UNIT 7: PRICING DECISIONS – MICRO NOTES

INTRODUCTION TO PRICING
Price: Amount paid for goods/services; exchange value in monetary terms.
Value: Intrinsic worth (use value or exchange value). "Price is what you pay, value is what you get." – Warren Buffett.
Pricing: Marketing function of fixing the right price.
OBJECTIVES OF PRICING
Profit Maximization: Set prices for maximum profit (Apple iPhones).
Shareholder Obligation: Ensure survival, growth, target ROI (Reliance dividends).
Maximize Stock Turnover: Increase sales volume via discounts (Big Bazaar).
Product Quality Leadership: Higher prices for premium quality & R&D (Mercedes).
IMPORTANCE OF PRICING
Regulates demand, Builds brand image (premium vs value), Facilitates customer choice, Signals quality, Enables sales promotion, Generates revenue & profits.
FACTORS AFFECTING PRICING DECISIONS
Internal Factors: Cost of production, Pricing objectives, Marketing methods.
External Factors: Target customers & income levels, Elasticity of demand, Number of competitors, Government regulations, Economic situation (boom vs recession).
PRICING POLICIES & STRATEGIES
1. Skimming Pricing: High initial price, then lower over time (New iPhone). For innovative products with early adopters.
2. Penetration Pricing: Low initial price to gain market share (Jio's free start). For entering new markets.
3. Recommended Pricing (MRP): Manufacturer sets retail price for uniformity (All packaged products).
4. Psychological Pricing: Prices like ₹999 instead of ₹1000 for psychological impact.
5. Leadership Pricing: Market leader sets price, others follow (Maruti Suzuki in cars).
6. Premium Pricing: Different prices for different variants (Samsung S21, S21+, S21 Ultra).
7. Experimental Pricing: Test prices in different markets before finalising (New soft drink in select cities).
8. Multiple Pricing: Discounts for bulk/quantity buys (Buy 2 Get 1 Free).
9. Price Bundling: Combine products at a single price (McDonald's combo meals).
IMPORTANT EXAM QUESTIONS
1. Explain the objectives of pricing with suitable examples (6-8 marks).
2. Discuss the various factors affecting pricing decisions of a firm (8 marks).
3. Explain different pricing strategies with examples. Which strategy would you recommend for a new smartphone company? (8 marks).