Meaning of Pricing:
Generally, the amount to be paid for any goods or service is called price. Price is one of the important factors of marketing mix. This is also the main source of income of any business organization. So, profit or loss of business organization depends on the price of products. Price also expresses the quality of products/goods. Generally, high quality goods have high price and low quality goods have low price. Customers select goods on the basis of the price according to their buying capacity. Without certain price no exchanges of any goods or services can be done. So, price has important role in marketing. Generally, price is measured in currency.
In the developing or underdeveloped countries like ours where economic condition is very weak, goods or services are also measured in other form. Price of any goods taken or given according to the product exchange system is not fixed. In other words, in such system price of goods is not determined in
currency. Price means the rate paid by customers for any goods or service. For example, if a customer buys Batika Shampoo for Rs. 140, the price of shampoo is Rs. 140. Here, the utility of the shampoo and its price should be equal. Otherwise, one side gets loss. So, value/utility and price should remain in balance.
Price is the strong equipment of marketing. It simplifies exchange function of marketing. There are many names of such price. For example, interest paid for the use of currency, rent paid for the use of capital or capital assets, commission paid for use of service, tuition fees paid for the education, salary paid to employees for using their service, tax paid for earning income, premium paid for insurance, etc. Different writers and experts have defined ‘price’. Some important ones are as follows:
According to Prof. William J. Stanton, “Price is the amount of money and/or other items with utility needed to acquire a product.
According to Prof. Philip Kotler, “Price is the only element in the marketing mix that produces revenue, the other elements produce cost.”
According to David J. Schwartz, “Price is the exchanged value of the product or service expressed in terms of money.”
The above mentioned definitions make it clear that the amount to be paid for any products/goods is called price. The producer should take rational decision to determine such price. Generally, price is expressed in money/currency. Customers study the goods/products, select is and buy. So, price has an important role in marketing. Price is expressed in salary, interest, tuition fees, rent, commission, premium, fee, revenue, bill, royalty, etc. This is made clearer by the following table.
A list of Names of Price
The task of determining price of any product or service is called price. Determining price of any product is very challenging. So, in determining price of any product, special consideration should be taken to production cost, competitors’ prices, prices of substitution products and market environment. Besides this, internal and external obstructions also should be identified. After the obstructions have been identified, ways for facing such obstructions should be found out. Only then proper method of pricing should be applied. The price determined in such way becomes long lasting and reasonable.
Objectives of Pricing
The task of fixing reasonable value of any product or services is called pricing. To fulfill this task all the costs and profits should be included. Various expenses are included under production cost. They may be direct and indirect expenses. Before determining price of any product or services, all the objectives which are directly influenced by the organizational goal should be made clear. If the organizational goal is clear, it becomes easy to prepare the objectives of pricing. Main objectives of pricing are as follows:
Objectives of Pricing
1. Profit oriented objective
All the business organizations or companies are conducted with the main objective of earning profit. Their profit making objective may be for long term or short term. Under such task companies or organizations form two types of objectives as follows:
• To achieve a target result: The certain rate of profit intended by an organization or company to earn during certain period is called target result. Business firms or companies fix prices of their products with the objective to get certain result from sale or investment, for instance, 8% profit from sale, 7% profit from investment, etc. Most of the wholesalers and retailers estimate targeted result with the objective of earning short term profit. The firms or companies who do not need to face strangling competition take decision to fix such price.
• To maximize profit: There are various types of profit making objectives. Among them profit maximization is the second important objective. Fixing maximum rate of price of any product or service to earn maximum profit in very short term adversely affects the customers. So, a strategy should be adopted to earn maximum profit in long term. Sales volumes should be maximized with the minimization profit margin for earnings maximum profit. As a result, profit amount increases. This becomes beneficial to the company/firm and society in the long run.
2. Sales oriented objective
A company may adopt a policy to increase sales volume by fixing lower rate of price of products or services. In fact, sales oriented objectives aims to increase sales quantity and market share. This objective can be studied by dividing into two classes as follows:
• To increase sales volume: Increasing sales quantity of any product also may be one of the objectives of pricing. This emphasizes to increase certain percent of sales quantity can be increased getting permission from sales department or adopting other pricing strategies. Such strategy discourages possible competitions. Besides this, profit can increase in the long run due to minimum production cost.
• To increase market share: Every company or firm wishes to promote sale of its products. The objective of pricing may be to increase sales quantity. This also increases market share. In this age of competitive environment of market, it is also necessary to increase market share. Some companies adopt a policy to expand market share gradually; some others adopt the policy to expand market share immediately and control it. In order to expand market share, price of products or services should be low in comparison of competitors. Japanese auto products have become very high in price in American market due to which Toyota, Nissan, Honda Companies have cut down production cost fixing low margin profit and adopted a policy to increase share in American markets. This makes it clear that market share can be increased fixing low profit margin.
3. Status-quo oriented objective
Status-quo objective is formed to maintain the present situation for long time. In this objective, price of products remains same for long. Firm or company does not take any step to change the price. This status-quo includes the objectives like continuation of same price, facing competition and continuation of existence. They can be mentioned as follows:
• Stability in price: Price stability is one of the importance objectives. This remains effortful to maintain price at the same rate for time. Price leadership companies companies, frequent demand changing companies and the companies wishing to maintain reputation try not to let price fluctuate. All such companies make their objective to maintain price same at the same level. Such organizations or companies also wish to maintain revenues, price of their products, profits etc. at the same level. They do not want to take risk. They try to maintain same price by increasing production and supply in prosperity period and decreasing production and supply in depression period.
• To meet competition: This is the age of market competition. Every business company needs to face competition for survival/existence. Companies/firms have to fix price of their products or services as fixed in the markets. So, price is fixed with a view to facing/meeting competition in market. The price leadership companies should fix/determine price of their products by studying and considering market prices. Otherwise, the prices of their products cannot face/meet competition in market; as a result they are compelled to flee way from the market.
• Survival: It becomes very difficult to save the company/firm from high competition in market. In such situation, the firm should fix prices of their products in a way that only production cost can be recovered. In such situation, production cost may be equal to revenue. (Production cost = Revenue). This situation is called breakeven point. In this situation, there is neither profit nor loss. In this way, company’s existence is saved and it expects improvement in future. Business companies make such objectives waiting for bright future.