Quiz 16: Pricing Objectives and Policies

Business

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Pricing is defined as the amount a customer wants to give to take the benefit of the required product. Pricing decision is one of the important decision taken by marketing managers as the sales of a product and profit of the company depends upon the pricing of the product. Marketing managers takes price decision in such a manner so that customer get full satisfaction. For a particular product many companies are present in the market and hence competition level is high. So to gain position in the market marketing managers has to make some strategies related to the price of product which is also known as strategic decision. Strategic decisions of pricing is defined as the action taken by marketing managers in order to beat the competition and satisfy the customers. Some of the strategic decisions taken by marketing managers related to the price are as follows- 1. Skimming strategy Skimming pricing is the strategy adopted by marketing managers in which price of the product should be kept high initially until a competitor of the same product enters into the market. The skimming strategy is followed to recover maximum profits from the market and generally decided for a new product introduce by the marketing managers. 2. Penetration pricing Penetration is the pricing strategy in which initial price of the product is kept low so that more customers are targeted by the marketing managers. In the initial stage of promotion prices of a product are low to gain more and more customers and after the promotion is over prices are increasing g gradually. 3. Discounts and allowances Marketing managers also provide discounts on products to increase the demand in the market. Discounts are provided in the form of quantity, cash and season. Marketing managers follow the strategy to increase the market share. 4. Other pricing decisions Other pricing decisions include fixed price set by marketing managers, Flat sale price to increase the demand of the product, and the flexible price decision with the change in the mode of transportation. Pricing decisions are taken by marketing managers and strategies are formed depends upon the market conditions, customers' ability to pay, presence of competitors and trade margins. A local retailer must have knowledge about the market and the customer's capability of payment. So local retailers help the marketing managers in deciding the price of a particular product. Local retailers act as a channel of distribution of the product so initially for a new product promotion prices are kept as low so that customers get attracted towards the product and once the company attains a brand value, retailers gradually increase the price of product. For example local retailers of apparels fix the price of clothes according to the purchasing power of target market and keep inventory only a particular type of clothes which are high in demand. Sometimes to clear the stock or gain more profits retailers provide discounts and seasonal sale offers to customers in which prices of product are keep as low to increase the demand. Thus local retailers also make strategies related to price in order to increase the sales and demand of products.

Price is a very important component of the marketing and selling. The price of the product or service decides how much revenue the company will be going to earn. The [price also decides that whether the customer will purchase the product or not. The price also helps the company to know that how much profit the company is going to have by sale of one such product. Every company tries to fulfill different kind of objectives through its pricing policy. Some company have profit oriented objective. They set the prices only to earn profit out of it. Some companies have the objective of increasing. Like they set the price as low as possible in order to boost sales. And some company tries to set the price because of maintaining its status in the market. These strategies affect the development of marketing strategies in following ways: 1. The companies which have a profit motive they would like to set the price more than the cost incurrent. They will set certain profit margin out of this. The marketing strategy in this case would be to give free items or discount coupons along with the purchase of the product. 2. The companies whose objective is increasing sales would set the price low in comparison to market. The marketing strategy that would work here is giving heavy discounts on products. 3. The company which wants to maintain status quo in the market will have a standard price as the company knows that no matter what the customers are going to purchase the product. The marketing strategy that would work here will be promoting the outlet and products, new arrivals etc.