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Different Pricing Policies for management Important pricing policies which business firms follow in practice are described below: 1. Skimming-the-cream Pricing : This refers to the policy of charging high prices in the initial stages of the life of a product. The initial high prices serve to skim the cream of the inelastic market and [...]
quantity or quality of the product or by reducing the services supplied along with it. Customary pricing or status quo pricing stabilizes the price, simplifies distribution and encourages non-price competition. However, it may make prices rigid and Out of line with market conditions. 4. Follow the Leader Pricing: In some industries, there are a few firms but one of them controls so large a share of the market that a change in its supply will affect the market price. Such a dominant firm acts as the price leader. The leader sets the price of the product and all other firms follow that price. There is hardly any price competition and the firms desiring to increase their turnover depend on advertising and other methods of promotion. This pricing policy is generally adopted under -oligopoly in which small firms cannot dare to disturb the price set by the leader. They cannot cut prices as it would lead to immediate retaliatory action by the leader. Overcharging is not used because it is not possible to sell at a price higher than that charged by the leader. Every firm finds in its self-interest and in the interest of industry to charge the price at which the leading firm is selling the product. This policy is also known as price leadership or pattern pricing. When the leader fixes a high price to protect its small competitors, it is known as umbrella pricing. 5, Leader Pricing: Some popular products are sometimes sold at below cost to attract customers and to promote the sale of other goods. Such products are known as loss leaders and the pricing policy involving the use of loss leaders is called leader pricing. Loss leaders are generally well-known or highly advertised products. They, are frequently purchased consumer items like bread, soaps, tooth paste, etc. A firm may cut prices temporarily on the leader items on the rationale that the customers who will come to buy the leader items will stay to buy other merchandise which are regularly priced. As result the firm can more than compensate the loss incurred on a few items by increasing its total sales and overall profits. 6. Price Lining : This refers to the policy of selling different qualities of a product at different prices. Many retailers offer a good, better and best assortment of merchandise at different prices. For instance, a retailer of jeans may sell them at three prices: Rs. 500, Rs. 750 and Rs.1500. The three prices represent the economy choice, the medium quality and the superfine quality respectively, in this way, a line of prices is created. Price lining is beneficial to both sellers and buyers. It simplifies buying decision on the part of consumers and enables the sellers to plan their purchases and to maintain control over inventories. With price lining, a seller can compete at all levels in the market. The prices of individual products are often marked up or marked down to fit them into the accepted price line and to ensure an overall profit. The disadvantage of price lining is that it may be difficult to alter the price line when significant changes occur in the costs of production. To make price lining effective and manageable, the price line should not include too many or too few prices and such prices should neither be too close together or too far apart. 7. Price Discrimination Discrimination.pricing or charging what the traffic will bear means charging different prices from different customers according to their ability to pay. Business firms charge different prices for the same product by creating some differentiation in product features. The product sold to different people. may be differentiated through packing and after-sale service. The policy of price discrimination is popular among professionals like doctors and lawyers who render specialized services Business firms selling tangible products can use the policy of price discrimination provided they are able to divide the market into different segments according to the customers capacity to pay. But increasing interaction among market segments owing to improved means of transportation and communication has, reduced the possibility of price discrimination. Customers generally do not favour such a policy. Price discrimination may be successful when the elasticity of demand is different in different market segments. Price in the price conscious segment may be kept lower than in the quality conscious market. Public utilities charge. a higher rate for water and electricity supply from commercial users than from domestic consumers. A restaurant may sell the same meal at different prices in lounge and in the room. Similarly, different rates may be charged far morning and regular shows by a theater. 8. Keep Out Pricing: This pricing policy seeks to discourage the competitive firms to offer substitutes and to prevent the entry of new firms in the industry. It is a pre-emptive pricing policy involving the fixation of low prices. This policy can be adopted by big firms which have large resources at their command. Keep out pricing is a risky policy particularly when the price is fixed below the cost of the product. Once the price is fixed at a low level, it may not be possible to increase it later on. Therefore, it should be used in rare cases. 9. Fixed Price versus Variable Price Policy : An important decision is whether bargaining is to be allowed or not. In case of fixed price policy or single price policy, a product is sold at the same price per unit to all consumers irrespective of the amount of purchase. But under one price policy, the seller charges the same price from similar customers who purchase similar quantities of the product. However, the price may vary according to the quantity purchased. For instance, a product may be priced @ Rs. 9 per unit for purchase of one dozen or more units and @ Rs. 10 per unit when less than one dozen units are purchased. Convenience goods are generally sold through one price policy. Under variable price policy, the same quantities of a product are sold to similar buyers at different prices. For example, a seller may charge a lower price from old customers and a higher price from new customers. The final price is determined
through bargaining or negotiations between the seller and the buyer. Consumer durables like televisions, refrigerators and automobiles are often sold at negotiated or variable prices. Fixed price policy builds customers confidence in the seller and saves the time of both as no bargaining is involved. Customers having weak bargaining power prefer fixed price policy. But buyers who have high bargaining power or can spare ugh time for haggling prefer variable price policy. Variable price policy also provides the flex iy required to deal with different types of customers or to meet special orders. 10. Psychological Pricing A seller has to decide whether to charge even price e.g. Re. 1/- or odd prices, e.g., 99 paise. Odd prices have a favourable psychological influence on the buyers. They give an impression of accurate pricing and provide an illusion of a bargain. For instance, a customer may happily pay Rs. 119.95 paisa for a pair of shoes and may not like to buy the same pair if it is priced at Rs 12O. The Bata Shoe Company and the publishers of paperbacks widely use the policy of odd pricing. 11. Unit,Pricing: This pricing policy is used to indicate the price rate per unit of a product contained in different package sizes having different quantities. For each product and its each package size, the attached label indicates the price of the particular package along with the price per unit of the product. Unit pricing facilitates price comparisons by buyers. It enables them to make economical purchase by reducing their dependence on brand loyalty. But unit pricing poses a challenge to manufacturers who may be forced to adopt standard package size in course of time. 12. Prestige or Premium Pricing : Rich buyers are not price conscious and are willing to pay a high price provided the product is of premium quality. When the product has unique features and is of superior quality, premium pricing policy can he adopted. This is an aggressive pricing strategy as it ensures higher profits and growth. Premium pricing policy is adopted in case of high end products such as designer watches. luxury cars, exclusive jewelery and so on. 13. Resale Price Maintenance (RPM) : Under this price policy a manufacturer fixes the minimum price below which his product would not be sold to the ultimate consumers or industrial users. Under the policy of resale price maintenance the. manufacturer of a.branded product enters into an agreement with the distributors of his product. In the agreement, the manufacturer specifies price. In this way the manufacturer places restrictions on the price at which the product shall be resold to buyers at every step in the marketing process. Resale price maintenance is possible in case of branded products only. The policy is commonly used in case of consumer goods like drugs, cigarettes, books, liquor, sports goods, toiletry preparations and electrical appliances. The main purpose of resale price maintenance is to protect the image of the product and of its manufactures. This policy may be defined through exclusive distribution. .
Financial Intermediaries
Financial Intermediaries Financial Intermediaries as the name suggests are the go-between the firms and the households and deal in financial claims. We can formally define a financial intermediary as an organisation through which funds in form of motley or claims to money are assembled and transferred from those individuals and firms having a [...]
Financial Intermediaries
Financial Intermediaries Financial Intermediaries as the name suggests are the go-between the firms and the households and deal in financial claims. We can formally define a financial intermediary as an organisation through which funds in form of motley or claims to money are assembled and transferred from those individuals and firms having a surplus of economic goods (as represented by such funds) to other individuals and firms whose needs for funds exceed their supply.
effectiveness. For example, could the personnel manager really staff the organization effectively without effective personnel planning? Leading The function of leading is always closely associated with planning. Planning determines the best combination of factors forces, resources and relationships needed to lead and motivate employee. The leading function involves putting those elements into effect. Controlling: Planning and controlling are so closely related that they have been called the Siamese twins of management. Control is an important by product of effective planning, for it shows managers if their plans are unrealistic or if poor management practices have caused the plans not to work out as expected. Therefore, control acts as a means of evaluating actual performance against plans. Control then also becomes part of the new plan. The purpose of plan is to assure that resources contribute positively toward the achievement of the organizations goals and objectives. Yet planning is unique in that it, in turn, establishes the objectives toward which all group effect is directed. Plans must be made to accomplish the organizations goals before managers can determine what kind of organizational relationships to establish, what qualifications are sought in future employee, now subordinates are to be led or directed and what kinds of controls are to be applied.
(ii) Anticipate the response of each competitor to the likely strategy moves by the other from, and (iii) Develop a profile of the nature and success of the possible strategic changes each competitor might undertake.
What are the different conditions for the use of Probable Error?
What are the different conditions for the use of Probable Error? Ans. The measure of Probable Error can be properly used only when the following three conditions exist: (i) The data must approximate to a normal frequency curve (bell-shaped curve). (ii) The statistical measure for which the P. E. is computed must have [...]
What are the different conditions for the use of Probable Error?
What are the different conditions for the use of Probable Error? Ans. The measure of Probable Error can be properly used only when the following three conditions exist: (i) The data must approximate to a normal frequency curve (bell-shaped curve). (ii) The statistical measure for which the P. E. is computed must have been calculated from a sample. (iii) The sample must have been selected in an unbiased manner and the individual items must be independent.
What is departmentation?
What is departmentation? An. The organisational process of determining how activities are to be grouped is called departmentation, In other words, departmentation is the process of dividing large groups into smaller. Most workable groupings.
What is departmentation?
What is departmentation? An. The organisational process of determining how activities are to be grouped is called departmentation, In other words, departmentation is the process of dividing large groups into smaller. Most workable groupings.
What is VAT?
What is VAT? VAT is the tax levied on value added at various stages of production of a commodity. The value added is measured as the difference between the gross value of output and that of intermediate goods purchased for the propose of production.
What is VAT?
What is VAT? VAT is the tax levied on value added at various stages of production of a commodity. The value added is measured as the difference between the gross value of output and that of intermediate goods purchased for the propose of production.
What is globailsation?
What is globailsation? Ans. Globalisation being able to manufacture in the most-effective way possible anywhere in the world; being able to procure raw materials and drawing management resources from the cheapest source anywhere in the world; having the entire world as a market.
What is globailsation?
What is globailsation? Ans. Globalisation being able to manufacture in the most-effective way possible anywhere in the world; being able to procure raw materials and drawing management resources from the cheapest source anywhere in the world; having the entire world as a market.
goods and services. Competitive, profit-maximising firms hire each factor up to the point at which the value of the marginal product of the labour equals its price. The supply of labour arises from individuals trade off between work and leisure.
(iv) To test the hypothesis an experiment is designed and executed observations are made and measurements are recorded. (v) Finally, th results of the experiments are analysed and the hypothesis is either accepted or rejected. If the hypothesis is accepted, the best solution to the problem is obtained.