Price Setting

Posted in Marketing and Strategy Terms, Total Reads: 1210
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Definition: Price Setting

Price is the amount of money charged for a product/service or Total sum value of exchange the consumer offers for using a product/service. Price is one of the main factors which affect the consumer’s buying decision. Particularly in price sensitive segments proper price setting plays a major role in the success of the product or the service offered. High price will make the buyer to look for other options. On the other side low price might give an impression that the product might be of low quality. So marketers must be very careful in setting the correct price.


The process of price setting is described below



The first step in price setting is to identify the firm’s pricing objective. The objective of the firms could be to increase the profit or to maximize the market share. In the first case the pricing could be premium where as in the latter case the focus is on increasing volume by offering low prices. Five major objectives of the companies are

1. Survival

2. Maximum current profit

3. Maximum Market share

4. Maximum market skimming

5. Product-quality Leadership

Example: Sony uses market skimming prices


Once the firm’s objective is determined the demand for the product need to be analysed as different pricing the demand will vary. Estimating the demand will help in understanding the price sensitivity of the market and the demand curve. Demand analyses help us to arrive at the price ceiling. Cost estimation will give the price floor. To set proper prices the management should know how different production level affects the total costs. Knowing the cost and price of the competitors will help in positioning the product better in terms of price.


Generally different pricing methods are used for products based on the type of product and industry. They are

• Cost oriented pricing—Full cost/Direct cost

• Competitor oriented pricing—Going rate/competitive bidding

• Marketing oriented pricing

 

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