UNIT 3

Pricing: Significance; Factors affecting price of a product; Major pricing methods; Pricing policies and
strategies.

Promotion: Nature and importance of promotion; Promotion Tools: Advertising, Personal Selling, Public
Relations; Sales Promotion and Publicity, Integrated Marketing Communication Approach.

Meaning of Pricing
Pricing is a process of fixing the value that a manufacturer will receive in the exchange of services
and goods. Pricing method is exercised to adjust the cost of the producer’s offerings suitable to both
the manufacturer and the customer. The pricing depends on the company’s average prices, and the
buyer’s perceived value of an item, as compared to the perceived value of competitor’s product.

Every businessperson starts a business with a motive and intention of earning profits. This ambition
can be acquired by the pricing method of a firm. While fixing the cost of a product and services the
following point should be considered:

 The identity of the goods and services

 The cost of similar goods and services in the market
 The target audience for whom the goods and services are produces
 The total cost of production (raw material, labor cost, machinery cost, transit, inventory cost
etc.).
 External elements like government rules and regulations, policies, economy, etc.

Objectives of Pricing

Pricing objectives are the overall goal that describes the role of price in the organization long-
range plans.

The company fixes the price of a product on the basis of its pricing objectives which are framed
within the framework of corporate objectives.

The pricing objectives describe the company’s goal in relation to pricing.

Accordingly, the price policies and strategies are formulated and the price of a product is
determined.

The common pricing objectives of a company are given ahead:

 Maximization of profits
 Securing a high market share.
 Meeting or preventing competition.
 Stabilization of pricing.
 Providing a due return on investments.
 Securing better interest of consumers.
 Survival of the company.
  Good cash flow.
 Maintain loyalty of middleman and get their sales support.

Factors influencing Pricing of Product

Costs

Cost and price of a product are closely related to each other.

In the past, the price fixing was a simple affair, just add all the costs incurred and divide the final
figure by the number of units produced.

After adding necessary profits with the cost of production, it would give the price at which the
products would be sold.

However, the main defect of the system is that it disregards the external factors particularly the
demand and the value placed on goods by the ultimate consumer.

Whatever may be the cost of production, the price is one at which the seller is prepared to selland
the buyer is prepared to buy.
Elasticity of Demand

There is a close relationship between the demand and the price If the demand increases the priceof
the product will also increase.

On the contrary, if the demand decreases the price of the product will also decrease.

Hence the company should keep the elasticity of the demand factor in mind while fixing theprice
of a product.

Competition

Another factor that influences pricing is competitive. No manufacturer or the producer is to fixhis
price without considering competition unless he has a Monopoly.

The company can fix the price of his product equal to or lower than that of the competitor’s price
provided the quality of the product is in no way, lower than that of the competitors.

Even in monopolistic conditions, the manufacturer or the producer will have to consider the
competition with that of substitute products before fixing the price of his own product.

Distribution Channels

Distribution channels also affect the price of the product. A long range of distribution channels
exists between the manufacturer and the ultimate consumer. Each of them has to be compensated
for the services rendered by him.

This compensation must be included in the ultimate price which the consumer is required to pay. If
due and attention are not given on the factor, it might happen that the price of a product may
become so high that the consumer might reject it.
Buying Pattern of the Consumer

Buying the pattern of the consumer also plays an important role in the pricing of the product.

If the Purchase frequency of the product is higher, lower prices may be fixed to have a lowerprofit
per unit resulting in higher sales along with higher lower overall total profits.

Almost all consumer items of daily use have high purchase frequency, such as Oils, soaps,clothes,
food items, etc.

On the contrary, low-frequency products are sold at high margin profit and, therefore, at high
prices, such as TV, Refrigerator, air conditioners, cars, etc.

Economic Environment

The economic environment of the country is an important factor affecting the pricing of a
commodity. In the boom period, high prices may be fixed so as to cover the increasing cost of
production.

On the contrary, in the recession period, prices are reduced considerably is so as to maintain thelevel
of turnover of the product.

Market Position of the Company

The market position of the company or the image of the company in minds of consumers as to
Goodwill for the quality product etc may also influence the pricing decision of the company, such
as Tata, Godrej, Apple, Google, Samsung, etc.

Government Policy

Government inference in the form of taxes and fixation of the price is also an important factor
which influences the pricing of a product considerably.

Government not only levies various types of taxes such as exercise duty, sales tax, etc. But also
fixes the maximum selling price of a product.

In case the company charges higher prices as compared to the prices fixed by the governmentthen
the legal action may be initiated.

Not only has this but sometimes the government also started selling certain products through fair
shops, such as sugar, cloth, etc.
Methods of Pricing

Cost Based pricing

Cost-based pricing is a pricing method that is based on the cost of production,

manufacturing, and distribution of a product. Essentially, the price of a product is
determined by adding a percentage of the manufacturing costs to the selling price to
make a profit.

There are two types of cost-based pricing: cost-plus pricing and break-even pricing.

Cost plus Pricing

Cost-plus pricing is also known as markup pricing. It's a pricing method where a fixed
percentage is added on top of the cost it takes to produce one unit of a product (unit
cost). The resulting number is the selling price of the product.

This pricing method looks solely at the unit cost and ignores the prices set by
competitors. For this reason, it's not always the best fit for many businesses because it
doesn't take external factors, like competitors, into account.

Retail companies like clothing, grocery, and department stores often use cost-plus
pricing. In these cases, there is variation in the items being sold, and different markup
percentages can be applied to each product

Break Even Pricing / Target Profit Pricing/ Target-return pricing

The second cost-based pricing strategy is break-even pricing or target-return pricing.

With this strategy, the price of a product is determined by the price of its manufacturing,
production, and delivery without a markup. Ultimately, this strategy is used to determine
how many units a company needs to sell to cover the costs of production, instead of
marking up each individual unit for the purpose of generating revenue.

Value based pricing

Value-based pricing is a strategy of setting prices primarily based on a consumer's

perceived value of a product or service. Value pricing is customer-focused pricing,
meaning companies base their pricing on how much the customer believes a product is
worth.
Value-based pricing is different than "cost-plus" pricing, which factors the costs of
production into the pricing calculation. Companies that offer unique or highly valuable
features or services are better positioned to take advantage of the value pricing model
than companies which chiefly sell commoditized items.
The fashion industry is one of the most heavily influenced by value-based pricing, where
value price determination is standard practice. Typically, popular name-brand designers
command higher prices based on consumers' perceptions of how the brand affects their
image.

Good value pricing

Good-value pricing is the first customer value-based pricing strategy. It refers to

offering the right combination of quality and good service at a fair price – fair in terms
of the relation between price and delivered customer value. Good-value pricing is
mainly used for less-expensive products, for instance for less-expensive versions of
established, brand-name products.

Value added pricing

Value-added pricing, an alternative customer value-based pricing strategy, means

attaching value-added features and services to differentiate the product and charging
higher prices. In other words, marketers add features and thereby customer value – and
in return they charge more for the value-added product.

Therefore, value-added pricing does not aim at cutting prices to match competitors, but
attaching value-added features to differentiate the products from competitors’ offers.
The added value justifies a higher price in customers’ eyes.

For example, take a look at higher-priced premium airlines such as Singapore Airlines,
Emirates, Etihad Airways or Lufthansa. Flying with these airlines will cost much more –
but customers are willing to spend that additional price because they will get more
value.

Value is added in terms of comfort, luxury, premium service and so further. These
additional value-added features increase the service’s value in customers’ eyes – and
justify a higher price.

Policy and Strategies of Pricing

Product Mix Pricing Strategies

 Product line Pricing

 Optional- product pricing
 Captive- product pricing
 By-product pricing
 Product bundle pricing/ Price bundling
Product line Pricing

Product line pricing involves the separation of goods and services into cost categories in
order to create various perceived quality levels in the minds of consumers. The goal of
product line pricing is to maximize profits by positioning new products with the highest
number of features or with the most cutting-edge individual features at the highest price
point.

Optional- product pricing

Optional product pricing is when a business sets a base product at a lower cost and
additional, optional products at a higher price to make up for any losses. Optional
products aren’t required for the base product to work, but they usually enhance the
customer experience.

As mentioned above, the two key components of optional product pricing are:

A base product:

The main draw for the customer or why they’re making a purchase. It fulfills the
customers needs and doesn’t require the optional product to function. Base products are
sometimes referred to as loss leaders.

A complimentary product(s):

A product that someone who purchased the base product may be likely to buy to
enhance their experience with the base product, like additional added features for
software or adding GPS or satellite radio when purchasing a car.

Captive- product pricing

The definition of captive product pricing is the pricing of products that have both a main
product and several secondary or accessory products that are needed for the main
product to offer full value.

In some instances, the core product can be inexpensive or offered at a discount, while
accessory products, which are necessary for the core product to provide value, are priced
at a premium. This enables selling products that have a wider margin than the core
product.
For Example

 Coffeemakers that can be bought for the home inexpensively but require the use
of coffee pods that contain the actual coffee that will be prepared.

 Video game consoles require video games, controllers, and accessories for the
player to enjoy the full gaming experience.

By-product pricing

By Product Pricing is a pricing strategy in which the by-products of a process are also
sold separately at a specific price so as to earn additional revenue from the same
infrastructure and setup. By product is something which is produced as a result of
producing something else (the main product). Usually, the byproducts are disposed off
and have little value

Example of By Product Pricing

When meat is processed for human consumption, the by product can be used as food for
dog/cat. So the manufacturer can sell it in market to recover some of his expenses say
transportation and storage costs.

Product bundle pricing/ Price bundling

Price bundling (product bundling or product-bundle pricing) is a marketing strategy that

combines two or more products to sell them at a lower price than if the same products
were sold individually. The bundle pricing technique is popular in retail and ecommerce
as it offers more value for the price. It can also help build customer loyalty and boost
product sales.

Price bundling can be applied to any type of product, but it works best when there are
two or more items in the bundle.

New Product Pricing Strategies

 Market skimming
 Market penetration

Market skimming

It is a pricing approach in which the producer sets a high introductory price to attract
buyers with a strong desire for the product and the resources to buy it, and then
gradually reduces the price to attract the next and subsequent layers of the market.
 Market penetration
Market penetration is a measure of how much a product or service is being used by
customers compared to the total estimated market for that product or service. Market
penetration can also be used in developing strategies employed to increase the market
share of a particular product or service.

Market penetration can be used to determine the size of the potential market. If the total
market is large, new entrants to the industry might be encouraged that they can gain
market share or a percentage of the total number of potential customers in the industry.

For example, if there are 300 million people in a country and 65 million of them own
cell phones, the market penetration of cell phones would be approximately 22%. In
theory, there are still 235 million more potential customers for cell phones, or 78% of
the population remains untapped. The penetration numbers might indicate the potential
for growth for cell phone makers

Price Adjustment Strategies

 Discount and allowance pricing

 Segmented pricing
 Psychological pricing
 Promotional pricing
 Geographical pricing
 International pricing

Discount and allowance pricing

Discount and allowance pricing Discounts and allowances are reductions to a basic price.
Marketers could modify either the manufacturer’s list price (determined by the
manufacturer and often printed on the package), the retail price (set by the retailer and
often attached to the product with a sticker), or the list price (which is quoted to a potential
buyer, usually in written form). The market price (also called effective price) is the amount
actually paid. The purpose of discounts is to increase short-term sales, move out-of-date
stock, reward valuable customers, or encourage distribution channel members to perform a
function.

Segmented pricing

Segmented pricing is a situation, when seller or a company establishes different prices

(two or more), for one the same product. Even if product has various costs, it does not
have influence for different prices determined by enterprises. Segmented pricing is also
called “price discrimination”. Segmented pricing, is more productive if it exist
segmentation on the market, or perceived value of product in each segment, is comparable
with prices set for them, or segments have "different degree of demand" .

Also, when customers buy some product or use some service very rarely, segmented
pricing is a well-chosen strategy. Segmented pricing, can be implement by coupons.
Customers who not pay attention to the price, will not use the coupons, therefore they pay
more for product. However clients, who put an effort, and use a coupon, are more
sensitivity for a price.

Psychological pricing

Psychological pricing is a strategy that uses pricing to influence a customer's spending or

shopping habits to make more or higher value sales. The goal is to meet a customer's
psychological need for something, whether that's saving money, investing in the highest
quality item, or getting a “good deal.

Promotional pricing

Promotional pricing is a strategy in which brands temporarily reduce the price of a product
or service to attract prospects and customers. By lowering the price for a short time, a
brand artificially increases the value of a product or service by creating a sense of scarcity.
Promotional pricing can help with customer acquisition by encouraging cost-conscious
shoppers to buy. It can increase revenue, build customer loyalty, and improve short-term
cash flow.

Geographical pricing

Geographical pricing is the practice of adjusting an item's sale price based on the location
of the buyer. Sometimes the difference in the sale price is based on the cost to ship the
item to that location. But the difference may also be based on what amount the people in
that location are willing to pay. Companies will try to maximize revenue in the markets in
which they operate, and geographical pricing contributes to that goal.

Example

A type of geographical pricing called "zone pricing" is common in the gasoline industry.
This practice entails oil companies charging gas station owners different prices for the
same gasoline depending on where their stations are located.

Aside from excise taxes, the wholesale price, and thus the retail price, is based on factors
such as competition from other gas stations in the area, the amount of traffic the gas station
receives, and average household incomes in the area—not on the cost of delivering gas to
the area.
Dynamic pricing

Dynamic pricing, also called real-time pricing, is an approach to setting the cost for a
product or service that is highly flexible. The goal of dynamic pricing is to allow a
company that sells goods or services over the Internet to adjust prices on the fly in
response to market demands.

International pricing

Companies that market their products internationally must decide what price to charge in
the different countries in which they operate. The price that a company should charge in a
specific country depends on many factors including economic conditions, competitive
situations, laws and regulations and development of wholesaling and retailing systems.

Nature and Importance of Promotion

The process of Promotion includes all the activities that persuade and make the customers
aware of the product making them interested in purchasing them. A seller can be
successful in selling his product when he has good communication skills and a positive
influence on his customers. He can easily convince the customers to buy the products and
also invite more customers by using different promotional techniques such as providing
discounts, organising contests, etc. For example, when a company uses a campaign or a
logo on its products, it usually indicates an idea about the product or something that
catches the attention of people and makes them interested in buying the product.

In promotion, the most important key to selling products is communication.In other words,
promotion is a process that makes use of various tools of promotional techniques that
encourage customers to buy products or services.

Nature of Promotion

There are various characteristic features of Promotion. Some of these characteristics are
as follows:

1. Providing Information: One of the main characteristics of promotion is to persuade

potential consumers to purchase their products or services. This can be done by
providing information about the qualities, advantages, and values of the product or
services known to the customers. This creates a subconscious desire among the buyers to
purchase that product.

2. Limited Time: Promotions are often time-limited. For example, advertisements on

TV, contests, or giveaways are all promotional activities that are limited up to a specific
time. As a result, both customers and sellers have to act in that limited time frame. Also,
 doing these promotional activities regularly keeps the customers interested.

3. Different Channels of Approach: There are several ways through which the seller
can promote its brand product or services. Some of these platforms include media, such
as television, radio, print ads, and direct mail, as well as electronic media, such as
websites, emails, social media, and search engine marketing. These channels make it
easier to reach more customers and increase sales.

4. Adapt to Changes: Promotional activities must be by the changes in the economic as

well as technological world. Earlier, the companies would advertise their brand’s
product, or services through mediums like newspapers or posters, etc. But now, with the
technological change, the interest of a large number of audiences has shifted to
electronic media. Therefore, promotions can also be done through online platforms such
as social media.

5. Building Awareness: Promotion helps to create awareness about a product service or

brand among the target audience. This allows the customers to know about the existence
and the usage of the product. Promotional activities such as advertisements, public
relations, and social media campaigns play a significant role in building awareness.

6. Creating Interest: The main purpose of promotion is to generate positive interest and
impression among the buyers. This encourages the customers to further explore the
products. Promotional activities like engaging in campaigns or brand messages can catch
the attention of people and generate curiosity.

7. Reinforcing: Promotion does not only include creating customers but also has the
role of reinforcing the loyalty of existing customers. This can be done by keeping the
existing customers informed and updated about their products with the help of
promotional campaigns. This builds trust and loyalty among the customers and they are
encouraged to repeat their purchases.

Overall, the process of promotion uses several techniques to enhance the running of the
business. If these promotional techniques are used properly, it can result in an increase in
the reach of the product among the target customers and this in turn builds long-term
relations and loyalty towards the brand or product.

Importance of Promotion

Marketing provides many different purposes and is important to the success of any
organisation. The main purposes of marketing include the following:

1. Increase Brand Awareness: Promotion makes potential consumers aware of what is

available on the market. Businesses may convey their brand message, values, etc., to a
vast number of people through several promotional activities increasing their brand
 awareness, loyalty, and trust among the customers.

2. Recall Brand Value: Businesses may improve the image of their brands and survive
competition in the market by promoting their products regularly. Promotions can draw
attention to a brand’s distinct qualities, such as superior quality, reliability, or
outstanding customer service.

3. Increase Customer Traffic: Promotions can attract more customers and increase
customer traffic. Time-limited promotional activities like contests, giveaways, or
samples can generate interest among customers and create opportunities for sale. This
also acts as a platform for building long-term relations with the customers.

4. Increase Sales and Profits: One of the main purposes of marketing is to increase the
sales of the business. Once the customers are properly made aware of the product or
service, they buy those products that they find worthy of purchase. This helps the seller
to sell more products and draw more customers. In marketing, the sellers are always
looking for ways that can increase the worth or value of their products. This will make
sure that the customers prefer their products instead of their competitors.

Promotion Tools

1. Advertisement: Advertising is one the most common forms of promotional activity

in which a product or service is advertised to reach a large audience to create awareness
or to educate them about it. Advertisements can be done using commercials through
various media such as TV, radio, banners, newspapers, and online platforms.

2. Sales Promotion: Sales promotion refers to short-term incentives. The main purpose
of sales promotion is to encourage buyers to make immediate purchases within a fixed
period using various market strategies that include discounts, coupons, contests, or gifts.
Such strategies often draw in customers and increase direct sales of the promoted
products or services. Sales promotion consists of those measures that provide short-term
boosts to the sales of a company.

3. Personal Selling: It is a promotional strategy that allows the marketer to orally

communicate with the customers. This type of promotion helps to establish a
relationship with customers and helps them understand their needs. Another benefit of
this method is that it is possible to get immediate feedback from customers and act
according to the change in situation.

4. Public Relations: The marketing department performs an important role in managing

the public’s opinion of a business. Since the customers, suppliers, and dealers play a key
role in boosting sales and profits, the company must successfully connect them.
Moreover, they advise senior management to implement plans that will improve their
public image and prevent unfavorable news.
5. Publicity: Publicity is an activity that is similar to advertisements. It involves the
promotion of a product or service through the press in the form of news, stories, and
features. Sellers also take the help of social media to interact with customers, build
brand loyalty, and produce content that can reach a larger audience. These are all
examples of social media marketing. It involves sellers and famous personalities
working together to promote goods or services with people who have significant support
and influence in a certain area or field. They may have an impact on customer’s opinions
and affect their decision to purchase.

6. Direct Marketing: Direct marketing refers to directly reaching out to customers

which can be done through various means such as email marketing, direct mail,
telemarketing, door-to-door sales, etc. In this process, the marketers directly
communicate with the specific audience to boost sales by using various means such as
direct messages or campaigns.

7. Sponsorship: Sponsorships are essential to promote a company’s brand or products.

Sponsoring events exposes the company to a large audience and enhances the image and
awareness of the brand or product.

8. Trade Fair and Exhibition: Businesses may promote and demonstrate their goods
and services to a specific audience through trade shows and exhibits. These events bring
together customers and businessmen from different industries which helps and promotes
relationship-building, making sales, and gaining market knowledge. The trade fair and
exhibitions include the display of samples, demos, etc., to attract customers and keep
them interested.

9. Online Promotion: Online promotion has become one of the most important means
of promotion today. With the help of the recent popularity and growth of digital
platforms, marketing can be done in a lot of ways through social media in the form of
content marketing and influencer marketing. Small businesses greatly benefit from the
technique of online promotion. This method takes the help of internet platforms to
connect with a large audience and boost sales.

Integrated Marketing Communication Approach

Integrated marketing communication is the the process of coordinating all this activity
across different communication methods. Note that a central theme of this definition is
persuasion: persuading people to believe something, to desire something, and/or to do
something. Effective marketing communication is goal directed, and it is aligned with an
organization’s marketing strategy. It aims to deliver a particular message to a specific
audience with a targeted purpose of altering perceptions and/or behavior. Integrated
marketing communication (IMC) makes this marketing activity more efficient and
effective because it relies on multiple communication methods and customer touch
points to deliver a consistent message in more ways and in more compelling ways.

IMC is a concept of marketing communications planning that recognizes the added

value of a comprehensive plan that evaluates the strategic roles of a variety of
communication disciplines – for example, general advertising, direct response, sales
promotion, and PR – and combines these disciplines to provide clarity, consistency, and
maximum communications impact. (American Association of Advertising Agencies

An organization’s unified, coordinated effort to promote a brand concept through the use
of multiple communications tools that ‘speak with a single voice’ (Shimp, 2000)

Integrated marketing communications is a process which involves the management and

organisation of all ‘agents’ in the analysis, planning , implementation and control of all
marketing communications contacts, media, messages and promotional tools focused at
selected target audiences in such a way as to derive the greatest enhancement and
coherence of marketing communications effort in achieving predetermined product and
corporate marketing communications objectives.

Features of Integrated Marketing Communications

Clearly identified marketing communications objectives which are consistent with other
organisational objectives. Planned approach which covers the full extent of marketing
communications activities in a coherent and synergistic way.

Range of target audiences – not confined just to customers or prospects nor just to
imply end customers but include all selected target audience groups. These may be any
specified ‘public’ or group of ‘publics’ – stakeholders (e.g. employees, shareholders,
suppliers), consumers, customers and influencers of customers and consumers, both
trade and domestic.

Management of all forms of contact which may form the basis of marketing
communications activity.

This involves any relevant communication arising from contact within the
organisation and between the organisation and its publics.
Effective management and integration of all promotional activities and
people involved.

Incorporate all product/brand and ‘corporate’ marketing communications

efforts.

Range of promotional tools – all elements of the promotional mix including

personal and non-personal communications.
Range of media – any ‘vehicle’ able to transmit marketing communication
messages and not just mass media.

Range of messages – brand (corporate and products) propositions should be derived

from a single consistent strategy.
● This does not imply a single, standardised message.
● The integrated marketing communications effort should ensure that all
messages are determined in such a way as to work to each other’s mutual
benefit or at least minimise incongruity.

Reasons for the Growing Importance of IMC

 A shifting of marketing dollars from media advertising to other forms of
promotion, particularly consumer- and trade-oriented sales promotions
 A movement away from advertising to event marketing, sponsorship,
direct mail, sales promotion and internet.
 A shift in marketplace power from manufacturers to retailers.
 The rapid growth and development of database marketing
 Demands for greater accountability from advertising agencies and changes in
the way agencies are compensated.
 The rapid growth of the Internet, which is changing the very nature of how
companies do business and the ways they communicate and interact with
consumers.
 Demands for greater accountability from advertising agencies and
changes in the way agencies are compensated.
 The rapid growth of the Internet, which is changing the very nature of how
companies do business and the ways they communicate and interact with
consumers.