1. A GROUP PRESENTATION ON PRICING DECISION
PRIYANKA BASNET
KRISHNA GUPTA
BIKASH SHARMA
RANJANA YADAV
SABITA KHAREL
TANK RAJ BHATTARAI
BINISHA GHIMIRE
EKRAJ KOIRALA
PUJAN SHRESTHA
NIBESH SHAHI
GROUPMEMBERS

2. PRICING
PRICING is the act of determining the exchange value between
the purchasing power utility or satisfaction acquired by an
individual, group or an organization through the purchase of
goods, services, ideas, rights etc.
It is one of the critical decision making areas in marketing.
 This element of the marketing mix cannot be moved too
frequently as it is closely associated with quality of product and
services.
 It involves many activities performed within an organization to
determine the exchange value, such as setting the base price,
determining discounts and commissions, and formulating pricing
objectives, policies and strategies.
It is the most secretly performed activity in a business
organization .

3. Continue…
Method adopted by a firm to set its selling price. It
usually depends on the firm's average costs, and on
the customer's perceived value of the product in
comparison to his or her perceived value of the
competing products. Different pricing methods place
varying degree of emphasis on selection estimation,
and evaluation of costs , comparative analysis, and
market situation.
 Is the process of determining what a company will
receive in exchange for its product or service.

4.  Pricing factors are manufacturing cost, market place,
competition, market condition, brand, and quality of
product.
 Pricing is also a key variable in price allocation theory.
Pricing is a fundamental aspect of financial modeling and
is one of the four Ps of the marketing mix. (The other
three aspects are product, promotion, and place.)
 Price is the only revenue generating element amongst
the four Ps, the rest being cost centers. However, the
other Ps of marketing will contribute to decreasing price
elasticity and so enable price increases to drive greater
revenue and profits.

5. PRICE
• The price we set for our offering plays a large role
in its marketability. Pricing for offerings that are
more commonly available in the market is more
elastic, meaning that unit sales will go up or down
more responsively in response to price changes. By
contrast, those products that have a generally more
limited availability in the market (but with strong
demand) are more inelastic, meaning that price
changes will not affect unit sales very much. The
price elasticity of your offering can be determined
through various market testing techniques.
• Price is the value placed on what is exchanged. It is
usually expressed in terms of monetary units.

6. What a price should do???????
A well chosen price should do three things:
 achieve the financial goals of the company (i.e. profitability)
 fit the realities of the marketplace (will customers buy at
that price?)
 support a product's market positioning and be consistent
with the other variables in the marketing mix

7. CONTINUE….
 price is influenced by the type of distribution channel used, the type of
promotions used, and the quality of the product
 price will usually need to be relatively high if manufacturing is
expensive, distribution is exclusive, and the product is supported by
extensive advertising and promotional campaigns
 a low cost price can be a viable substitute for product quality, effective
promotions, or an energetic selling effort by distributors
 From the marketer's point of view, an efficient price is a price that is
very close to the maximum that customers are prepared to pay. In
economic terms, it is a price that shifts most of the consumer
economic surplus to the producer. A good pricing strategy would be
the one which could balance between the price floor (the price below
which the organization ends up in losses) and the price ceiling (the
price be which the organization experiences a no-demand situation).

8. IMPORTANCE OF PRICE
Pricing or determination of price is important not only for
private firm, it is also equally important for the entire
economy. So, the importance of pricing is discussed in view
of the entire economic system and private firm.
1. Importance Of Pricing In The Economy
Pricing is very important in the economic system of any
country. Pricing is taken as a major function in open market
system or free industrial system. Price of a product or
services affects wages, cost, interest and profit. So, price of
any product affects the price paid for the factors of
production such as labor, land, capital and entrepreneurship.

9. Continue..
• Price affects the production process,
• allocation of the factors of production and the entire
economy.
• High wages attracts workers, high interest rate attracts
capital and high profit motivates business entrepreneurs.
• As the allocator of scarcely available means, price
determines what should be produced and who should get
the produced goods or services.
• In other words, price is very important in determining
demand and supply of good or services. So, pricing plays a
decisive role in smooth functioning of free and market-
oriented economy.

10.  Price affects demand:
 Price manages the demand for products in an
economy.
 It plays the most important role in determining the level
of demand for a product.
 The price of a product determines the number of
buyers whose purchasing power allows them to buy it.
 As the price is reduced, more buyers are motivated to
buy the product. However, the marketer can encounter
an inverse demand pattern in which, as the price
increases the sales volume also rise. For example: in
the case of status and prestige related products,
jewelry etc.

11.  Price affects savings:
 During a high inflation period, though the consumer’s
income and the price level rise, consumers normally find
difficulty in copying with the rising price level. The rise in
price reduces the level of savings in the society that results
to lower investment levels.
 Pricing a major government activity:
 In an underdeveloped country like Nepal, the government
has to take several decisions.
 It has to determine the prices for its direct services-
security, law and social order- for which people pay prices
as taxes and tolls, public utilities such as: water supply,
electricity, postal services and so on.

12. 2. Importance Of Pricing In The Business Firm
 Pricing is equally important in each business
firm. Among the four Ps of marketing mix, price
is the only element from which a business firm
gets money.
 The price of any product becomes the major
determinant of its market demand.
 Price of the product of any firm influences
competitive situation and market share .
 Similarly, the price directly contributes to the
income and net profit of a firm. On the whole
among the marketing activities of a firm, pricing
is such a sensitive aspect to which the
consumers, competitive firms and government
are directly concerned.

13. The importance of price in an organization may be
viewed from the perspectives of revenue, profits
and competition.
REVENUE AND PROFITS:
 Revenue is equal to the price multiplied by sales
volume.
 If an organization lowers the price of a product, and if
the sales volume remains constant, it receives less
revenue and vice versa.
 A habitual price change not only ruins the organization’s
revenue and profits, but also damages the corporate
image.

14. COMPETITION:
 Price is a major tool to deal with
competition.
 When an organization applies price
competition, it lowers the price to attract
a large number of price-conscious
buyer to the product. This results on
higher sales volume and lower
marketing costs.

15. 3. Importance Of Pricing To Customers
Pricing is beneficial to the customers, besides the
concerned firms and the entire economy.
 Price is important in selecting goods according
to the need and financial capacity of consumers.
The price makes the customers confident about
the quality of the goods they buy.
Generally, high price makes the customers
perceive good quality of a product. When the
price of goods falls down the customers are more
attracted towards the goods, and when their
income level declines, they like to buy low priced
goods. So, price of goods affects customers
benefits.

16. Pricing Objectives
• Profit maximization
• Return on investment
1) Profit Oriented

17. 2) Sale Oriented
• Maintain or Expand market share
• Increase sales volume
Expansion of market share is achieved through high promotion &
intensive distribution under a low price profile.
Higher volume = lower cost.
Higher profit in long run.

18. 3) Status quo-oriented
Such objectives are targeted at maintaining the current situation of organization. These
objectives are very passive in nature & orgn doesn’t take any initiative in price change.
Survival
• Keep price
low to stay in
business.
• Often
strategy for
start ups.
Price
Stabilization
• In order to
maintain the
existing
situation on
the price,
revenue &
profit.
Meet
Competition
• Follow the
prevailing
market price.
• Watch &
follow the
price of
market leader

19. Factors affecting price determination
1. Internal factors-
• Pricing objectives,
• Marketing Mix,
• Costs,
• Image of the Firm,
• Product Life Cycle
• Credit Period Offered,
• Promotional Activities,

20. 2. External Factors-
• Market Demand,
• Competition,
• Government Control,
• Economic conditions,
• Channel Intermediaries,
• Social Concerns,

21. Methods of setting prices
• Pricing methods are of three type
I. cost oriented method
II. Customer value(demand)oriented method
III. Market (competition) oriented method

22. contd
 Cost oriented pricing method
 A method of setting prices that takes into account the
company’s profit objectives and that covers its costs of
production.
 Cost oriented pricing strategies are develop with the
focus on understanding cost basis setting prices at a
certain threshold above that point.
 Cost oriented pricing method include:
 Cost-plus or mark up pricing
 Target return on investment pricing
 Target profit or break even pricing

23. Cost-plus or mark up pricing
 This is must basic way to set price.
 This pricing method involves a calculations of the fixed and variable cost per
unit and adding the desired profit margin on the total cost.
 For example: an organization has Rs.10,000 as direct cost of manufacturing
1000 units of a product and Rs.5000 as fixed expenses. If the organization
wishes a profit or mark up of Rs.5 per unit, it arrives at the units with a
simple calculation as shown in the following illustration.
units to be produced and sold=1000 units
direct cost(labor and material)= Rs. 10000
fixed overhead= Rs.5000
total cost=Rs.15000
average cost per unit=total cost/total unit produced
=15000/1000
=RS.15

24. contd
mark up or profit per unit=Rs. 5
price per unit=cost + mark up=15+5=Rs.20
 Target return on investment pricing
 The return on investment pricing method determines the price of a
product based on the target on the amount invested in a product.
 Under this method, the desired return on investment is added to the
total cost to arrive at the price.

25. Contd …..
• For example, if a firm has invested Rs,1,00,000 in plant and
machinery and wants to get 10 percent annual return on the
investment by producing and selling 1000 units of a product. If
manufacturer has total costs at Rs.50,000 and variable cost per unit
at Rs. 30, it will arrive at the price through a simple calculation as
shown in the following illustration.
total investment=Rs.1,00,000
total fixed cost=RS.50,000
ROI:10% on investment=Rs.10,000
fixed cost + ROI=Rs.(50000 + 10000)=Rs,60,000
Per unit FC+ROI=60000/1000=RS.60
Variable cost per unit=RS. 30
Price= Rs.60+ Rs.30=Rs. 90

26. Target profit or break even pricing
• This method uses the break even analysis (BEA) to evaluate the revenue
and profit scenarios at several pricing alternatives.
• In BEA, the total cost is segregated into two groups :
 Fixed cost
 Variable cost
 The total fixed cost is assumed to be constant over different scales of
production and the average variable cost is assumed to be constant per
unit.
 The break even point is the no profit no loss point.
 If sales (revenue) increase beyond this point , the organization is able to
make a profit.
 This break even points can be computed in terms of units as well as
monetary volume(in RS).

27. contd
Formula to calculate BEP in units and in Rs
BEP in units = Total fixed cost/ fixed cost contribution per unit
Fixed cost contribution per unit=sp-vcpu/total fixed cost
where, sp=selling price
vcpu=variable cost per unit
sppu=selling price per unit
BEP in RS=1-vcpu/sppu
There are two types of BEA. They are:
 Simple break even analysis
 Flexible break even analysis

28. Simple break even analysis
o In simple BEA, there are three elements:
I. Fixed cost,
II. Variable cost and
III. Total costs and total revenues
o The point at which total costs curve and total revenues curve cross is the break
even point.
o For example, the xyz company has following cost and revenue structure.
Total fixed cost=Rs 20,000
Variable cost=Rs. 2 per unit
price =RS 5 per unit
revenue and cost scenario calculated up to 10000 units.
The xyz company needs to sell 6667 units of biscuits in order to break even. Any units
sold above this point is profit and below is loss.

29. Flexible break even analysis
 Several pricing alternatives can be evaluated by the use of a break
even chart(FBEA).
 For example, if xyz company has developed four pricing alternatives
Rs.4.50, Rs.5.0, Rs.5.50, Rs.6.0 under the same cost structures,
they can arrive at four different break even points and four profit/loss
situations.
Unit price(
in Rs)
Fixed
cost(in Rs)
Variable
cost(in Rs)
Contributio
n margin(in
Rs)
BEP in
units
4.5 20000 2 2.5 8000
5 20000 2 3 6667
5.5 20000 2 3.5 5714
6 20000 2 4 5000

30. 2. demand-oriented Pricing
Method
One of the major limitation of Cost-oriented
pricing method is that it fail to take into account
the demand for the products at various prices.
This drawback is overcome by “Demand-
oriented pricing method.”
The demand is brought into the pricing picture
through the sales estimates.
When such sales estimates are integrated into
the flexible BEA it provides better price setting
scenario.

31. Flexible break-even analysis(FBEA)
with sales estimates
This method shows where the company will start
making profit or what volume of profit will it make at
different sales volume.
For this first of all, an estimate of the sales of the
product needs to be generated at four price
alternatives.
Now if the sales estimates are integrated into the BEP
scenario, the company can get a more realistic pricing
picture.

32. How to generate sales estimates???
The sales estimates may be generated from
the:
Past sales trends,
Experts opinion,
Through a market survey.

33. Consider an example:
Unit
price
Estimated
sales
Total costs=
fixed + variable
Total revenue=
Price × sales
Profit(loss)
Rs. 4.5 9,000 20,000 + 18,000 =
38,000
40,500 2500
Rs. 5 8,000 20,000 + 16,000 =
36,000
40,000 4,000
Rs. 5.5 5,000 20,000 + 10,000 =
30,000
27,500 (2,500)
Rs.6.0 4,000 20,000 + 8,000 =
28,000
24,000 (4000)
Assume unit price = Rs. 2 per unit, F.C = 20,000
The given sales estimates have been assumed and integrated into
FBEA analysis.

34. Results :
This analysis shows that under the various
sales estimates(demand) scenarios, the
best price alternative is Rs.5.0 which gives
a profit of Rs. 4000. Other prices either
give less profit or losses to the company.

35. Graphical Representation
The sales estimates can be integrated
into the FBEA chart to make profit or loss
estimates at different price level.
The price that gives the highest vertical
distance between the demand curve and
the total cost curve is the best price.

36. Variable cost
60,000
50,000
40,000
30,000
20,000
10,000
1 2 3 4 5 6 7 8 9 10
Sales curve
Units(in ‘000’)

37. Benefits of BEA:
It effectively provides an estimate of revenue
and profit situation at various pricing
alternatives.
It tells marketer about what quantity or
volume of products it has to sell in order to
break-even.
BEA is very useful for many public
enterprises that usually operate close to the
BEP.

38. Limitations of BEA:
There is difficulty in separating the total costs
into fixed costs and variable costs.
The fixed as well as variable costs don't
behave in the way as assumed in the BEA.
Although FBEA brings demand in the pricing
picture by using sales estimates at various
prices, it is not easy to generate demand
schedules as perceived in the analysis.

39. 3. Value-orientedPricing Methods
This method is based on customer’s value
perception rather than costs of the product.
VOPM is adopted by a large number of
companies. It is of two types:
Perceived value pricing(used for new product)
Customer value pricing(used for an existing
product)

40. Difference between cost oriented and
value oriented methods
Under cost oriented, price setter first determines
the price of the product to arrive at a price for
the product and then decides how to create
values for customers in terms of various images
associated with the product.
Under perceived value pricing, the price setter
first determines the customers perceived value
for the product and then formulates strategies to
make the cost compatible with the price.

41. Product
cost
customersPrice
Value
creation
Customers Perceived
value
Price Product
cost
Cost Based pricing
Perceived Value Pricing

42. 1. Perceived value pricing
Under this method, the firm collects the
buyers perception of the value (price) of the
product and fixes the price around the
average perceived value.
Cost and demand are the secondary factor in
this method of pricing.
Organizations use non-price variables such as
packages, product quality, product image to
collect the price perceptions from buyers.

43. 2. Customer value pricing
Under this method, an organization may charge a
very low price for a high quality product to create
special customer value for the product.
It is adopted by those organizations that have
width or depth in their product line or mix.
This method allows an organization to lower
down the product costs of high customer value
products through large sales volumes.

44. 4. Market or Competition-oriented Pricing
Methods
It is based on competitors prices.
Under this approach the price setter doesn't
consider costs and demand as major pricing
factor.
An organization operating in a highly
competitive market may price equal to,
slightly above or slightly below the
competition level.

45. A. Going-rate pricing
• The organization bases its price at the prevailing
market price.
• An organization selling an undifferentiated product
may determine its price equal to competitive level.
B. Pricing above competition
• The organizations whose product can be differentiated
to some extent may price the product slightly above
the prevailing market price.
• If the marketer has higher image or goodwill, then it
can afford to set the price above competitive level.

46. C. Price below competition
• It is a popular pricing methods adopted by
organizations that operate in a highly
competitive market.
• Organizations who price below
competition believe that more buyers can
be attracted by lower prices.