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PRICING AND SALES VOLUME DECIDE THE REVENUE FOR ANY BUSINESS
DEMAND ESTIMATION
PRICE SENSTIVITY
-Comparison Difficult -Total Expenditure Effect -End Benefit Effect Shared Cost Effect Sunk Investment High Quality Cannot be inventoried
--Using different prices in similar regions to gauge sales --Ask the buyers of their likely demand at various prices
Demand elasticity is likely to be low when --Very few substitutes or competitors --Buyers do not notice the price change --Consumer reaction is likely to be slow to price change --Consumers attribute price rise to external factors like inflation, scarcity etc
ACCUMALATED PRODUCTION
ACCUMALATED PRODUCTION
Average costs decline with accumulated experience.
ANALYSING COMPETITION
A CHANGE IN YOUR PRICING MAY SHIFT THE CONSUMERS TO COMPETITION MARGINAL ANALYSIS
--Fixed Costs- Costs that do not change with volume -- Variable costs- Costs that vary with volume Avg cost=Avg fxd costs+Avg variable cost Marginal cost is the cost incurred in producing an extra unit Avg total cost decreases if marginal cost<avg cost Avg total cost increases if marginal cost>avg cost Marginal revenue therefore must be>than avg revenue
PRICE COMPETITION
A co must be a low cost seller of products Low cost producers usually market standard goods They frequently change their prices in response to mkt conditions Face danger of undercutting by competitors Can result in chronic price wars
A non price producer competes on other attributes eg quality, service, packaging, brand equity Attempts to build loyalty The buyers should not only see the difference but consider it significant The distinguishing and differentiating features should be difficult for competition for competition to copy The co promotes and highlights the differentiating features
PRICING MEHTODS
The major price setting methods are --Mark Up pricing --Target return pricing
PRICING METHODS
MARK UP PRICING
A mark up is given to the total cost Generally, higher for seasonal products, in-elastic products, slow moving items
TARGET RETURN PRICING This method is used when a pre-determined rate of return is desired and thr price is set accordingly.
VALUE PRICING The manufacturer charges fairly low prices for high quality product or services The price should represent a high value to the customer
Does not mean that prices are just lowered; rather, the entire process is re-engineered to give a better product at a lower price.
GOING RATE PRICES The cos set the prices on the basis of prevailing rate. Generally used in oligpolistic situations
PRICE ADAPTATION
GOODS CAN OFTEN HAVE DIFFERENT PRICES DEPENDING ON A HOST OF FACTORS The pricing structure has to reflect and account for factor like geographical spread, purchase timings, segment requirement, service contract, order level ,frequency of purchase, delivery schedule etc
DISCOUNTS &ALLOWANCES
TRADE DISCOUNT QUANTITY DISCOUNT CASH DISCOUNT SEASONAL DISCOUNT ALLOWANCES
PROMOTIONAL PRICING
LOSS LEADER PRICING SPECIAL EVENT PRICING PSYCHOLOGICAL DISCOUNTING CASH REBATE LOW INTEREST FINANCING
DISCRIMATORY PRICING
CUSTOMER SEGMENT PRICING PRODUCT FORM PRICING IMAGE PRICING LOCATION PRICING TIME PRICING