CBSE Class 12 Marketing Pricing Notes

 

Price is one of the most important elements of the marketing mix. This is the only element which generates revenue for an organization and determines its growth. The other three main elements of the marketing mix are Product, Place and Promotion. A firm incurs a certain cost to produce a Product or service. The Place element is concerned with the sale and distribution of the product through various channels, therefore a firm incurs some expense there, like in choosing the sales-methods, payment to salesmen, expense incurred on transporting products to place of selling, etc. The Promotion element, concerned with the advertising and promotion of the firm‟s product leads to expenditure on different promotion and advertising media like TV& Radio advertising, sample-promotion, etc. All of these are the variable costs for an organization, that is, these costs change with the changes in level of production and sales activity; therefore influence the process of setting the right price for the product. „Right price‟ denotes the level of price which can cover all these expenditures on the final product and brings some profit to the firm.

 

The term price denotes money value of a product. It represents the amount of money that customers pay to the sellers to gain benefits of having or using a good or service. In fact it is marketers' assessment of the value customers see in the product. So price indicates the money value which a buyer is ready to exchange for purchase of certain good or service.

The definition of Price according to Philip Kotler is- “Price is the amount of money charged for a product or service.” Similarly according to Stanton “Price is the amount of money needed to acquire some combination of goods and its companying services.” Pricing is defined as „the process whereby a business sets the price at which it intends to sell its products and services’.

 

It is the key variable in a firm‟s marketing plan. While setting prices for its products, i.e. goods or services, the business takes into account various aspects of production, listed below.

• Price of raw material- The firm considers price at which it could acquire the goods and raw material to prepare final product to be sold in the market. A higher cost of acquiring these implies a higher product-price and vice versa.

 

•  Cost of manufacturing- If manufacturing cost is higher, the price of product will also be higher, whereas lower manufacturing cost leads to lower price. This cost includes the wages of labour, expenses on power and other overheads during manufacturing.

 

• Market condition- When market has positive sentiment i.e. high demand for goods and services because of high income and purchasing power of consumers, companies set higher prices for their products. On the contrary when there is depression or negative sentiment due to lack of demand in market, price is also kept low by firms. For example, automobile companies increase prices of cars when there is high demand and offer heavy discounts when demand is low.

 

• Competition in the market- If there is no other firm in the market offering similar product, the firm may set a higher price for its product or service, but if there are many market players for the same product, the price will be kept competitive. For example, Airtel initially kept high prices for its mobile services, but with entry of Vodafone, Idea and Reliance Jio the prices for various mobile services have been slashed.

 

• Brand and quality of product- A higher brand-value and better quality corresponds to a higher product price in the market. For example, a simple jewellery store in the Chandni Chowk market of Delhi will set price of its ornaments based on cost of gold/silver and making charges (cost of labour for making a particular piece of jewellery). But a high-end jewellery store such as Kalyan Jewellers or Tanishq will

price similar ornaments at a much higher price owing to its brand-value and reputation in the market.

 

Price must be supporting other elements of the marketing mix. Too high or too low pricing of a product could mean lost sales for the organisation.