Answer:
The following attributes are taken into consideration at the time of price finalization:
- Price and quality perceptions of the target market customers. In many products, price and quality do get interlinked and any lowering of price or keeping price lower than competition has a definite effect on customer’s mindset, as they believe lower price could mean lesser quality product too.
- Brand equity.
- Advertising penetration and effect on the customers.
- Price of other products of the firm in relative terms of their importance to the customers.
- International farm produce prices could depend on the relative balance of payment situation with a particular country, as well as currency exchange rates and tariffs. (It would be of interest to the students to know that during the existence of the USSR, India’s trade with it was known as rupee trade, as both the countries were short of hard currency, the dollars. Needless to add that the USSR had no need of our rupee and we had none of their Money, it was in true sense a barter arrangement where each country could sell to the other some useful but mostly useless items to the other country).
- It could also be in two parts, one barter and the other could be cash payment. It can be said that the firms need to have information on competition and the customer’s psychology before the price can be fixed correctly. As the markets are dynamic entities, pricing mechanism also has to be kept in readiness for changes as per market needs and firms own objectives.
As most consumer and several industrial products are sold through distribution channels, their price must take in to account the margins to be offered to the channel members or their possible mark-ups, in the event that they are given one price by the manufacturer and asked to add their profits or mark-up on to the price. Hence the retail price could be made up of the following two different offers as follows:
- Technical bid giving the product’s technical specifications, capabilities and conformance to the specifications needed by the buyer.
- Commercial bid giving the price and other terms of business.
The sealed bids are opened on a designated date, time and place in front of the bidders. First the technical bids are seen and those not meeting with the desired specifications are excluded from the tender.
Next, the commercial bids are opened and the buyer decides on its basis the firm/s on whom the order is to be placed.
When the firm offers its price to the customer as Maximum Retail Price (MRP), it includes the margins of the channel members, which could be as shown above or differently. Besides, the firms offer, cash discounts if the channel members pay cash. Discounts on offer could be in the following situations:
- Cash discount on cash purchases.
- Turnover discounts given on the basis of the channel member achieving a given and accepted turn over in product sale.
- Inventory clearing discount is given when the firm has large inventory and the discount acts as incentive for the dealer to buy more.
- Quantity discount is offered for purchase of a minimum specified quantity.
- Advertising subsidy is actually the money given as share of common advertising by the firm and the channel member.
- Off-season discount for buying the product when it is not needed like buying woolens during summers and air conditioners during winters. (In fact, for air conditioners there is, at times a premium during summer).
Prizes for super achievers among the channel members are offered to those dealers who have at the end of the year done remarkably well. It could be a gift or a free trip to some exotic location at the firm’s expense.
Price changes can be made due to special circumstances also. At times, firms want to generate extra cash and they off-load products at a much lower price, often even at a loss. In exhibitions, melas in rural India special prices are offered to exploit the buying mood of the people visiting these places. Cash discount to the channel members can be extended further to the customer/ user, which would ultimately reduce stocks in the distribution channel, and the firms can than have additional sales.
A major cost related incentive offered these days is low cost finance to the buyer, who can buy the product on borrowed money and pay to the financier in installments. In rural India, tractors, seeders, harvesters are bought on financing basis. Cars, houses and several consumer durables are being sold in large quantities, which have affected the sale of second-hand goods in India. Extra help can be provided by way of extended payment terms making buying easy and with no worry for making early payments.
Service marketing offers different types of challenges to the sellers. For example, a hotel or an inn may get two types of customers.
- One person who comes alone, stays for a day in one year and spends about ₹ 5000.
- Another person comes three times in a month, brings three to four colleagues with him and spends about ₹ 500000 per annum.
- It is said that the customer is the King. Can we say that the second customer is definitely the King? What about the first one? Is he only a prince? Maybe he will become a King in time.
Most service industry therefore needs to do a Customer Value Analysis (CVA). For a star hotel the following matrix needs to be completed to give a proper designation to each customer/customer group.
| Room type/ordinary. Deluxe/suite | Health club usage | Restaurant/bar usage | Business centre usage | |
| Tourist solo | ||||
| Tourists in groups | ||||
| Small businessman | ||||
| Senior executives | ||||
| MNC Executives |
Each customer is rated between 1-5 and then only the hotel can decide about the true value of a particular customer to them.
Coming to pricing the following elements go into hotel room pricing:
- CVA
- Competitive pricing
- Cost to sell the room
- Seasonality
- Location of the hotel
