Pricing Strategy

Pricing Strategy
Sourabh Kumar Saha
–
Calcutta Business School PGDM-2008 Page 1
Abstract :
From time to time we come across instances where businesses are not realizing their fullpotential
when setting prices. Sometimes this can mean missed revenue, in other cases it canhave a
negative effect on the brand
–
sending a mixed message of what it stands for. In eithercase profits can be lost. In this research
paper , we take a look at the key factors to consider whenreviewing your pricing strategy. Price
is the only revenue generating element amongst the4ps,the rest being cost centers. Pricing is the
manual or automatic process of applying prices topurchase and sales orders, based on factors
such as: a fixed amount, quantity break, promotion orsales campaign, specific vendor quote,
price prevailing on entry, shipment or invoice date,combination of multiple orders or lines, and
many others. Automated systems require more setupand maintenance but may prevent pricing
errors. In setting pricing policy, a company estimatesthe demand curve, the probable quantities it
will sell at each possible price. It estimates how itscosts vary at different levels of output . In this
paper , we also study situations when companiesoften face situations where they may need to cut
or raise prices. The firm facing a competitor'sprice change must try to understand
the competitor's intent and the likely duration of the change







Pricing Strategy
Sourabh Kumar Saha
–
Calcutta Business School PGDM-2008 Page 2
Introduction :
One of the four major elements of the marketing mix is price. Pricing is an important
strategicissue because it is related to product positioning. Furthermore, pricing affects other
marketingmix elements such as product features, channel decisions, and promotion. Price is the
oneelement of the marketing mix that produces revenue; the other elements produce costs. Prices
areperhaps the easiest element of the marketing program to adjust; product features, channels,
andeven promotion take more time. Price also communicates to the market the company's
intendedvalue positioning of its product or brand. A well-designed and marketed product can
command aprice premium and reap big profits.
Motivation :
Developing strategy is one thing-managing the change process to embed that strategy in
theorganization is quite another. The truth is that implementing effective pricing strategy
involveschanging the expectations and behaviors of all of the actors involved in the sales
process.Customers must learn that they will be treated fairly and that abusive purchase tactics
will not berewarded with ad hoc discounts. Sales must learn that they will be rewarded for
closing dealsthat increase firm profitability rather than using price as a tactical lever to increase
sales volume.Finance must learn to look beyond cost as a determinant of price to better
understand thetradeoffs between price, cost, and market
response. ―Financial incentives are, without question,
one of the
most powerful levers for behavioral change among salespeople.‖

What a price should do :
A well chosen price should do three things:Achieve the financial goals of the company (e.g.,
profitability)Fit the realities of the marketplace (Will customers buy at that price?)Support a
product's positioning and be consistent with the other variables in themarketing mix price is
influenced by the type of distribution channel used, the type of promotions used, and the quality
of the productPrice will usually need to be relatively high if manufacturing is expensive,
distribution isexclusive, and the product is supported by extensive advertising and promotional
campaignsA low price can be a viable substitute for product quality, effective promotions, or
an energeticselling effort by distributorsFrom the marketers point of view, an
efficient price
is a price that is very close to the maximumthat customers are prepared to pay. In economic
terms, it is a price that shifts most of theconsumer surplus to the producer. A good pricing
strategy would be the one which could balancebetween the price floor(the price below which the
organization ends up in losses) and the priceceiling(the price beyond which the organization
experiences a no demand situation)