Pricing

Pricing is the process of setting a price for a product. Pricing takes account of the value of a product, its quality, the ability of the customer to pay, the volume of sales required, the level of market saturation and the prices charged by the competition.

Pricing involves setting the pricing objectives and selecting a pricing method to achieve these objectives. When determining a pricing objective firm may choose among maximizing profits, maintaining or increasing its share of the market, creating a specific demand for its product, differentiating its product from similar products provided by the competitors.

Once a firm has determining its pricing objectives, it must select a relevant pricing method and strategy. The pricing method offers a `basic` price for each product. Pricing strategies are used to modify the basic price according to pricing objectives and the market situation.

The three kinds of pricing methods are cost-based pricing, demand-based pricing and competition-based pricing. The essence of cost-based pricing is determining the total cost of producing one unit of the product and then adding the markup that is the amount that covers additional costs such as insurance or interest and profit. The resulting sum will be the selling price of the product. In demand-based pricing the breakeven analysis is applied. In this case the total revenue from all units sold must equal the total cost of all units sold. The total revenue is the total amount received from the sales of the certain number of units. The total cost of producing a certain number of units is the sum of the fixed costs and variable costs attributed to those units. In competition-based pricing the firm simply sets the same price that its competitors charge for similar products.

Pricing strategies depend on the firm’s pricing objectives, the markets for its products, the degree of product differentiation, the life-cycle stage of the product, and other factors.

When introducing a new product or innovation the firm sets either the highest possible price to recover more quickly the high costs of production (the strategy of price skimming) or a low price in order to capture a large market share (the strategy of penetration pricing).

Psychological pricing strategies (odd-pricing, multiple-unit pricing, prestige pricing or pricing lining ) are based on consumers’ subjective perception. Firms that apply odd-pricing, multiple-unit pricing, prestige pricing or pricing lining aim at attracting consumers for different reasons: to pay less as with or multiple-unit pricing or to have a wider choice of different brands sold at the same price as with price lining. Whatever the reason the firm increases sales and profits.

Distribution

The idea of distribution is getting product from the producer to the customer, who is usually called the end user (ultimate consumer), in the quickest and most efficient way. This goal is achieved through marketing or distribution channels that link the producer and the user with the aid of middlemen or marketing intermediaries. Middlemen are concerned with the transfer of ownership of products. A merchant middleman, often called a merchant, is a person who actually takes title to products by buying them. A functional middleman , on the other hand, negotiates purchases or sales, or both, but does not take title to the products.

Consumer products may go through various channels of distribution:

1)Producer – sells directly to end users via own sales force. This channel is often called the direct channel.

2)Producer – retailers – end users. A retailer is a middleman who buys from producers or others middlemen and sells to consumers. Producers sell directly to retailers can buy in large quantities.

3)Producer – wholesalers – retailers – end users. This indirect channel is known as the traditional channel, because most consumer goods are directed through wholesalers to retailers. A wholesalers is middleman who sells products to others firms.

4)Producer – agents – wholesalers – retailers – end users. This indirect channel is used for inexpensive, frequently purchased products that are sold through thousands of outlets to millions of ultimate consumers.

Industrial products are sold either directly to industrial users or indirectly through agent middlemen, who serve as independent intermediaries between the producer and industrial users. Agents usually represent sellers and receive commission, that as a percentage of the value of the goods they sell.

After evaluating a number of factors the producer can choose a particular intensify of market coverage. Using intensive distribution the producer saturates the market by selling to any middlemen who are willing to stock and sell the product. Many Through selective distribution manufacturer uses only a portion of outlets in each geographic area, granting franchises for the sale of goods or services. Exclusive distribution is usually limited to a single outlet in each geographic area, dealing with very expensive and prestigious products.