Look at pricing from the perspective of the seller as well as the buyer

Look at pricing from the perspective of the seller as

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Look at pricing from the perspective of the seller as well as the buyer. Different methods of pricing ranging from economic based theories to marketing based to cost based models. Familiarize students with sample pricing situations. Structure: 5.1 Introduction 5.2 Role and Perception of Price 5.3 External Influences on Pricing Decisions 5.4 Internal Influences on Pricing Decisions 5.5 Pricing Strategies 5.6 Summary 5.7 Self Assessment Questions 56
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PRICING 5.1 INTRODUCTION Price not only directly generates revenues that allow organizations to create and retain customers at profit but can also be used as a communicator/as a bargaining tool/and also as a competitive weapon. Pricing can also have emotive dimensions example 'high price' 'low price' it is thus important to understand the meaning of price from the customer’s point of view and to price products in accordance with the 'value' that the customer places on the benefits offered. 5.2 ROLE AND PERCEPTION OF PRICE Price is the value that is placed on something. It can mean different things to different people, A buyer or a seller may view price differently: Customer’s Perspective From the buyer’s perspective price represents the value they attach to whatever is being exchanged. In assessing the price the customer is looking specifically at the expected benefits of the product: A. Functional relate to the design of the product and its ability to fulfill it’s desired function, Example, a washing machine can handle washing and drying of different types of clothes conveniently. B. Quality customer may expect price to reflect the quality level e.g. may pay more for leather upholstery in car or hand crafted china ware or sometimes for a premium corporate image eg. Mercedes BMW. C. Operational in B2B markets price may be judged in relation to the product’s ability to influence the production process example, a new machine improving the productivity may attract a higher price. D. Financial particularly in B2B markets purchases are seen as investments & hence the expected returns on the investments can influence the perception whether the price is justified or not. Questions like, in how many years will the investment in the machine pay back are likely to affect the perception of price. 57
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PRICING E. Personal benefits are a little difficult to gauge particularly as they measure price against intangibles/individual/psychological benefits such as status, comfort, self image. Price perceptions can vary according to circumstances, example, a house wife may compare price of water pipes needed for replacement in normal times, but in case of a plumbing burst emergency, the same house wife may pay a premium price for the same product Seller’s Perspective: For the seller price generates revenue Profit = total revenue – total cost Total revenue is volume X price per unit. seller must however take care to evaluate price from the customer’s point of view. While in pure economic terms one may assume that a reduction in price
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