When making price decisions, an organisation has to follow price strategies. Price strategies offer a set of guidelines and gives direction to the organisation for pricing decisions for the target markets. It determines the extent of pricing basis the region, price variability, price levels, price stability, use of price lining, and pricing according to stages of the product in the product life cycle.

1) Region based pricing (Geographical pricing) – This involves studying the region or country of the target market and setting the prices accordingly. Different regions have different set of prevalent systems for making payments. Also, the organisation may consider adding additional percentage to price basis the taxes, transportation and storage costs. Many companies are asked to invest back a percentage of their earnings in the target market country. The system in which the buyers want to payback in other forms other than money is known as countertrade. These can take place in different forms like barter, compensation deals, buyback agreements, and offset. (Source – Marketing Management; Prof. Kotler, Developing price strategies and programs, 2004, p.g. 489).Barter system involves exchange of goods instead of money and no third party involvement.Compensation deals involve seller receiving some percentage of payment in the form of products and the rest in money. In buyback agreement the seller sells the machinery, technology, etc. to buyers and agrees to buy the products developed by the buyer using that machinery, technology, etc. In Offset the seller receives the complete payment in money but needs to spend a large amount of that in the country of operation within a specified time. For example, many companies were not allowed to trade in India unless a substantial amount of earning was spent in India. There were bills passed in the parliament after a heated debate.

Continue Reading »

1) Specify Pricing Objective-
Pricing objectives refer to the targets to be achieved via pricing strategies in the marketing plan. These should be clearly outlined in quantitative terms so as to be understood by all the members involved in pricing decisions.

Depending on the challenges a firm faces in the market, the objective can be either of these – survival, maximise current profit, maximise market share, product-quality leadership. These objectives can be short-term or long-term.

a) Short term pricing objectives-
• Attracting new customers, middlemen, etc.
• Generate interest in the product
• Discourage competition
• Sales or profit growth
• Rapidly establish market position
• Meeting competition
• Maintain market share
• Promote new products
• Recover costs of a product in decline stage
• Secure key accounts

b) Long term pricing objectives-
• Stabilise industry prices
• Market share growth
• Maximise long-run profits
• Strategic pricing in different markets
• Retaining or capture market share
• Maintain price leadership
• Maximise return on investment
• Product and quality leadership

Continue Reading »

Organisations mostly choose the pricing methods based on demand, costs or competition in the target market. Some of the pricing methods are given below-

1) Cost Oriented Pricing method – Costs form the base of price range and there are two commonly used methods of setting the price – Cost-Plus/ Markup pricing and Target Return pricing.

a) Cost-Plus/ Markup Pricing – It involves adding an additional percentage of profit to the sellers per unit cost of the product. The profit or markup is percentage of the selling price instead of the cost. The following formula can be used to determine the price-

Selling price = Average unit cost/ (1 – Desired markup percentage)

If the average unit cost is $10 and the markup is 20%, then the selling price will be $12.5. [10/1-0.2).

Continue Reading »

New product pricing – There is great flexibility with the organisations in setting a price for a new product as compared to the product in other stages of life cycle. New product launch and its price are given lot of importance as these are extremely important activities of the overall marketing strategy of the organisation. The products in growth, maturity and decline stage face competition and give little choice in increasing the prices. New products on the other hand have little or no competition hence, can be utilised to generate high profits through Market skimming pricing strategy and Market penetration pricing strategy.

Skimming pricing strategy involves setting high profit margin relative to costs to “skim” as much profit as possible from the high demand in the market. Once the competitors enter the market with a similar or a substitute product, the organisation reduces the price of the product to make it available for price sensitive customers. Most of this strategy is directed towards the Innovators and Early adopters in the target market to “skim the cream” highlighting the unique product features, brand image, and quality. (Innovators – they are willing to try new ideas and are first to buy the new product. They help get the product exposure. Early adopters – these people adopt new ideas early but carefully. They serve as the opinion leaders. Early majority – these form around 34% of the market and adopt a new product earlier than an average consumer. Late majority – these people buy the product only after majority of the market has bought the product. They want to avoid the risk of buying a product with defects. Laggards – these are the people who mostly resist change and adopt a product only once it is not considered an innovation. They are tradition bound and buy the product as a tradition.)

Continue Reading »

The management sets the price in relation to costs and the attractiveness of the target market like, customer’s ability to spend, demand, competition. The management also does the analysis for giving appropriate margins to the distributors. The possible range of prices also gets affected because of legal and ethical constraints. All these factors determine the upper and lower limit of price. These factors that affect pricing are discussed below-

1) Marketing Mix – Management can easily do variations to the price component of the marketing mix element. The other elements, product, promotion, and place (distribution channels) are not easy to change as it takes a considerable time, effort, and coordination to make changes to them. All these 4 elements are related to each other, hence pricing decision cannot be taken without considering the other elements. Change in promotion or distribution network will add to costs. Making changes to the product also results in costs because of need of different raw materials, technological investments, etc. Increase in costs will increase the lower limit of setting price. Making price changes or setting prices without considering Product, Promotion and Place elements will generally have negative impact on the entire marketing strategy and may also result in losses.

2) Organisational decision making and implementation – The skills of the management and right decision making by them goes a long way in successful pricing. The top management should work in coordination with the lower management for making an effective pricing strategy. The correct systems need to be used for the flow of information from the customers and distributors to all the concerned employees of the organisation. Arriving at a pricing decision requires effective analysis of costs, demand and competitor strategy. The organisation has to make sure that they have the right employees handling the right tasks at the right time

Continue Reading »

To counter the competitor’s strategy by making changes to the marketing mix elements like product, place and promotion is a difficult task for an organisation. Hence, organisations usually respond to their competitors by making changes to the price. As price element can be easily countered by the competitors, it is in the best interest of the marketing managers to formulate strong marketing strategies based on 3P’s – product features and quality, place (strong and effective distribution network), and promotion activities.

There are many reasons that force an organisation to make price changes. These could be market penetration, market skimming, fall or increase in costs, entry of competitors or a substitute product, economic condition of the target market, laws and regulations, product life cycle, etc.

Before initiating a price change, an organisation should consider the following –
1) Reaction of customers – The buyers may think that a deceased price is because of low quality or the product is about to become obsolete. For example, the Nexus 6 model of the mobile phone from Google Nexus was lowered to half of its price in May 2016 on ecommerce sites in India. Some customers thought that it is not a successful handset as compared to earlier Nexus series phones, and the company is just trying to sell the stock lying in warehouses. The product’s success sometimes depends on the customer’s perception in the target market. In the following months the product was eliminated. It can work to the advantage as well as disadvantage to the organisation. A careful analysis of the situation is needed about the reaction of buyers, and the organisation should be ready with a plan B to meet any challenges arising due to price change.

Continue Reading »

Brand forms an important part of product strategy. Brands can convey several meanings to buyers. For example, Nike stands for trendy, quality and well-engineered products.
Brand is something that resides in the minds of consumers. It is important to convey to the customers to buy a product by giving it a name and using brand elements to help identify it. Identity is important to help make customers make a choice from among offerings in the market. For example, a customer can make a choice from a number of washing powders in the market like Tide, Ariel, etc.

Definitions of Brand-
• A name, term, sign, symbol, or design, or a combinations of them, intended to identify the goods or services of one seller or a group of sellers and to differentiate them from those of competitors. – American Marketing Association.

Continue Reading »

Branding involves cost as well as risk of losing reputation if it fails to click in the target market. Marketers have to assess various options and make decisions when branding a product. Below are the key decisions that are of utmost importance-

1) Brand-sponsor decisions –
Here marketers decide whether to launch the product as –

a) Manufacturer brand – It involves building brand identity by applying the company’s/ manufacturer’s brand to products. For example, TATA, Nike.

Continue Reading »

What are the factors considered for selecting and combining brand elements?
American Marketing Association has defined brand equity as –

“The value of a brand. From a consumer perspective, brand equity is based on consumer attitudes about positive brand attributes and favourable consequences of brand use.”

Professor Philip Kotler has defined brand equity as –
“The positive differential effect that knowing the brand name has on customer response to the product or service.”

David Aaker defined brand equity as –
“A set of assets and liabilities linked to a brand, its name and symbol, that adds to or subtracts from the value provided by a product or service to a firm and/or to that firm’s customers.”

Continue Reading »

We will discuss various aspects of packaging form its objectives, functions, and packaging decisions.
Packaging and the need/objectives of good Packaging –

Packaging is the process of designing and producing the wrapper or container of the product. With customer preferences and choices given priority amidst competition, packaging holds high importance in influencing customers to buy the product. Packaging is always a first point of contact with the product. It has to create a favourable impression on the customer to try the product.

Today customers look for variety when buying a product because of which there is emergence of supermarkets and shopping malls where customers can choose a product of their choice by personally inspecting it rather than depending on a salesman. Different kinds of materials are used for packaging depending on the product characteristics – wooden boxes, earthenware, gunny bags, cardboards, glass, Tin, Tetra packs, plastic, etc.

Below are the reasons that an organisation invests in good packaging strategy-
1) Self-service – in the era of self service, packaging on the product identifies and markets a product. When a customer visits a supermarket he/ she will see a number of products from different manufacturers. Most of the time the customer buys a product basis the attractiveness of the product packaging. A well packaged product creates a favourable overall impression and influences the buyer to try the product.

Continue Reading »