How the pricing decision is made?

1. Pricing
Decisions.
Presented By:
Sanjeev K.C.

2.  Price is the quantity of payment or compensation given by
one party to another in return for one unit of goods or services.
Price is the also prime factor for generating the return on capital
invested in a business enterprise.
 “Price is the value assigned to the utility one receives one receives
from product & services.” …Busch & Houston…
 In Economic term, Price is the quantity of money, which must be
exchanged for one unit of a good or services.
 In Broader sense, Price is anything, whether money or commodity,
which has to be paid.
Price.

3. • In Marketing term, Price is considered as the exchange value of a
good, a service, or an idea that may take place between two or
more than two parties in a particular transaction.
• Price is one of the major elements of 4P’s of marketing. Price is
expressed in different terms in different exchange transactions,
Such as:
• Interest: Price paid for bank loan.
• Fare: Price paid for using transportation service.
• Premium: Price paid for insurance on life or property.
• Commission: Price paid for executing a deal.
• Bribe: Price paid for getting things done.

4. Pricing.
 Pricing is the process whereby a business sets the price at which it
will sell its products and services, and may be part of the business
marketing plan.
 Pricing is the act of determining the exchange value between the
purchasing power & utility or satisfaction acquired by an individual,
group or an organization through the purchase of goods, services,
ideas, rights, etc.
 Pricing is also a tricky problem in marketing, because most of the
firms use as a competitive tool as well as Pricing is the most secretly
performed activity in a business organization.

5.  Pricing involves many activities performed within an organization
& some of them are:
• To Determine the exchange value.
• Setting the base price.
• Determining discounts & Commissions, and
• Formulating pricing objectives, policies & strategies.
 On the other hand, Pricing means the determination of appropriate
value to a particular good & services.

6. Objectives of Pricing/ Pricing Objectives:
 A pricing objectives underlies the pricing process for a product.
 It should reflect a company's marketing, financial, strategic and
product goals, as well as consumer price expectations and the levels
of available stock and production resources.
 The pricing objectives is further categorized in to the four
approaches and they are:
• Profit Oriented.
• Sales Oriented.
• Status- Quo Oriented.
• Quality Oriented.

7. Pricing
objectives
Profit
Oriented.
Sales
Oriented.
Status quo
Oriented.
Quality
Oriented.
Maximize Profit.
Target Return.
Growth in market
share.
Low Quality.
High quality.
Non-price Competition.
Meeting Competition.
Dollar or Units sales
growth.
Fig: Objectives of pricing.

8. Importance of
Pricing.
 Pricing or determination of price is important not only for only private
firm, it is also equally important for the entire economy.
 Profit & Non-profit, Governmental & Non- governmental organization
also performed the pricing activity.
 The importance of pricing is discussed in the view of the Entire
economic system (Macro perspective) & Private firm (Macro
perspective).

9. 1)Importance of pricing in the economy (Macro perspective).
 Price is a very important variable in the economy which
affects both demand & savings.
 Pricing is very important in the economic system of any
country which is also taken as a major function in open market
operation or free industrial system.
i) Price affects demand:
• Price plays the most important role in determining the level of
demand for the products.
• Price of the product determines the number of buyers whose
purchasing power allows them to buy it.
• As the price is reduced, more buyers are motivated to buy the
low-involvement product(Salt, rice). However the marketer
often encounters an inverse demand pattern in high
involvement products( jewelry, cars).

10. ii) Price affects Savings:
• Market price level determines rates of inflation in an economy
which has the influence on the consumption capacity.
• During High inflation period, Both consumer’s income & price
level rise, consumer normally find difficulty in coping with the
rising price level.
• Price rises reduces the level of savings in the society that results
into lower investment level.
iii) Price regulates factor of production:
• Price is the major regulator of the economic system of a country as
it controls the factors of production.
• Price of products normally determines the exchange rates for
factors of production- The wages, interests, rent & profits.
• Change in price(wages, rents, interests, & profits) have major
influence in the supply & demand of labor, land, capital &
entrepreneurship.

11. iv) Pricing a major government activity:
• In an underdeveloped country like: Nepal, the government has to
take several pricing decisions.
• Government has to determine the prices for its direct services-
Law, Security, & Social order- for which people pay prices as
taxes and tools.
• Government also have to supervise the pricing executed by various
public enterprises that exist in a mixed economy.
2)Importance of pricing in the Business firm (Micro perspective).
 Price is equally important in each business firm. Among the 4p’s of
marketing mix, price is the one of the most flexible variables.
 Price of the product of any firm influences the competitive situation &
market share. The importance of price in an organization may be
viewed from the perspectives of Revenues & Profits, Competition &
Non-price competition.

12. i) Revenues & Profits:
• Price is the most important factor in determining the revenue &
profits for an organization. (Revenue = Sales volume*Price).
• If the organization lowers the price of the product, and if the sales
volume remains constants, it receives less revenue of he product &
vice versa.
• A habitual price change not only ruins the organization’s revenue
& profit, but also damage the corporate mage.
ii) Competition:
• Price is a major tool to deal with competition.
• When an organization applies price competition, it lowers the price
to attract a large number of price-conscious buyer to the product.
This may result on higher sales value & low marketing cost.
• Price is major competitive tool during the maturity stage of
product life cycle(PLC).

13. iii) Non-price Competition:
• A form of competition in which two or more producers use such
factors as packaging, delivery, or customer service rather than price
to increase demand for their products.
• Marketers can often use price for non-price competition.
• Non-price competition helps the marketer to create temporary value
on the product through temporary price reduction.