INTERNATIONAL MARKETING

(PART-14)
(UNIT-IV)
PRICING DECISION FOR PRODUCTS

1. INTRODUCTION
Hello students, welcome to series on international marketing.
Today we are going to study pricing decisions for products.
The basic objective of this chapter is to study:
 concept of price for product
 Impact which price on demand of product.
 Concepts related to various types of prices existing into market.

Definition of price - Price is defined as the amount of money charged for

particular product or service in market. It is most flexible element of
marketing mix, which is very difficult to be decided because attitudes of
consumers are difficult to be changed. It is dynamic element in marketing
mix because it is inference by various elements of environment. The
basic trouble with price is that, if price is very high, potential customers
go away but if price is very low, it is difficult for company to make up
profits. So it is difficult thing which has to be decided.
There various factors which influence pricing decision are:
 internal factors
 external factors

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Internal factors related to impact on price are:
 objectives of company
 marketing objectives of company
 Marketing has to be done on aggressive basis and products are
covered to be larger distances, amount of money invested for this
promotion will be large and customers will have to bare price
associated with marketing cost.
Marketing mix strategy includes:
 Promotion
 Place
 Product
 Distance covered
The other things associated with promotion of product are:
 cost of product
 basis element of raw materials
 labor
 normal opportunity cost associated with price of product
 National consideration of their employee and of sector.
Marketing objective that affect marketing decision are shown over here.
The marketing decision varies from company to company and also from
place of product. The product line has:
 introductory phase
 growth phase
 Decline phase
The various positions where companies have to decide in which phase the
product is surviving.

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Survival is important for company and survival depends on low price and
variable cost associated with products.
Variable cost is essential and is elated to raw material and pay given to
labors.
Fixed cost - associated with company but this can be covered up to
gestation period associated with product.
Current profit maximization principle- is important to choose price that
produces maximum current profit so as to increase cash flow and return
on investment.
Market share leadership is also important, price has to be as low as
possible, so that price becomes winning strategy into market and the
increasing market share in total concept of market

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Product quality leadership- is also important because the high prices are
needed to cover quality requirements of customers.
Quality for services- quality for raw material associated has to be
covered by price.
Marketing mix strategy consist of four elements
 price
 place
 product
 promotion
These four parameters have to be taken into consideration before you
decide product-price for any element in market
 Service
 Product
 Idea or any brand you carry

2. MARKETING VARIABLES AFFECTING PRICING DECISIONS

Marketing variables affecting pricing decision are shown over here.
 Price must be considerate and must coordinate with product design
 Non-price factors
 Promotion cost
 Distribution channels

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These decide marketing mix strategy as we have shown you in this model.
cost affects pricing decision, cost is amount of money invested i.e. cost
don’t vary of sales of production aspect but it is things associated with
raw material, rental paid, insurance and or variable cost.
Variable costs do very directly with material cost but still at very large
scale of production, we have economies of scale where we are able to
cover these costs. So the two costs affecting pricing decision are:
 fixed cost is overhead cost
 Variable cost is cost associated with material cost.

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These are shown over here.

The total cost is sum of

 fixed cost
 Variable cost at a given level of production.
So the parameter to cover for whole decision are related to pricing
impacts are
 management responsibility
 process
 Social responsibility to charge a reasonable price from customers.

3. PRICING DECISIONS
Small companies - It is difficult to manage prices because sales turnover
is less but for bigger companies it is easy to manage price because of
large economies of scale.

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Price is also impacted by external factors.
External factors are determined by
 demand
 Supply equation existing into market.
 lower limit of prices
 demand
 Upper limits, so you have to balance this.

The marketers must understand relationship between price and demand

for product as we have shown you in this model. External factors do
impact cross selling and up selling. This also covers various prices related
to promotion through these aspects.
Cross selling is process where company tries to promote and sell or
product related to main product. That if you buy main product you are
able to buy accessories associated or it is combination of product bundle
created i.e. you giving a product with services, which are charged by
manufacturers. Up selling occurs by training of sales employees where
they try to sell higher end of product. Like if you go out for a dinner in a
restaurant, you end up eating a costly ice-cream or a costly coffee. You
drink a coffee, so this extra thing which you added with dinner is up
selling where sales staff to try to convince customers with courtesy
details. The external factors related to consumers perception in prices
relate to value they get out of product at end of date; consumer decides
what to buy on basis of right mix of price producing promotion.

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Pricing decisions are buyer oriented – They are consumer oriented
goods. Pricing begins with analysis with needs of customers and budget.
Value is what customer wants for return of money which he has invested
into product.
 Target market
 Selling of product
Analysis with consumers’ needs related to that particular segment.
Recognition of differences between sellers and buyers perceptions has to
be matched out.

4. DEMAND AND SUPPLY IMPACTING PRICE

This is a basic equation which has to be built up but ultimately price is
determined by market mechanism of demand and supply.
If demand is high prices are high and if price is low demand is high
The prices very inversely, if price is low definitely demand is going to
up, demand curve for prestigious products is hugely high because
products are costly but there are some factors that affect luxury and
prestige details where price associated with premium cost is charge for
status and prestige value.

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Demand curve - when price changes from P1 to P2, quantity does not
changes that means product demand is lasting and change of quantity of
products remained is very less for a period of time but when price
changes from p1 to P2 and quantity demanded also changes, then this is
taken as elastic demand, so when demand of product is influenced by
price, we determined ethics related to calculation of price at a very large
scale. If demand does not varies with price you can go for quality
increase for or parameters associated with product decoration and
marketing with product but if product is very much price sensitive you
have to look into kinds of details, when you have to control cost of
product. The external factors related to price are also associated with
 inflation
 recession
 marketing cycles existing into market
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  interest rate
 advent of new technology
 or competitive price parameters prevalent into market
These practices and factors impact pricing decision but still the general
pricing approaches are cost based pricing- where the products are
important element, where cost determines price and price gives the
value and this value goes to customers.
Stepwise analysis of parameters which exist in this model
Cost based pricing system - is cost as a percentage, add a standard to
mark up cost.
Mark up cost -is percentage of selling price
Breakeven - breakeven is point where company is at no profit no loss
stayed i.e. it has covered basic fixed cost and variable cost associated
with product. At this stage, cost associated with companies pricing
policies have to be covered and after this factor, company will gain
profits.
Value based pricing approach- use buyer perceptions for value. Setting
price to match with consumers is important and considers various prices
related to competitor’s aspect existing into market.
Competitor based pricing -going price rate or price change into market.
We have some major competitor working into market and you have to
charge price according to whatever markets rates are
Pricing strategies for new products and prestige products is different.
When there are new products, prestige pricing strategy becomes
important. In this we are trying to put a high cost to product so as to
build status to product.

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Marketing skimming price - market price is insensitive, firm will set high
price taking advantage of market and get profit at initial stage but
market penetration strategy is company setup a low initial price to
penetrate market quickly and deeply. This works when product is very
price sensitive into market.
Mass appeal product - has to be sold into rural areas and to poor classes
also.
Price sensitivity - works on premium products, luxury products like
automobile, cars, the advantages of taking prestige pricing policy and
marketing skimming policy.
Product bundle pricing - sellers use bundling to combine several
products and make an offer to be given at a reduced rate. Like, if you
buy something, you get something free, so we buy a combination of
things to sell products. This is common practice to use buyers of products
who otherwise would not have bought that product. It is like hotels,
cruise lines; car rental companies have special attraction when package is
given.
The existing pricing policy:
 Price adjustment strategies
 Volume discounts existing into market
 Special rates are given to customers at a particular volume bulk
 Discounts based on time of purchase
 Price reduction when demand is low in market
 off seasonal kinds of discounts like when you buy a hotel room in
off season you get discount at least 50 to 20%.

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  Existing pricing decisions also relate to pricing adjustment
strategies related to discriminatory pricing strategy. This refers to
 Segmentation
 Pricing differencing based on price elasticity in a particular
segment.
 We have some products and services with two or more different
prices and to differentiate product and service according to needs
of customers and their paying capacity.

Revenue management strategy - is management strategy in which

managing capacity is done by maximizing revenue based on elasticity of
demand for selected customers segments. This is system where change in
price is according to revenues generated into market.
Last minute pricing system where unsold inventory creates a market for
last minute of inventory selling where to clear stock or to clear out sales
they have to give discounts and just make recovery of unsold stock goods
or piled up goods into system.
Psychological pricing strategy - this considers psychology of prices not
economy.
Reference prices - is price at tribute which exists in minds of customers.
Popular products often have reference point such as cup of coffee,
hamburger and Burger at McDonalds, we use prices related to prestige
reference price and we have round figure associated like .99 dollars 1.99
dollars, so this gives a psychological impact to consumers where
satisfaction associated with particular range

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Promotional pricing - give discount at special occasions, like fast food
restaurants can give discount on valentine day and mother’s day. See
example in a Casino hotel, main product is actually gambling but they
offer rooms at a lower rate where promotion through Casino is covered.
So we have various schemes where to promote main product is done by
giving discounts at peripheral products.
Value pricing - everyday low prices, offering a price below competitors
on permanent basis for regular goods, it is anytime product, anytime
services purchased at a price which is lower than competitors. This is for
regular and low price items. Value pricing is risky because company does
not have ability to change cost significantly, may this can be covered by
premium and luxury products.

5. FACTORS AFFECTING PRICING DECISIONS

Factors affecting pricing decisions are:
 internal capabilities of company
 External factors.
Internal capabilities relate to
 organizational association with major collaborations
 Market advantages of brand association.
External factors relate to
 demand competition
 environment
 government
 Supply chain also puts impacts.

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Market demand factors – are also affecting pricing decisions. Pricing is
different in different types of market. Prices relate to
 pure competition
 monopolistic competition
 oligopolistic competition
 Pure monopoly.
Pure competition - when there are many buyers and sellers, who have
little impact on price decisions.
Monopolistic competition - when buyers and sellers, who trade over
selling price, are associated with one strong buyer. Monopolistic
competition exists when there are many buyers and sellers in market but
they trade over a price range
Oligopolistic competition - when there are few sellers, who are sensitive
to each other’s pricing in marketing strategies.
Pure monopolistic condition – there is a single seller into market. So he
can control pricing decisions in market. See demand curve, demand curve
is price associated and quantity demanded into market.
 on y axis--price
 On X Axis -- quantity demanded per period

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When price changes from P1 to P2, quantity demanded also changes from
Q1 to Q2 i.e. of prices increase in quantity demanded will be less. So you
have to associate range what is associated with low price and high price
products which impact buyer’s impulses to use product at a particular
rate.
Cost based pricing systems are most difficult systems.
There is given cost base pricing
There is certainty about cost
Price is simplified and price competition is minimized to give a fair price
for buyers and sellers Cost plus pricing- is in approach that adds
standard mark up to cost of product
Simple pricing method - ignores price of current demand in competition.
Price is cost plus standard markup of company wants to earn.
Simplification formula - ignores many factors related to promotion and
market competition.

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Cost based vs. value based pricing decision do impact company sales
Product is a concept which is divided into cost aspects. Cost is decided
by price and price gives value and customer’s ticket
Value based pricing decisions consider customer first, what is customer
wants, what is value you want? And on basis of ire value perception of
price is going to be determined and this price will determine cost
associated with products and n product will be formed. See we have
combinations of perception associated with customer class, so you going
to add those features which are wanted by customers. See take example
of computer, here we can go for value based pricing suppose we have
middle class customers, who want a computer at rate of 20,000/-, this
could be a value which most of Indian consumer would be able to give, so
in this we have we have decided price and according to that price we are
going to build up cost for product otherwise computer at a cost of
1,00,000/- was also available
IBM - even those companies have started to work with market forces and
come to level that middle class consumers can use products according to
their value perceptions.

6. COMPETITION AND PRICING DECISIONS

Competition based pricing systems is also complex and difficult to be
studied.
Sale bid method where company sales prices bid on what things those
competitors are going to charge or what they will influence systems
happening into market.

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Going rate system - into market where most of competitors combine and
come together to decide for some of rate and the methods of setting of
price rate into competitor markets where the routine price fixation or
price cartels work into market. The product pricing strategies do very
according to company strategy; we have conditions when quality of
product is low and high.
Market skimming strategy relates to a high price strategy because
product quality and image of company is important, you have to build an
image which is decided and built under particular price. Cost cannot be
so high that they take advantage of products of consumer’s exploitation
but you have to in such a way that channel cost in competitor’s basic
range is covered.
Market penetration strategy which works under conditions, when
products are sold to masses, you have to penetrate deep route to larger
masses of people where you have lower class associated also, so
penetration if not is possible through total price cut, would be cutting
product into little-little parts so as to match price to consumers demand,
like we have share marketing or we are coming off with smaller packs of
product which can cross market premium class of consumers and come
to customers, who pay less prices.
Product mix prices strategy where product line is important. In this total
line would be some product which would be high price and some
products will give low cost, this involves setting of prices between
various products in a product line based on cost differences between
products according to customers choices, it is customer evaluation of

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different features associated with product and also competitors price. So
this is product mix strategy.
Optional products and capital products associated with, optional products
are those products where pricing optional i.e. accessory part sold with
main product, you can sell main product at lower cost and you can charge
higher price with accessory product. Accessory product would be related
like if you selling a camera, accessories would be films and rolls
associated with working of camera.
Capital products are pricing products that must be used with main
product i.e. this is be camera is bought, this is optional where he wants
to buy or he doesn’t was to buy depends on customer who is using but
capital product would be sold according to optional product. If optional
product is bought, obviously you have to buy film and roll associated with
product.
Product mix associated - cover cost which cannot be covered with
premium brands or you have to take out stock related to waste i.e.
associated with company so we try to sell this product at very lower cost.
We goes to rural class or to poor class, you have product bundling i.e.
combining several combinations of product offering, so that products
which are not selling could also be offered with main products.
Count and allowance pricing system - adjust basic prices so as to reword
customer for certain responses. The model shows:
 cash discount
 quantity discount
 functional discount
 seasonal discount

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  trade and allowance
 Promotional allowance.
Segmented pricing system where we sell products at more prices .Even
through no differencing cost is like same product is sold at different
prices in different markets. We have customer segments on basis of:
 product forms
 location pricing
 Time pricing systems.
Psychological pricing system - considers only values in perceptions of
customers, consumers use less when can charge higher price because may
be quality of product is reduced and product is sold at a lower price, so
customer cannot understand that it what is he compromise your giving
and what is compromise which is being made into product quality. So
these are basic aspects where you take market perception but still you
have promotional pricing system which desired into strategy where you
have to promote product, where you have special event pricing systems,
you have cash rebates low interest financing, longer warrantees given
free maintenance given for product and discounts. So this total system of
pricing which you shown in this model built up leadership in to market
where price takes various forms of strategies and each strategy is
applicable for different situation existing into market or adjustment
strategies related to pricing of geographical pricing systems and
international pricing systems.
According to geographical pricing systems, we price products for
customers who are located in different parts of country but n you have
zones i.e. we have

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  free economic zones
 port zones
 metro cities
 remote areas
So everywhere transportation cost is different and on basis of this we will
decide products which are consumed in a competitive way or try to gain
and a competitive agent to market.
International pricing system associates for existing price related to cost
of customers, it is economic conditions of market, competitive situations
and international factors related to change in exchange rates also.
Initiating prices change, how be initiate changes into market, we have
two impacts
 price cuts
 Price increases.
Both forces have to be balance, somewhere you have to give and a
discount but sometimes your force increase prices because of changes in
energy price and or changes into fuel price. Why re are price curst, we do
we go for this force, sometimes company starting price because you have
access capacity built in to system and you have to sale this product into
market.
 failing market share
 lower market share
 Increase market share.
Dominate market through cost procedure and why you have to increase
prices, it is when
Product is in demand

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  over demanded product which adds value to companies profile
 earn on product
 cost inflation
 an increase demand
Reactions to price changes into market are related to markets
sentiments.
Price cuts are seen for buyers as opportunities to buy, to buy products.
See reactions when we built up related to price change is when
 build up new models for products
 change current systems of pricing decision when company is into a
financial trouble
 Quality has to be reduced when price has to come down fur.
 So this is reason why we react to price systems into market,
So these are basic changes which put up pressure on company to build up
sentiments associated with products. How do we respond to competitor’s
price, see this model,
Competitive price, no
Current price but will lower price and what will be impact on your market
share.
If impact is yes then try to react to this change i.e. when you reacting in
a positive way you have to reduce price, you have to raise perceive
quality associated with your product and you have to improve quality so
as to convince customers and n you have to launch new products who
could price at lower situations but you never have to compromise with
qualities because customers can perceive quality and if you are not

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reacting to competitors price and hold your current price. There is some
public issues related to policies,
 public issues related to policies are regulatory framework which is
imposed by government
 maintenance price required by most of retailers
 Distribution channels, where you have to build a system are some
minimum cost as to be paid by consumers.
Pricing is a system where there is
 fixed cost
 variable costs
Economic approach to pricing decision is to balance and to put an impact
so that change in price and change in sales is balance in such a way that
you get optimum elasticity for demand built up.
Price for elasticity of demand i.e. when goods are elastic we have
shown you in this equation i.e. EDS in 1+ percentage change in quantity
sold upon IN1 + percentage change in size. This is basic IN is logarithm
associated i.e. Number lock system and ED is price elasticity of demand.

Profit maximizing price is profit maximizing markup variable cost i.e.

1/1+ED, here 1 is in – that is only negative value using above markup and
selling price we will give a formula of price, maximize price i.e. 1+-
1/1+ED into variable cost per unit, so this is formula which is in an
economic way to calculate system of determine markup percentage into
market.

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Markup percentage is an absorption cost; absorption cost is required ROI
i.e. Return on investment, into investment + S into An expenses and unit
sales into unit production cost. Where markup cost has to be high enough
so as to cover sales and expenses and expenditures done in market. So
this is pricing formulas where you try to build a system, where you decide
a cost for consumers but it is important that we have to sale products and
such a cost with consumers accepted. So value based pricing becomes
most important price in putting products into market.

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So I hope students must have understood impact of pricing on product
demand and concept of price as part of selling product into market.
Thank you students.

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