Pricing Objectives and Importance Class 12
Meaning and Importance of Price
Introduction:
Price is the only element in the marketing mix that generates revenue for the organization. It plays a crucial role in determining the company's growth.
Product, Place, and Promotion, the other three elements of the marketing mix involve various costs.
Product: Involves costs cost of production.
Place: Involves cost of selling and distribution.
Promotion: Involves cost of advertising and promoting the product.
These costs fluctuate with changes in production and sales levels (variable costs).
The right price covers all these costs and ensures the company makes a profit.
Meaning of Price
Price is the money value of a product. It's the amount customers pay to get the benefits of using a good or service. It's also how marketers perceive the value of product for customers. Price is what buyers are willing to exchange for a product or service.
According to Philip Kotler: “Price is the amount of money charged for a product or service.”
Factors affecting Price Setting of a Product:
- Price of Raw Materials
The cost of acquiring raw materials impacts the product's price. Higher raw material costs lead to higher product prices and vice versa.
- Cost of Manufacturing
Manufacturing costs, including labor wages, power, and overheads, affect the final product price. Higher manufacturing costs mean higher prices, while lower costs allow for lower prices.
- Market Condition
Demand and economic conditions influence pricing. High demand leads to higher prices, while low demand results in discounts and lower prices e.g. car prices rise with high demand and drop with low demand.
- Competition in the Market
The presence of competitors affects pricing. With fewer competitors, a firm can set higher prices. However, with many competitors, prices need to be competitive e.g. mobile service prices dropped with the entry of Vodafone, Idea, and Reliance Jio.
- Brand and Quality
Higher brand value and better quality justify higher prices. For example, a simple jewelry store in Chandni Chowk may price ornaments based on material and labor, while premium brands like Kalyan Jewellers charge more due to their reputation.
- Supporting the Marketing Mix
Price Alignment: Price must align with other marketing mix elements. Incorrect pricing can lead to lost sales for the organization.
Objectives of Pricing:
Survival is the main objective of pricing. Businesses aim to survive by ensuring they have enough working capital. This sometimes means accepting short-term losses but setting the right product price is crucial for sustainability. However, following are the long-run objectives of Pricing:
- Profitability Objectives
(a) Return on Investment:
To set prices to cover production costs and profit margins, ensuring sufficient returns.
(b) Profit Maximization:
Although rarely stated openly, maximizing profit is key for survival. Businesses now balance profit with societal responsibilities.
- Market-Related Objectives
(a) Meet/Prevent Competition:
To set competitive prices to either meet market standards or prevent new competitors. Sometimes prices are set below cost to discourage new entrants.
(b) Market Share:
To use pricing to maintain or grow market share, particularly in expanding markets. Market share is a key indicator of a firm's success.
(c ) Price Stabilization:
To follow industry leaders to stabilize prices and avoid price wars, ensuring steady production and planning.
- Public Relations Objectives
(a) Enhance Public Image:
Good pricing strategies can boost a company's reputation. Established companies can launch new products at varying prices without harming their image.
(b) Resource Mobilization:
To set higher prices to generate surplus for reinvestment. This is common in sectors like petrol, where high prices contribute to government revenue.
By setting clear pricing objectives, companies ensure consistency and clarity in their pricing strategies, leading to long-term success.
Role of Price in Marketing Mix
Price is crucial in marketing as it affects Product, Place, and Promotion.
High manufacturing, distribution, and promotion costs lead to higher product prices.
Low prices might substitute for product quality but need effective promotion to boost market share.
Consumers' buying decisions are heavily influenced by product price.
Pricing Objectives and Importance Class 12
Importance of Pricing:
Importance of Pricing for Firms
- Competitive Position and Market Share:
Pricing impacts a firm’s market position and share. Wrong pricing can lead to lost business or insufficient sales.
- Achieving Financial Goals:
Price affects revenue and profit. Higher prices generally mean higher revenue and profitability.
- Determining Production Quantity:
Helps estimate profit at various production levels and decide the best combination of production volume and price.
- Product Positioning and Distribution:
Price influences advertising and promotional decisions, affecting product positioning and distribution costs.
- Quality and Variants in Production:
Pricing decisions help determine product models for different market segments, like Samsung offering different phone models for different income groups.
- Consistency with Marketing Mix:
Pricing affects product quality, packaging, promotion policies, and distribution channels. It ensures that all elements of the marketing mix are aligned.
- Free Enterprise and Long-Term Survival:
Pricing helps allocate resources efficiently, supporting free enterprise and weeding out inefficient firms for long-term survival.
- Improving Company Image:
A well-priced product enhances a company’s image e.g. Apple’s high-priced mobiles maintain their demand due to the brand’s reputation.
Importance of Pricing for Consumers
- Decision-Making:
Different prices help consumers make informed buying decisions.
- Satisfaction of Needs:
Comparing prices helps consumers make the best choice and get value for their money.
- Purchasing Power and Living Standard:
High-priced purchases indicate higher purchasing power and living standards.
- Social Welfare Enhancement:
Competitive pricing leads to quality products at better prices, benefiting consumers and enhancing social welfare.
Factors Affecting Pricing Decision Class 12
Packaging and Labelling Class 12