7 - Pricing concepts, effects and decisions

When price is high, the volume of the goods sold are relatively less i.e inverse relation. 

•  Product -  the basis on which customer purchases product - awareness through different media. Customers can be innovators, early adopters, middle majority or laggards.

A connection is made between the product life cycle and the price by the consumer. It is compared to its competitors by consumers, ultimately competition determines its survival in market.

•          Price - the customer perceived value for a product and if he feels the price is justified.
•          Place – how the product is distributed(supply and distribution chain strategy). The length, width and depth of a product determine its distribution.
•          Promotion - how aware the customer is about the product through packaging, ad and distribution strategy - push or pull.

How companies price?

1) Reference price - Lakme has priced this compact comparable to its competitors; all 3 compacts perform similar function.

·         Colorbar UV Perfect Compact 9g (Rs 250)

·         Lotus Herbals Naturalblend Botanical Compact (Rs 314)

2) Price quality inferences -

Mid-price range; hence an effective cosmetic to give an even skin tone for 8 hours; does not change the texture of the skin(not cream based).

3) Price endings-

Rs 265/ 275 - As it ends with 5, it is to facilitate easy customer recall.

Setting price

Selecting pricing objective - It is priced wrt competitors; however within lakme compact range also there is a significant difference between the different compacts.

Determining demand - Seller can charge higher price if he can convince customers that it offers lowest total cost of ownership.

If demand is elastic, sellers will consider lowering the price.

Target costing:

The firm should examine cost elements - design, engineering, manufacturing, sales - final projections should be in target range

Competitors-

Have profit maximization objective, as they react by improving ad budget or improving product quality.

As it is a product in mid-price range, it is at the orienting point.

Price - Only revenue bearing element which contributes to topline.

Cosmetic companies base their price on customer's perceived value.

Buyer's image of product quality, Trustworthiness, esteem - Due to brand name Lakme.

Warranty - 3 years

Customer support - Providing feedback on blogs; inform others.

Supplier's reputation - Health & Glow renowned to provide quality cosmetics.

To avoid increasing prices:

•          Shrink product price
•          Increase pack size
•          Use alternate low-cost ingredients