm wants to
recover both fixed and variable cost from the sales revenue.
RFL Jug retail price
Variable cost per jug
Unit contribution margin
Total fixed cost
BDT 120
BDT 60
BDT 60
BDT 7500000
Break- even point:
Break – even point
= 125000 units
If the firm’s sales volume fall short one lakh twenty five units, in that case losses will be
incurred. That can be best understood from the following calculations:
Sales (200000 jugs commercial at BDT 120)
Less variable costs (200000 jug at BDT 60)
Contribution
Less fixed costs
BDT 24000000
BDT 12000000
BDT 12000000
BDT 7500000
Profit BDT 4500000
Break- even chart:
Pricing decision can be made using the break- even poinnteither arithmetical or graphic form.
The break – even chart is a graphic representation of the relationships discussed about
i. Cost
ii. Volume

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iii. Price
Taka is shown on the vertical scale on chart and unit produced and sold are shown on the
horizontal scale. Break- even point is the point at which the total revenue line intersects with
the total cost line. Profit and losses can be measured directly on the chart for any volume level.
Profits are measured to the right of the break – even point at any volume are equal to the taka
differences between the total revenue line and the total cost line. Losses on the other hand are
measured to the left of the break- even point at any point are equal the difference in taka
between the total cost line and total revenue line.
The break-even chart for RFL
Profit
130
Break Even point variable cost
120
110 fixed cost
Loss
120 125 130 150
Volume (in lakh)
Profit volume graph:
P
r
i
c
e
i
n
B
D
T

25
In addition to the break-even point chart management may find that a profit volume graph is a
useful graph showing how profits are affected by the changes in the volume produced and sold.
140
Profit
130
120 120 125 130 140 1
Loss Volume(in lakh)
110
Figure : profit volume
Outcome with different pricing alternatives:
By using sensitivity analysis it is possible to have different outcomes by shifting the demand
curve totally or in part to obtain pessimistic, optimistic or the most likely demand estimates.
Price
alternatives
(BDT)
Estimated sales
volume
Total revenue
(millions)
Expected total
cost (millions)
Difference
(millions)
200
150
130
120
100
100000
110000
120000
125000
150000
20
16.5
15.6
24
15
20.1
15
13
23.55
20
(.1)
1.5
2.6
.45
(5)
Demand estimation:
To be able to determine the optimum price when a number of price possibilities exist, one must
obtain an estimate of the responsiveness of the quantity demanded of the product to price
changes. There are a number of methods of estimating demands. The specific condition in the
Profit (in lakh)

26
particular case may require using a different technique or may favor one over another. Each of
these methods have advantages and limitations.
1) Aggregate sales representative estimates
2) Expert estimates
3) Analysis of historical data
4) Surveys of buyer
5) Worth of product’s functional performance
6) Test markets
7) Laboratory experiments
Among these estimations methods RFL actually focuses on the analysis of historical data. Here a
time series is developed. A time series is a set of observations on a variable such as sales
volume in which those observations are arranged in relation to time. RFL actually focuses on
the assumption that relationship between quantity sold and price in past periods can be used
to predict sales at a given prices at a future period.
Pricing decisions:
Pricing environment:
Even though the pricing environment varies from industry to industry there are some basic
objectives and strategies that may apply equally to various industries. RFL attempts to carve out
a niche or small viable market segment that can be addressed with a unique marketing
strategy. RFL follows a segmentation strategy. In segmenting the market, RFL considers the
following characteristics—
o Lifestyle
o Income level
o Geographic location
o Brand personality
o Prestige
o Occupation
o Status
o Life standard
Product portfolio:
Each product and segment is looked upon as having different needs and objectives by RFL.
Differences can be expressed in terms of the following criteria—
i. Life-cycle
ii. Market share
iii. Growth potential and much more.

27
By using the growth share matrix (Boston consulting Group) each product is assigned a strategic
role on the basis of its market growth rate and relative market share. There are four types of
strategic business units.
Stars: stars are those business units having high growth and high share. In RFL the star product
in jug category is Prismjug .
Cash cows: cash cows are those services that have a dominant share of a slowly growing
market. In RFL the cash cow product in jug category is Conical jug.
Question marks: question marks are also known as problem children. These services are
services with low share of fast growing market. In RFL the question mark product in jug
category is Trans Blue Orcid.
Dogs: Dogs are those service units with a low share of a slowly growing market. In RFL Blue
colorjug is termed as dog.
Pricing objectives:
Even though the most logical starting point for pricing would be the company’s objectives, it
appears that RFL has no formal objectives. But in order to cope with the industry trend RFL
maintains some sorts of formal objectives. Objectives of RFL are given below:
i. Achieve a specific target return on investment or on net sales
ii. Maintain or enhance a market share
iii. Meet or prevent competition
iv. Maximize profit
v. Stabilize prices
Pricing strategies:
The price strategies selected by RFL naturally dependent on the objectives the firm has chosen
to pursue. Actually there are verities of strategies present—
1. Skimming:A product pricing strategy by which a firm charges the highest initial price
customers will pay. As the demand of the first customers is satisfied, the firm lowers the
price to attract another, more price-sensitive segment.
Therefore, the skimming strategy gets its name from
skimming successive layers of "cream," or customer
segments, as prices are lowered over time. Two
types are--
 Rapid skimming strategy
 Slow skimming strategy
2. Prestige pricing:Marketing strategy where prices are
set higher than normal because lower prices will hurt
instead of helping sales, such as for high-end

28
perfumes, jewelry, clothing, cars, etc Also. called image pricing.
3. Penetration pricing: A marketing strategy used by firms to attract customers to a new
product or service. Penetration pricing is the practice of offering a low price for a new
product or service during its initial offering in order to attract customers away from
competitors. The reasoning behind this marketing strategy is that customers will buy
and become aware of the new product due to its lower price in the marketplace relative
to rivals. Two parts-
 Rapid penetration strategy
 Slow penetration strategy
4. Expansionistic pricing: Expansionistic pricing is a more exaggerated form of penetration
pricing and involves setting very low prices aimed at establishing mass markets, possibly
at the expense of other suppliers. Under this strategy, the product enjoys a high price
elasticity of demand so that the adoption of a low price leads to significant increases in
sales volumes. Expansionistic pricing strategies may be used by companies attempting
to enter new or international markets for their products. Lower-cost version of a
product may be offered at a very low price to gain recognition and acceptance by
consumers. Once acceptance has been achieved more expensive versions or models of
the offering can be made available at higher prices. The extreme case of expansionistic
pricing, where offerings are made available to the (overseas) market at a price that is
actually less than the cost of production is known as dumping. This practice is closely
scrutinized by governments since it can force domestic producers out of business and
many countries have enacted anti-dumping legislation. Markets that might benefit from
expansionistic pricing strategies include those of magazine and newspaper publishers.
Where low prices (annual subscription rates) attract a large number of subscribers,
publishers can benefit from the higher rates that they are able to charge advertisers for
their advertising ‘space’. Book and CD ‘clubs’ also use expansionistic to attract new
members.
5. Preemptive pricing: Pre-emptive pricing is a strategy which involves setting low prices in
order to discourage or deter potential new entrants to the suppliers market, and is
especially suited to markets in which the supplier does not hold a patent, or other
market privilege and entry to the market is relatively straightforward.
6. Extension pricing: Extension pricing is a strategy where companies set a basic price
across the board for a product or service. Wherever consumers go, the price will be the
same. It covers virtually all costs associated with production, including shipping, taxes,
and other expenses that may arise. This pricing strategy is one among several options
companies can use when they decide on pricing strategies. It has some advantages as
well as drawbacks to consider. The practice has a long and established history.
Consumers may be familiar with some products which are always priced identically, no
matter where they buy them. These companies have an extension pricing policy, and
typically require all their business partners to abide by the strategy. If one business

29
attempts to undercut or mark up, it may lose the right to sell the product. This creates
an obvious incentive to abide by the policy.
Companies use several metrics when establishing extension pricing. They think about
the costs of production, along with expenses associated with packaging, inspecting, and
shipping. In considering these factors, they need to think about remote distribution
locations, because these can add to the costs of shipping. The goal is to generate a
roughly equalized price that will balance these expenses out in the final retail price of
the item to allow retailers to make good on their costs and generate a profit. With an
understanding of the expenses, the company sets an extension price, the cost it wants
customers to pay at the final end of the distribution chain. This allows them to
determine wholesale prices, which subtract a standardized retail markup with some
leeway for shipping costs. Companies with specific pricing agreements may periodically
inspect price lists and audit stores to confirm that they are complying with the
agreement. The consequences for violations can depend on the contract language. For
consumers, this has a clear advantage, because they can buy a product anywhere and
be assured of the same price. Businesses do not always fare as well under extension
pricing. They may not be able to use these products in promotions and sales, for
example, and may be stuck with stock they cannot sell. Demand for the product usually
requires retailers to carry it, and they may use various sales products to increase
revenues, using it as an anchor to draw customers in. If a store carries mattresses with
extension pricing, for example, it could sell sheets and accessories to boost income.
Retail Pricing
There are many outside influences that affect profitability and a retailer's bottom line. Setting
the right price is a crucial step toward achieving that profit. Retailers are in business to make a
profit, but figuring out what and how to price products may not come easily.
Before we can determine which retail pricing strategy to use in setting the right price, we must
know the costs associated with the products. Two key elements in factoring product cost is the
cost of goods and the amount of operating expense.
The cost of goods includes the amount paid for the product, plus any shipping or handling
expenses. The cost of operating the business, or operating expense, includes overhead, payroll,
marketing and office supplies.
Regardless of the pricing strategy used, the retail price of the products should more than cover
the cost of obtaining the goods plus the expenses related to operating the business. A retailer
simply cannot succeed in business if they continue to sell their products below cost.
One Price versus Variable Price:

30
The term one price is a phrase used to mean the price of a good or a service is not subject to
bargaining. The term commonly indicates that an external agent, such as a merchant or the
government, has set a price level, which may not be changed for individual sales. In the case of
governments, this may be due to price controls.
Bargaining is very common in many parts of the world, outside of retail stores in Europe or
North America or Japan, this makes this an exception from the general norm of pricing in these
areas.
One the Other hand, Variable pricing is a form of pricing of products or services as distinct from
a fixed price. Traditional examples include auctions, bargaining, discounts, price skimming,
penetration pricing and 'price shading' (where the seller may vary the price by a certain amount
or percentage as required). Stock markets and foreign exchange markets are based in variable
pricing, with pricing models generally becoming more sophisticated driven in part by reduced
transaction costs using modern information technology; notably examples include yield
management and congestion pricing.
Price Lining:
Price lining, also referred to as product line pricing, is a marketing process wherein products or
services within a specific group are set at different price points. The higher the price of a
product, the higher the perceived quality to the consumer.However, while price lining can be
profitable, it relies on a number of factors to make it work and is not always the best pricing
option for every product or service.
Price Points
Using the price line model, each product or service within a group is set at distinct price points.
Price pointing allows marketers to sell the same product but charge for additional features and
options. For example, a car may come in three different styles: a value model, a standard model
and a limited model. While each model has a different price point, the costlier model is seen as
higher-end when compared to the base model, while both retain the same brand name.
Effect on Consumers
Price lining offers consumers the flexibility of choice. Those seeking additional features or
higher quality are willing to purchase the product at a higher price point, while budget
conscious shoppers or those that just want the basics may go for the lower-priced option.
However, while consumers generally like to have choices, there is a danger that if the higher
price point is not justified, they may disregard the product or service altogether. Therefore, it's
important to set prices according to what consumers are willing to pay.

31
Advantages
Apart from offering purchasing value to consumers, price lining has several other advantages.
Pricing products or services using this method offers companies higher profit without a high
investment. Rather than focusing on offering several different products, marketers can focus on
a single brand, which lowers advertising costs, labor and overhead. Price lining products also
results in reduced inventory, which in turn reduces the cost of storage and upkeep.
Disadvantages
One of the disadvantages of price lining is its narrow focus on cost alone. As a business model,
price lining does not take inflation or consumer purchasing trends into account. A weak
economy, a change in purchasing patterns, or additional fluctuations in the market, may cause
consumers to lean toward the lower-priced products, thus leaving companies stuck with higher-
priced inventory. Also, if the differentiation of benefits between the higher and lower end price
points is unclear or indistinguishable to end consumers, they may avoid the brand altogether.
Pricing and the Legal Issues
Price Discrimination:
Price discrimination or price differentiation exists when sales of identical goods or services are
transacted at different prices from the same provider in a theoretical market with perfect
information, perfect substitutes, and no transaction costs or prohibition on secondary exchange
(or re-selling) to prevent arbitrage, price discrimination can only be a feature of monopolistic
and oligopolistic markets,[3] where market power can be exercised. Otherwise, the moment
the seller tries to sell the same good at different prices, the buyer at the lower price can
arbitrage by selling to the consumer buying at the higher price but with a tiny discount.
However, product heterogeneity, market frictions or high fixed costs (which make marginal-
cost pricing unsustainable in the long run) can allow for some degree of differential pricing to
different consumers, even in fully competitive retail or industrial markets. The effects of price
discrimination on social efficiency are unclear. Output can be expanded when price
discrimination is very efficient.
First degree price discrimination

32
This type of price discrimination requires the monopoly seller of a good or service to know the
absolute maximum price (or reservation price) that every consumer is willing to pay. By
knowing the reservation price, the seller is able to absorb the entire consumer's surplus from
the consumer and transform it into revenues. The seller produces more of his product than he
would to achieve monopoly profits with no price discrimination, which means that there is no
deadweight loss. Examples of where this might be observed are in markets where consumers
bid for tenders, though, in this case, the practice of collusive tendering could reduce the market
efficiency.
Second degree price discrimination
In second degree price discrimination, price varies according to quantity demanded. Larger
quantities are available at a lower unit price. This is particularly widespread in sales to industrial
customers, where bulk buyers enjoy higher discounts.
Additionally to second degree price discrimination, sellers are not able to differentiate between
different types of consumers. Thus, the suppliers will provide incentives for the consumers to
differentiate themselves according to preference. As above, quantity "discounts", or non-linear
pricing, is a means by which suppliers use consumer preference to distinguish classes of
consumers. This allows the supplier to set different prices to the different groups and capture a
larger portion of the total market surplus.
In reality, different pricing may apply to differences in product quality as well as quantity. For
example, airlines often offer multiple classes of seats on flights, such as first class and economy
class. This is a way to differentiate consumers based on preference, and therefore allows the
airline to capture more consumers’ surplus.
Third degree price discrimination
In third degree price discrimination, price varies by attributes such as location or by customer
segment, or in the most extreme case, by the individual customer's identity; where the
attribute in question is used as a proxy for ability/willingness to pay.
Additionally to third degree price discrimination, the supplier(s) of a market where this type of
discrimination is exhibited are capable of differentiating between consumer classes. Examples
of this differentiation are student or senior discounts. For example, a student or a senior
consumer will have a different willingness to pay than an average consumer, where the
reservation price is presumably lower because of budget constraints. Thus, the supplier sets a
lower price for that consumer because the student or senior has a more elastic Price elasticity
of demand (see the discussion of Price elasticity of demand as it applies to revenues from the

33
first degree price discrimination, above). The supplier is once again capable of capturing more
market surplus than would be possible without price discrimination.
Pricing in International Market
Price: A part of the marketing mix:
The price is what the customer pays for buying a solution. It includes direct and indirect costs as
well as opportunity costs.
Direct costs are cash outlays a customer makes in order to obtain something. An example
would be admission to an amusement park. Direct costs are, in many cases, a relatively small
part of the total cost.
Indirect costs are costs associated with obtaining something. An example would be the cost of
riding various rides in a amusement park, food and entertainment along the way etc. The total
of the indirect costs is often more sometimes much more, than the direct cost. The total cost is
obtained by adding the direct and indirect costs.
Opportunity costs are what we give up when we do something. They can have various types of
value sometimes monetary, sometimes not. Opportunity costs include other things you could
be doing instead of going to an amusement park. Examples might include mowing the lawn or
going to a baseball game (which would be non-monetary) and not working overtime on
Saturday in order to go to an amusement park (which would be monetary).
The price the park visitor pays to go to an amusement park is the total of all costs, including
direct, indirect and opportunity costs. The perceived benefits of going to a national park have to
be at least as great as the total of the costs if a potential park visitor is going to make a decision
to go to a park.
Determining the price:
How do you set monetary prices? There are basically two ways. These are cost-based pricing
and value-based pricing. Cost-based pricing is based on the total of all costs associated with
delivering a product or service to a customer. An example of cost-based pricing would be when
an organization identifies all of the costs associated with producing a product or service, adds
them up, adds a margin for profit (in the business sector) and arrives at the "price" the
customer is to be charged. This type of pricing is the "floor" for pricing decisions in that it is as
low as the price can be and still cover all of the costs associated with delivering the product or
service. I'm unaware of applications of this type of pricing in the park service world, unless it
might be applied by concessionaires.

34
Importance of price in marketing mix:
 Price is the amount of money charged for a product or a service, or the sum of
the values that consumers exchange for the benefits of having or using the
product or service
 Price is the only element in the marketing mix that produces revenue.
 Price is also the most flexible element of the marketing mix.
 The most common mistakes in setting prices are;
 pricing that is too cost oriented
 prices that are not revised enough to reflect the market changes
 pricing that does not take rest of the marketing mix into account
 prices that are not varied enough for different products, market segments &
purchase occasions
Factors influencing international pricing:
Factors internal to an international firm—
strategic objectives
 cost leader, differentiation, focus
 gain market share, protect market share, to maintain status quo
 revenue, profit or market share maximization
marketing mix policies
 product, place & promotion
 costs
 short term vs. long term cost focus
 full cost, variable cost, marginal cost pricing
 organizational considerations
 transfer pricing
 cost vs. profit center
Factors external to an international firm
 nature of market (buyer or seller)
 level of market development/sophistication
 market demand and consumers’ ability to buy
 competitive situation & consumer surplus
 product life-cycle-stage
 type of packaging, environmental issues

35
 distribution & marketing costs
 transportation costs
 government policies, tariffs, taxes & other restrictions
 country of origin image
 after-sales service, warranties & guaranties
 exchange rate fluctuation
 environmental factors
Factors contributing the selection of final price:
 Psychological effects of price
 Influence of other marketing mix elements
 Company pricing policies
 Costs
 Impact of price on other parties
 distributors or dealers
 company sales force
 competitors
Managing price escalation in foreign markets:
Rearrange the distribution channel
 length of channel / exorbitant margins
Eliminate costly features (or make them optional)
 no-frills versions - sell core products
Downsize the product
 offer smaller version or a lesser count
Assemble or manufacture the product in foreign markets
 closer proximity to customers - lower costs
Adapt the product to escape tariffs and taxes
 by shifting it to different tax classification
Pricing in inflationary environments:
 Modify components, ingredients, parts and/or packaging materials

36
 Source materials from low-cost suppliers
 Shorten credit terms
 Include escalator clauses in long-term contracts - to hedge against inflation
 Quote prices in a stable currency
 Pursue rapid inventory turnovers
 Draw lessons from other countries
Impact of pricing strategy of RFL on the following sectors:
 Legal aspects
 Ecological aspects
 Political aspects
 Economic aspects
 Socio cultural aspects
 Technological aspects
 Competitive aspects
Legal aspects: actually RFL needs to consider some legal constraints while calculating their product ( Jug)
price. They needs to conduct their manufacturing process in a eco – friendly way.
Ecological aspects:like all other companies RFL is very much conscious about the ecological balance of
the society. That’s why they are trying their best to keep the environment free from pollution. Recently
the have started “go green” campaign to aware people about the ecological balance.
Political aspects: one of the major determinant or obstacle of RFL in order to perform their activities
efficiently is the political condition of the country.
Economic aspects: Economic impact, the direct and secondary costs and benefits of production and the
plastic industry are defined. General methods of approaching plastic industry impact estimation are
presented, along with criteria for evaluating alternative approaches.
Social aspect : Social and cultural factors are important to consider while creating and
implementing a marketing strategy of a company. These often-linked but somewhat different
factors have diverse effects on the decisions of consumers and buyers. Basically, sociocultural
factors are customs, lifestyles and values that characterize a society. More specifically, cultural
aspects include aesthetics, education, language, law and politics, religion, social organizations,
technology and material culture, values and attitudes. Social factors include reference groups,
family, role and status in the society. Small-business owners should be aware of and understand
these factors' connection with buying habits.
Technological aspect:
Internet has brought opportunities as well as challenges for the plastic industry as a whole.
One of the most serious threats from the internet is an opportunity for foreign companies to

37
target consumers directly to sell their products. To counteract the threat of reduced business
due to the Internet, RFL need to use internet marketing to its full potential to target customers
and business opportunities.
Appendices
References:
1. RFL (1981), (online), Available at
http://www.rflbd.com/products.html [Accessed on 7th May, 2013]
2. RFL Plastic Ltd.
Company address
12, r. k. mission road, 1203, Dhaka
Phone
019 12257049
Fax
02 9559415
3. Hanna N., Dodge R. (1997), Pricing policies and procedures, 2/e, Macmillan Press Ltd,
Hampshire.
4. Bresnahan, T. F. (1989): "Studies of Industries with Market Power," in Richard Schmalensee and
Robert Willig, eds., Handbook of Industrial Organization, New York: North Holland
5. Bresnahan, T. F., and Peter C. Reiss (1991): "Empirical Models of Discrete Games," Journal of
Econometrics, 48, 57-81.
6. Kullback, J. (1959): Information Theory and Statistics, New York: John Wiley & Sons.
7. Mittelhammer, R. C., and Cardell, N. S. (1997) "On the Consistency and Asymptotic Normal-ity of
the Data-Constrained GME Estimator in the GLM," Working Paper, Washington State University
8. http://www.google.com/listprice/qualityrating/plasticindustry/bd
Bibliography:
9. Pricing policies and procedures by Nessim Hanna , H.Robert Dodge,
chapter-1,figure 1.1
10.Pricing policies and procedures by Nessim Hanna , H.Robert Dodge,
chapter-2,figure2.2

38

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