Page 187 - DMGT408DMGT203_Marketing Management

Marketing Management/Essentials of Marketing

Notes
Example: Insurance companies charge a premium, colleges charge a tuition, a lawyer or
physician charges a fee, taxis charge a fare, banks charge interest for a loan, taxes are paid for
government services, a toll is charged for some bridges etc.
Pricing should never be seen as an isolated component of a company’s marketing decision-
making. Companies spend large amounts of money on product development, promotion, and
distribution and face risks. Price is often the only marketing mix element that can be changed
quickly to respond to changes in demand or competitive moves. Developing new products or
modification of existing products, any changes in promotional programme, or distribution
system involves much time and efforts. As mentioned above, price is the only element directly
related to total revenue generation. A miscalculation of selling prices in high turnover and low
profit margin in businesses can have a large impact on a company’s profits.

!
Caution The following equation is significantly important for the entire company:
Profits = (Prices × Quantities sold) – Total costs
Thus, prices have impact on a company’s profits and are important for its long-term survival.
Price also has a psychological impact on customers and can reflect product quality and user
status. This is especially true for ego intensive products. A company can highlight the product
quality and user status by keeping the price high.
For most companies, setting prices can be a complex task involving both scientific analysis and
intuitive trial and error. This is particularly true when a company launches a new product and
there are no historical data or precedent on which to base expectations of how much consumers
are prepared to pay for the product.

Caselet Pricing is for the Customers

es, the pricing does create a new customer. Nabankur Gupta, corporate advisor
and director, at the Raymond Group, believes the customer is now at the centre of
Yany marketing plan. “The customer decides the product price, where to buy, and
the kind of communication he wants,” he says. “The customer determines the balance
between a product and its price.”
In items of everyday use, price is the determining factor, which is why people rush to
hypermarkets, such as Big Bazaar, where items of everyday use are available at discounted
prices. The FMCG industry seems to have understood the customer’s psyche very well;
which is why they keep reducing the prices of toothpaste, soaps, detergents, edible oil etc.,
or top it with an interesting offer like buy one get one free.
The runaway success of sachet products, kick-started by Velvet shampoo, is also a clear
indicator that if a desired product is available in an affordable price, everybody will lap it
up. The strategy of pricing of Coke and Kitkat at ` 5 seems to have worked well indicating
that price matters.
In items of everyday use, even the upper classes are price conscious. On a given day, it is
not uncommon to see more than 800 cars parked outside Big Bazaar, located at Mumbai’s
Lower Parel. This is a clear indication that the upper class is price conscious when it comes
to certain categories. Take for example, Lever’s Sangam Direct, the supermarket-on-the-
phone. It is proving to be quite popular with this segment.
Contd...

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