Skip to main content

Price Setting Process

When  a company develops a product, it is very necessary to set its specific price. But there are many factors which affect its setting which we can show following steps of its process.

1st Step : Selecting the Price Objectives :

We all know the price setting is the major part of marketing policy and one of P4 of marketing mix. So, it is the first in which you have to select the price object for setting it. It may be

a) Survival the product in market :

Company thinks that his product is new and for creating its position in market, company should take minimum price from its customers.

b) Maximum profit objective :

If company wants to earn maximum profit, the company can set high price under price skimming. Company thinks that if it will fix high price, no competitor faces it.

c)  High market share objective :

Company's object is to increase sale. So, it will determine low price than competitors.

2nd Step : Determining the Demand :

Main aim of taking second step is to check whether our set price is best for increasing demand or not. In this step, we takes following decisions

a) Create the demand curve and check the trend :

With past records of our company's product price and past sales company can create demand curve, it shows the effect of changing price on demand of customer. The company can take the help of economist which they can explain its technical explanation. But with this, company can know whether company's price are creating bad effect on demand or good effect on demand.

b) Demand Elasticity

With this, company can estimate about how much demand is effected with increasing or decreasing the price.

3rd Step : Estimate the Costs :

For determination the price of product company should estimate the cost of product.

I) Calculate variable and fixed cost :

Fixed cost = Electricity + salary bill etc

variable cost = raw material cost + labour cost + other expenses etc.

II) Calculate differential cost in differential market :

Use activity base costing system if company sells product different time period.

III) Target Costing :

This is japan's technique

at what price consumer wants the product xxxx

                                         Less margin = xxxx

-------------------------------------------------

                                    Estimated price = xxxx

--------------------------------------------------

Cost must be less than estimated price

IV) Also estimate competitor's price:

4th Step : Selecting a Good Price Method :

a) Markup pricing :

Total cost price xxxx

Add % Margin on sale xxxx

----------------------------

Sale price  xxxx

----------------------------

b) Perceived value price :

it is fixed on the basis of cost of market mix and margin

( product cost + advertising cost + placement cost ) + margin = fix price

c) Value Price :

Low price of quality product than competitors.

6th Step : Select the Final Price

After analysis of above five steps, marketer selects the final price of a new product.

Comments

.

Popular posts from this blog

Objective of Business Environment

Following are main objectives of business environment:
1. Knowledge of Information 
By studying the business environment, we can know the changes of business. This information is very useful for our business. Every businessman should aware current environment of business. With this, he can think the future of his business in such environment. 
2. Basis of Decisions 
One of main objective of the study of business environment that it can provide all the information which is needed for taking good decisions. Suppose, you completed your internal business environment study. With this study, you can take decision relating to purchase, sale, salary and price because you know your competitor, you know your suppliers and you know your customers. 
3. Helpful in making of Policies 
For making good business policies, we need to know and scan business through business environment. 
4. Technological Planning 
Today, technology is changing very fastly. 3 years ago, I have to search software for downloading …

Limitation of Business Environment Analysis

Following are main limitation of business environment analysis:

1. Unexpected and Unanticipated Events 

We can not tell unexpected and unanticipated events in business environment analysis. Sometime, business has to face unexpected happenings. So, there will no benefit of business environment in these cases.

2. No sufficient Guarantee

Business environment analyst does not give any guarantee whether all events will happen as per estimation in business environment.

3. Uncritical Faith 

Sometime data may be incorrect. So, decisions on basis of these analysis may be risky for business.

4. To much information

Sometime too much information relating to business environment analysis will create the doubt in businessmen.

Technological Environment

Definition of Technological Environment :-


“Technological Environment means the development in the field of technology which affects business by new inventions of productions and other improvements in techniques to perform the business
 work. "

Introduction to Business Environment

Business environment may be defined as the set of external and internal factors which affects the decisions of business. We can divide business environment into two parts

A. The Micro Environment of Business

These are powers which are deeply related with company and company can control these type of environment by improving its capacity and efficiency.

1. Suppliers

Suppliers are the persons who supply raw material to company.

2. Customers

Customers are the persons who buy goods from company.

3. Market Intermediaries

Market intermediaries are those person who helps company to sell its products.

4. Financial Intermediaries

Financial intermediaries are those institutions who provide loan, credit and advance to company.

5. Competitors

Competitors are those who also sell same product of company.

6. Public

Public is those group of people who can buy or who can show their interest to buy the products of company.

B. The Macro Environment of Business

Macro environment of business means all exte…