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Universal Journal of Management and Social Sciences

Vol. 3, No.5; May 2013

Pricing Strategies and Goals in Industrial Marketing


Reza Yazdani , Nastran Khorsand1, Saeede Mahdizade1 , & Reza PoorAli Motlagh Sharami2 1 MA student, Commercial Management-Marketing, Islamic Azad University , Rasht, Iran 2 M A Student of Business Management, Islamic Azad University, Rasht branch, Iran Abstract The major component of sustainable economic development of the countries are undoubtedly consumer of that society. Consumers are receptive to market and have choice. In the line with , users of industrial products have specific feature. Since the business environment is changing due to various factors, study on the factors affecting the pricing and marketing of industrial products including barriers and strategies related to the transmission and it reflection to top managers and decision makers are the paramount mission of industrial marketing. In this paper, the definition of pricing, process of price setting, identifying barriers and factors influencing pricing strategies have been targeted. Keywords: Industrial marketing, Price setting goals, Pricing methods Introduction A price is simply a suggestion or an experience to gauge the pulse of the market. If the customers accept it, it is appropriate, otherwise it would be quickly changed.( Guilaninia, 2008) Price is the level of benefit in which the consumer pays to utilize the advantages of having or using the product. Price is the only element in the marketing which is the income generating other elements are costly. Meanwhile, the price is the most flexible elements of the marketing, unlike the characteristics of the goods or depend ending on the use of a distribution channel, price can be changed very soon. At the same time, price setting and competition on are the problems in which many marketing executives face. However, there are companies that do not treat with pricing as it is supposed to be. ( Guilaninia, 2008). Among different pricing strategies, Marketing managers can choose their preferred type. The overall objective of pricing is to increase sales and profits globally ( Kigan, 2001).Global Pricing subject can be fully integrated and considered into the product design process (Kigan,2001). This paper due to research findings and studies we define pricing, also the price setting procedure in industrial marketing is expressed. Identify barriers and factors influencing pricing, pricing strategy, are those issues which have been dealt with in this paper(Norman,2003). What is the pricing? Simply setting the prices means pricing the goods or services. Pricing is an activity that should be repeated and the process is continuous. This continuity, caused by environmental changes and market instability that necessitate modifications in prices. Pricing to maximize profits, increasing market share, leadership qualities, continuation or increasing of market occur ( Guilaninia, 2008).
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Universal Journal of Management and Social Sciences

Vol. 3, No.5; May 2013

Pricing in industrial marketing A company set the price for the first time in following times: When a new item is created or a new product comes from, normally when an item is directed to a new distribution channel, or it is offered to a new geographic area, and when you participate in a bid or tender to obtain a contract. Companies need to decide the positions of their product in terms of quality and price . A company can determine the position of its products in the middle market, Or to put it in the upper or lower levels. The seven levels are: Extremity Luxe Special Needs Middle Ease / convenience I am but cheaper Only the price The company's pricing policy the following should be considered: Table 1. The procedure of price setting 1 2 3 4 5 Determining Demand The cost Analysis of Selecting a the goals of estimate costs, prices and pricing method pricing what the competitors offer.

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1-Determining the goals of pricing Each company must first decide what it wants to do with his special item. If the target market and its position in the market is carefully chosen, In this case, the defining elements of your marketing mix, including the setting price is not a problem. A company can use the pricing tool to pursue each of these goals (Guilaninia, 2008). Continuity 1-1 Added production, intense competition, or changing consumer demands are the factors that the make company to select its survival as a primary goal of pricing (Stwart & Bovid,2009). 1-2 Current profit maximization: Many companies determine and their sales prices in such a way that maximize current profitability. Having estimated the demand and costs associated with the different level of prices, they select the price for their goods to maximize the profitability, liquidity and current investment returns.

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Universal Journal of Management and Social Sciences

Vol. 3, No.5; May 2013

1-3 Maximum current income: some companies determine the price of their selling industrial products to the level which lead to the maximum possible income (Berm & KForist,2000). To maximize sales revenue is required to estimate the selling function. 1-4 Maximum sales growth: Some companies try to maximize their sales volume. They believe that the high sales volume, will lead to reduced costs and higher profitability in the long term (Akhtar,2001). 1-5 Maximum use of market: many companies set prices at a level that can market exploit the market. 1-6 Product Quality Leadership: sometimes the target of a company is that to be recognized as a leader in the market in terms of quality. 1-7 Other pricing objectives: Public and non-profit organizations may follow objectives other than price setting. The purpose of a training center for pricing IS covering some part of the costs. Must rely on government grants or private gifts. 2- The demand The price that the company sets will lead the different level of demand for their goods, as a result, will have a different effect on marketing objectives of the company. Both demand and price are inversely related in normal conditions, namely the more the price, the less the demand and the less the price the more the demand. Factors that affect the price sensitivity: Demand curve, shows the shopping market at different levels of price. This curves shows the people reactions that hav e different sensitivities to price. The first step in estimating demand is to understand the factors that affect the price sensitivity of the costumers. Nine factors has been identified in this area including: 1-The effect of the advantage of unique When commodity index is more, shoppers are less sensitive to spending 2- the effect of awareness of substitute products: When costumers are not aware of the existence of substitutes, they are less sensitive to cost. 3- the effect of the difficulty of comparing|: If buyers can not easily compare the quality of industrial substitutes, they will be less sensitive to price. 4-The effect of total cost :the less the share of cost in total income the less sensitive the buyers would be. 5- the effect of final advantage: :the less the share of cost in total cost the less sensitive the buyers would be. 6- the effect of joint cost: When someone else is paying part of the cost, buyers would be less sensitive to price. 7-The effect of investments: once an item is purchased and used in relationship to assets shoppers are less sensitive to price . 8- the effect of balance : when buyers are unable to store goods they will be less sensitive to price . 3- cost estimation

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Universal Journal of Management and Social Sciences

Vol. 3, No.5; May 2013

Demand can determine the maximum price that the company can a demand for their goods . And the costs of the company set provide the lower level of price. Every company wants to set a price for its product that cover the costs of production, distribution , sales efforts and appropriate efficiency to risks that have been accepted(Guilani nia, 2008). Types of cost: costs of a company are two types , fixed costs and variable costs( which is called overload) , the costs and revenues that are not changed by production, income, sales. Therefore, the company should pay the costs of rent, heat, interest, salaries, managers, etc. every month(Sharbatoghli,2008). Variable costs for every level of production is the total cost of variables and fixed . mean costs, of unit of per output is determined and is equal to total cost divided by the production. Management wants to set the price that cover the cost production of commodity prices at a given level of production (Alipour,2010). 4-Cost analysis, price and what competitors are offering in the industrial market. In the ranges of price that are determined by market demand and costs. Costs and selling prices of competitors and the reaction of prices to help companies to determine their approximate selling prices .To know whether they are superior in terms of cost or not, companies need to compare their costs with the costs of their rivals . Companies should also be aware of the price and quality of their competitors' products.to do so the company can send buyers to evaluate and assess competitors' products, gain the list of sales prices of competitors , buy competitors goods, take them apart, ask buyers about the price and product sales of each competitor . having been informed of the selling price and quality competitor s product, this information can be used as a way of guidance on pricing(Guilani nia, 2008). 5- Selecting pricing method We assume that the information related to customer demand, cost, and selling prices of competitors are avialable.in this case, the company is ready to set their own selling prices. This price is between low price which has no profitability and the price which is high (Kigan,2001). Types of pricing methods A-Pricing surcharge: the most elementary pricing method is adding a standard percentage to the cost of goods. Construction companies while offering suggestion at first costs related to specific projects are estimated. Then add a fixed percentage of their profits. B: Pricing for the supply of target return: the company sets the selling price of in such a way that to determine the target rate of return on investment. C: Pricing based on customer perception: A growing number of companies consider the buyer's perception as a basis for selling their goods. They set the prices of their goods based on the buyers' perception of benefit not the cost. They use non-pricing marketing to improve the buyers perception as a main factor of price setting. The price is defined and set according to the perception on the commodities. D- Pricing based on benefit for costumer: in this method they set a low price for a high quality good. The pricing based on benefit for the means that prices should be indicative of the utility of goods to customers.
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E- Pricing based on current rates : in the pricing policy based on the current rate companies consider less to their costs or demand. They base their pricing priorities based on the competitors price. Companies set price their products similar , more or less of a rival (rivals) positions. G- Pricing by proposal (tender / auction): When branch propose a closed suggestion to do some things, competitive pricing is commonplace. Her, institutions set their proposal price, not on the basis of the total cost, or demand but pricing is based on expectations of how competitors set their prices.( Guilan nia,2008) 6- setting ultimate price Pricing methods, limit the range of price that company can choose as options. while choosing and determining the final price, company should also consider other factors, including: A- Psychological pricing: In addition to the economic impact of price, retailers should take note of the psychological aspect of their prices. Many consumers consider price as an indicator of quality. B: The impact of other elements on price: in final price of goods, quality advertising brand of the competitors should also be regarded. C: Company's pricing policies: The selling price must be coordinated with the companies pricing policies. Many companies establish a department for pricing. The duty of this department is to set the sales price or pricing policies, to approve pricing decisions . these companies want to ensure that vendors offer prices that make sense and from the customer and profitable from the company s view point. D: The impact of price on other stakeholders: managers should investigate the reaction of other stakeholders to cost. how do dealers and distributors think about these prices? Do retailers or companies wish to sell goods in these price or complain about its highness? What is the reaction of competitors to the price? Do consumers increase the price if observe the sale of company, continue their raw material prices? will the government intervene to prevent the sale of goods with this price?( Guilaninia, 2008) Price selection Companies typically do not set a single price, rather they create a pricing structure that reflects the differences and changes in the related field. In this section, we investigate several adjusting pricing policies(Rosta, Venus, Ebrahimi, 2005). 1-Geographical pricing (cash, mutual trade and trade-off): Geographical pricing requires that companies decide on how to price its products to different customers in different countries and regions. 2-Price discounts and cost deductions Most firms offer bonus to customers to compensate for their certain behaviors. The reward is the adjustment base price intended for customers who pay cash in advance.

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Universal Journal of Management and Social Sciences

Vol. 3, No.5; May 2013

Types of discount: cash discounts includes reduction of the sales price for buyers that have paid their bills in advance. Quantitative discount: quantitative discount is a reduction for buyers who buy in large volumes. functional discounts: Functional discounts (also called trade discount) is discount that the manufacturer gives to the members of the distribution channel ,if they take charge of some specific tasks such as sales, inventory, and accounting . Seasonal discounts: seasonal discount is reduction in sale price for buyers who buy the product or service they are out of season . Seasonal discounts makes possible to salesperson to keep their production steadily throughout the year. Deductions or super discount: Deductions or super discounts are another way of reducing the selling price. An example of a trade discount is reducing the price which awarded per old item. (Rosta, Venus, Ebrahimi, 1996). 3-Advance pricing Companies use different techniques to encourage early shopping pricing. International companies should do research about pricing tools and ensure the legality of the activities in the countries in which these tools are employed . Perfect brand pricing: here, supermarkets and department stores break the price with famous brand names to attract more people. Special event pricing: vendors try to take advantage of special prices to attract more customers at certain seasons of the year . Refunds: To encourage consumers to buy from the manufacturer within a specified time period, the payments will be refunded to them. Financing with low interest rates: Instead of reducing the sales price of the, company can offer customers to financing with low interest rates. Longer period of time to pay: sellers, especially banks and car factories arrange a amount to reduce repayment period and monthly installment as much as possible. Sometimes consumers cares less about related cost (e.g., interest rates) are mainly loans can be paid back in monthly installments that are thinking about it or not . Concerned with the notion that whether they can afford to repay the installment or not. Service guarantees and commitments: company can provide service guarantees or covenants to increase their own sales. To achieve this goal company provides these guarantees and commitment free of charge or offers facilities with better prices of your customers . Granting psychological discounts : this policy requires that a high false price is tagged on one goods then a huge discount is granted. 4-Discriminatory pricing Due to the differences among customers, products, geographical areas and other factors, companies have to change the basic commodity prices . Discriminatory pricing means when
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Universal Journal of Management and Social Sciences

Vol. 3, No.5; May 2013

a company sell goods or service in two or three different prices, the prices which dont have reasonable in terms of cost. Discriminatory pricing has different forms: Pricing based on customer price: Different groups of customers pay different prices for the same goods or services . pricing based on the form of goods: Different types of goods are priced differently but the difference in price does not fit to the related cost. Commodity pricing based on perception from goods: Some companies on the basis of the difference perceptions to goods sell a product with two different prices. Pricing based on geographic location: Here goods are priced differently in different geographical areas even if the cost of supply to these areas is similar. 5-The pricing of goods Pricing logic should be changed when a part the goods are to of a combination product. The company looks for a series of prices to maximize the profitability of its merchandise. Pricing is difficult in these cases, because the demand and cost are inherently correlated and face different competitive situation. Here, we separate six different situations that require combined pricing. These six conditions are: Pricing the assembly line of goods: companies usually produce a lines instead of creating unique product . Pricing of optional feature: in addition to offering original goods, a lot of companies offer optional features . Mandatory pricing: some products requires the use of subsidy commodity or the they should be used along with other commodities(Dadkhah & Kamali, 2000). Dichotomous pricing: sometimes companies use the two-part pricing method. Two-part pricing is charging a fixed fee plus a variable fee for use. Pricing basket of goods: sometimes vendors counterfeit their products. Identifying effective pricing barriers in industrial marketing An important aspect in industrial pricing in companies, is the role in which internal systems play in setting the price. This issue is obvious in coordination or lack of coordination of systems of organizations. concluded that pricing strategy of an organization is what financial managers plan. They found that only 5 percent reduction will lead to 22 percent profitabilitys of the related company. They believe that the pricing is very difficult, because many environmental factors, such as political, economic, are really effective. Factors affecting the pricing strategy A-Internal Factors One of the Internal factors that affects the pricing policy, is the cost of production and marketing . Costs, is often considered by decision makers in the field of pricing as a fundamental factor for the increment of profit or changing objectives. Another internal factor that can be effective is the shareholder value in the market.

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Universal Journal of Management and Social Sciences

Vol. 3, No.5; May 2013

B- External factors That external factor affects pricing strategies is a maxim in economics. Factors such as customer sensitivity to price and changes of customers, factor such as industrialization and problems, dilemmas and barriers to market entry, the factors affecting the distribution. All of these are factors are considered in regulation and procurement of managers pricing strategies. Dynamic pricing in electronic market Dynamic pricing is a pricing strategy in which price changes due to costumers, consumers, and a series of products and services. Although such strategy was not available in market, but in due to its differences in the nature of value chain electronic markets is very important. Dynamic pricing is one of the most important gifts of the Internet. Dynamic pricing, is pricing in an environment where prices are not fixed but flexible Dynamic pricing can be defined as the buying and selling of goods and services in the market which prices easily changed in response to market demand and supply . Dynamic pricing is a mechanism which prices and conditions are changed due to price offering by the market. The true cost pricing, is done by cost, customers and competitors . When a variable is changed, the best price may also change. Accurate pricing requires information. In a complex and highly competitive market, sometimes it is difficult if not impossible to predict and calculate demand. The Internet as a complex market causes the high price sensitivity. The other problem with online selling is that different customers pay different prices. Pricing in these markets should also be responsive to differences among different groups of customers and support encourage them to buy . As Electronic markets are complex the use of fixed prices may be problematic, therefore some companies use dynamic pricing , when conditions change so fast, the only approaches to pricing, will be dynamic pricing. The possibility of obtaining information on demand, competitors and customers (factors affecting pricing) gives birth to dynamic pricing and sometimes several times in a day it can be changed. Conclusion The main element of any business plan is pricing industrial products. and directly affects marketing strategy of organizations . Pricing is affected by various factors. Marketing mix, objectives and costs of companies, are internal factors. Demand and competitive conditions are influential environmental factors on price. Price setting Is a multidimensional process that is affected from product levels and profit margins and customer relations. Price is one of the four elements of the marketing mix that company can benefit revenue and profitability by exact policy on the firm and influence the market behavior in order to fulfill marketing objectives. Inappropriate pricing and would have irreversible effects on the firms and lead to reduction in profitability, loss of market share and reduction the firm's reputation. This paper attempted to provide insights for managers to understand the importance of developing good pricing and inform the effect information on optimal and appropriate pricing.

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Universal Journal of Management and Social Sciences

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