Maria Cheri Raphaela C.

Arciaga
ABM 12- A
BUSINESS MARKETING

OBJECTIVE 1: “What is a price?” and discuss the importance of pricing in today’s fast
changing environment.

For the most common sense, price is the amount of money charged for a product

or service. It has been the major factor affecting buyer choice. Price is the only element

in a business that produces revenue, while all other elements are determined as costs,

or the amount that must be spent regularly to pay for something (such as utilities, or

running a whole business. Since prices can be changed quickly. Not many companies

handle pricing well. Some of them face it as a huge problem. However, wise managers

face pricing as a challenge to use it as an advantage for creating and capturing

costumer value. It was said that instead of running away from pricing, marketers must

embrace it. Especially in today’s fast innovating environment, some people buy

according to a product’s price not on its quality or value. Even though it is one of the

most difficult task, marketers must set the price right because finding the right price and

strategy can lead the business’ success. Marketers must not focus only on the profit

that the business will/ may receive but also on the service that the business will provide.

These companies are reducing prices because they believe that will boost their

perceived value to consumers. ... That's because how customers perceive the price is

as important as the price itself. Pricing might not be as grand as promotion, but it is the

most important decision a marketer can make. Price is important to marketers because

it represents marketers' assessment of the value customers see in the product or

service and are willing to pay for a product or service.

For every product, the company has to choose a price. But determining the price can

take many ways. Most importantly, it should follow a predetermined strategy. 3 major

pricing strategies can be identified: Customer value-based pricing, cost-based pricing

and competition-based pricing.. Whatever price you choose, it will fall somewhere

between one that is too high to generate any demand and one that is too low to cover

your expenses. It is somewhere between a price ceiling and a price floor. Customers’

perceptions of the product’s value set the price ceiling. If customers perceive that the

product’s price is higher than its value, they will not buy the product. On the other

extreme, product costs set the price floor. If the product’s price is lower than its costs,

the company’s will make losses. Good pricing usually starts with customers and their

perceptions of value. Eventually, the customer will decide whether a product is worth its

price or not. Therefore, we start with customer value. When a customer buys a product,

they exchange something of value (the price) to get something of value (the benefits of

having or using a particular product). Therefore, it is crucial to understand how much

value consumers place on the benefits they receive from the product and setting a price

that captures exactly this value. Cost-based Pricing, While in customer value-based

pricing, customers’ perceptions of value are key to setting prices, in cost-based pricing

the seller’s costs are the primary consideration. Costs set the floor for the price that the

company can charge. Therefore, cost-based pricing involves setting prices based on the
costs for producing, distributing and selling the product. In order to make some profit, a

fair rate of return is added to account for efforts and risks.

Competition-based Pricing finally, competition-based pricing involves setting prices

based on competitors’ strategies, costs, prices and market offerings. In highly

competitive markets, consumers will base their judgements of a product’s value on the

prices that competitors charge for similar products. For instance in the gasoline industry,

competition-based pricing is applied.

OBJECTIVE 3: Identify and define the other important internal and external factors
affecting a firm’s pricing decisions.

The pricing decisions for a product are affected by internal and external factors.
Factors

INTERNAL:

Cost, while fixing the prices of a product, the firm should consider the cost involved in

producing the product. This cost includes both the variable and fixed costs. Thus, while

fixing the prices, the firm must be able to recover both the variable and fixed costs. The

predetermined objectives, while fixing the prices of the product, the marketer should

consider the objectives of the firm. For instance, if the objective of a firm is to increase

return on investment, then it may charge a higher price, and if the objective is to capture

a large market share, then it may charge a lower price. Image of the firm, the price of

the product may also be determined on the basis of the image of the firm in the market.

For instance, HUL and Procter & Gamble can demand a higher price for their brands, as

they enjoy goodwill in the market. Product life cycle, the stage at which the product is in

its product life cycle also affects its price. For instance, during the introductory stage the

firm may charge lower price to attract the customers, and during the growth stage, a
firm may increase the price. Credit period offered, the pricing of the product is also

affected by the credit period offered by the company. Longer the credit period, higher

may be the price, and shorter the credit period, lower may be the price of the product.

Promotional activity, the promotional activity undertaken by the firm also determines the

price. If the firm incurs heavy advertising and sales promotion costs, then the pricing of

the product shall be kept high in order to recover the cost.

EXTERNAL:

Competition, while fixing the price of the product, the firm needs to study the degree of

competition in the market. If there is high competition, the prices may be kept low to

effectively face the competition, and if competition is low, the prices may be kept high.

Consumers, The marketer should consider various consumer factors while fixing the

prices. The consumer factors that must be considered includes the price sensitivity of

the buyer, purchasing power, and so on. Government control, government rules and

regulation must be considered while fixing the prices. In certain products, government

may announce administered prices, and therefore the marketer has to consider such

regulation while fixing the prices. Economic conditions, the marketer may also have to

consider the economic condition prevailing in the market while fixing the prices. At the

time of recession, the consumer may have less money to spend, so the marketer may

reduce the prices in order to influence the buying decision of the consumers. Channel

intermediaries, the marketer must consider a number of channel intermediaries and

their expectations. The longer the chain of intermediaries, the higher would be the

prices of the goods.