Page 178 - DMGT509_RURAL MARKETING

Unit 9: Pricing Strategies

8. Better payment terms Notes
9. Comprehensive longer guaranty and warranty
10. Better value for money
11. Better sales team

12. Tailor made products or customization of products
It must be clearly understood that the customer's don't pay for the product alone. They pay for
the value or the benefit the product is going to provide them. It is the customer's perception of
products value to them, which justifies the price.
Price and product quality gets firmly established in the minds of the customers and many times,
lowering of prices to increase market share becomes counterproductive as the customers feel
that there has been a lowering of quality in the product which has caused the price reduction.
The price, which is fixed for a new product, is based on the following:

1. Price of competitive product, if any
2. Cost to manufacture
3. Market segment for the product
4. Product position in the market place

5. Hierarchy of distribution network, it determines the total sales commission to be paid to
the channel members
6. Product itself, its uniqueness as compared to competition

7. Transportation costs: It becomes important in rural markets with long distances, bad
roads and having at times difficult accessibility.
As soon as competition forces its way in the market the firm has to decide to have one of the
following price methods.
For top quality product, skimming price or top price, should be chosen which will place the
product in the elitist market segment and generate good profits. The high price can be sustained
because of high brand value.
For top quality product a medium price, will give good value for money to the customers and
place the product in select market.
For top quality product a low price or penetrating price, will would place the product at the
lower end of the segment and increase firms market share. It will act as an entry barrier for new
players.
For medium quality product a top or skimming price would provide extra profits, and also
invite competition.
For medium quality product a medium price will give the customers value for money and place
the product in select market segment.
For medium quality product a low or penetrating price would place the product at lower end of
the segment, give value for money, increase market share and profitability and increase barriers
for new entrants.
For low quality product a top or skimming price would work only during monopoly regime.
Otherwise, it will lower market share and invite competition. For low quality product a medium
price will place the product in select market segment and invite competition.

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