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Price :- The amount of money charged for a product or service, or
the sum of values that consumers exchange for the benefits of
having or using the product or service.
Dynamic price:- charging different prices depending on
individual customers and situations.
Objectives:- as an element of marketing mix , price strategy
should be directed the accomplishment of specific marketing
objectives which lead to overall organizational objectives

The followings are the important objectives of pricing :1. To achieve target rate of return on investment or on net
2. To achieve price stabilization.
3. To meet or prevent competition
4. To maintain or improve share of the market
5. To maximize profit

1. To achieve target rate of return on investment

or on net sale :-

This is an important goal of pricing policy of many firms. A firm

following this goal tries to build a price structure to provide sufficient
return on capital employed . Generally , an estimate is made of return
expected over the long run, and the prices are fixed to achieve the
expected rate of return. This leads to cost plus pricing .

2. To achieve price stabilization :-

Many firms have the objectives of price stabilization in the long- run.
The objective is often found in industries that have a price leader. In
oligopolistic situation where there are only a few sellers in the
market, and each seller will try to maintain stability in his pricing . In
such a situation , one seller acts as the price leader and other follows
him. Thus a relationship exists between the leaders price and those
charged by other firms.

4. To meet or prevent competition :-

Some firms adopt the pricing policy to meet or prevent competition. They are
ready to fix their prices to meet competition in the market . Sometimes they are
prepared to follow below cost pricing in order to fight competition. They
charge less price than the cost because they feel that it will prevent the new
firms to enter the market. This practice is not publicly admitted by the firms
even though they follow it while introducing a new product in the market
.Nano car by Tata motors.

5. To maintain or improve share of the market :-

This pricing objective is followed by the firm operating in the expanding markets.
When the market has a potential for growth, market share is a better
indicator of a firms effectiveness than the target return on investment.
A firm might be earning a reasonable rate of return but its market share may be
decreasing. Therefore a worthwhile pricing objective in times of increasing
market share should be to maintain or to improve share of the market.

5. Maximize profit:-

There are many firms which do not care for social responsibilities, and
follow the pricing policy to maximize their profits.

Factors affecting price decisions:-


Internal factors
Marketing objectives
Marketing mix strategy


External factors
1. Nature of the Market
and Demand
2. Competition
3. Other environmental
factors (economy, re


The major pricing policies which are followed by the business firms are as:
1. Competitive pricing
2. Market Skimming pricing
3. Penetration pricing
4. Keep out pricing
5. Price lining (basically used by retailers)
6. Psychological pricing
7. Captive product pricing
8. By products pricing
9. Product bundle pricing
10. Follow the leader pricing
11. Discrimination pricing

Competitive pricing :-

This method is mostly used when the market is highly

competitive and the product is not differentiated significantly
from the competitive products. This resembles the perfect
competition under which prices are determined by the forces
of demand and supply. Product is homogeneous ( no
differentiations) buyers and sellers are well informed about
market price and market conditions, and the seller has no
control over the market price. In this situation every firm will
follow the price which is in tune with the market conditions.
Prices of cold drinks etc are the best examples of such
practice. ( Pepsi, coca cola, dew sprite etc.)

Skimming the cream pricing :-

Under this pricing policy, higher prices are charged during the initial
stage of the introduction of a new product. The manufacturer fixes higher
price of his product in order to recover his initial investment quickly.
This policy has been quite successful in many cases due to :
1. Demand is more inelastic with respect to price in the early stage of its
2. Introducing a new product with a high price is an efficient device for
dividing the market into segments that differ in price elasticity of
demand. the initial higher price serves to skim the cream of market that
is relatively insensitive to price. Price may be reduced subsequently to
attract successively more elastic segments of the market.
3. A manufacturer may charge the higher prices in order to restrict the
demand to the level which he can meet easily. He may use the strategy to
avoid the loss resulting from competition when the entry to that line is
quite easy.

Penetration pricing:

Under this pricing policy, prices are fixed below the

competitive level to obtain a larger share of the market and
to develop popularity of the brand. Unlike skimming price
policy , it facilitates higher volume of sales even during the
initial stage of a PLC.
Penetration pricing may also be used at the time of
introduction of a new product to prevent the entry of new
firms by keeping the profit margin very low. This policy
helps in developing the brand preference of the people and
is useful in marketing the products which are expected to
have a steady long run market.

Keep out pricing :-

As the name suggest , it is a pre emptive pricing policy, which aim at

discouraging the other firms in the market to offer substitutes. Keep out
price should be followed for only one product of a firm. It is very risky
venture, particularly , when the product is offered in the market at a price
which is less than the actual cost of the production and distribution. This
policy can be followed by big firms with huge resources at their command.
But once the lower price is fixed , it may not be possible to increase it again
as the new firms might introduce the new substitutes in the market.

Price lining:-

This policy is used by the retailers, the retailers usually offer a good, better,
and best assortment of merchandise at different price levels. For example ,
a retailers of T-Shirts may sell T-shirts at three prices: Rs.100, Rs125,
Rs150 the first price stands for the economy choice, the second for medium
quality choice and the third for super fine quality.

Psychological pricing:Under this policy, prices are fixed in such a way that
they have some kind of psychological influence on
the buyers, customary pricing and price lining are
the example of psychological pricing , another
example of the psychological pricing are the setting
odd amount such as Rs 99.95 , RS 999 ETC.

Captive product pricing:-

Setting a price for the product that must be used along with a main
product . Such as blades for razor and film for a camera. Producers of the
main product s ( Razor, camera, video games, printers etc. ) often price
them low and set high marks ups on the supplies. Thus Gillete sells low
priced razors but makes money on the replacement cartridges.

By product pricing:Aby-productis a secondary or incidental product deriving from

amanufacturing process, achemical reaction or a biochemical
pathway, and is not the primary product or service being produced.
A by-product can be useful andmarketable or it can be
consideredwaste. Setting a price for by products in order to make
the main products price more competitive.

Product bundle pricing:Combining several products and offering the bundle at a lower
Follow the leader pricing:In oligopolistic competition where there are a small number of
sellers selling the similar product one of them marketing his
product as market leader and other are following his marketing
Discrimination pricing:-

some business firms follow the policy of charging different prices from
different customers according to their ability to pay. This is also called
segment pricing, market is segmented on the basis of various variable,
such as geographic, demographic, psychographic, etc.