UNIT IV
Pricing: meaning to buyer and seller – pricing policies – objective factors
influencing pricing decisions – competitors’ action to price changes –
multiproduct pricing. Physical distribution – management of physical
distribution – marketing risks.
SECTION A
1. Skimming pricing refers to
a. fixing very high price for a product initially
b. fixing low price
c. fixing a normal price
d. none of the above
SECTION B
1. List out the marketing risks.
Risk is an element of uncertainty or possibility of loss. risk in
marketing is uncertainty with regard to cost, loss or damage.
Causes of marketing risks are:
a. Risks caused by changes in the market conditions eg.
economic risk, price risk, time risk, place risk and risk from
competition.
b. Risks from natural causes eg. fire, storms, accidents,
earthquake and flood.
c. Risks resulting from human factor eg. personal risks,
customer risks, risks from public responsibility like risks
because of political causes and inability to forecast future
events.
2. What are the factors influencing pricing decisions?
Factors influencing pricing decisions can be divided in to two
factors
a. internal factors and
b. external factors
Internal factors includes
i.
organizational factors
ii.
marketing mix
iii.
product differentiation
iv.
cost of product
v.
objective of the firm
External factors includes
i.
demand
ii.
competition
iii.
suppliers
iv.
economic condition
v.
buyers
vi.
government
3. Explain the procedure for price determination.
The following procedure is followed for determining the price.
 first determine demand for the product
 then anticipate and analyze the competitors reaction
 establish expected share of the market
 select pricing strategy
 consider company’s marketing policies
 set the price
SECTION C
1. Bring out the importance and component functions of physical
distribution.
Physical distribution includes activities such as transportation,
storage, etc. these activities are performed by the producers, wholesalers,
retailers and by consumers.
The importance of physical distribution are :
 it controls the distribution cost
 it aims reducing the selling price to the consumer
 it aims at increasing sales volume through inventory control
 it facilitates the coordination between demand and supply
 it helps to maintain the price level
 it helps in taking decision as to size, weight and packing
 it affects the decision on distribution channel
 it helps in attracting additional customer by offering better
service at lower price
Physical distribution is the process of transporting goods from the
place of sellers to the place of buyers and includes two main functions such
as transportation, storage and warehousing.
The activities involved in physical distribution are
 inventory locations and warehousing system
 materials handling system
 inventory control system
 establishment of procedure to process the order
 select the mode of transportation
2. Explain the different pricing policies.
The different pricing policies are as follows:
a. cost based pricing
Pricing is made on the basis of cost, of production plus an
additional margin of cost that is selling price is equal to cost of
production plus anticipated profit.
b. demand based pricing
On the basis of demand for the product, price is fixed.
c. cost-demand based pricing
On the basis of costs data from accounting records, demand
schedules are build so as to develop the break even analysis. This is
also known as break even pricing.
d. competition based pricing
i.
meeting the competition
It is on a non-price basis. Marketers meet the
competitor’s price.
ii.
pricing above the competition
Here price is fixed above the market price
iii.
pricing under the competition
Firms set lower price because of low production cost or
low quality.
The different kinds of pricing are:
a. psychological pricing
Many customers use price as an indicator of quality. High
priced commodity is considered to be of high quality. eg. Bata
product’s pricing.
b. customary pricing
Customers expect a particular price. So the price is fixed to suit
local conditions.
c. skimming pricing
It involves a high introductory price in the initial stage to skim
the cream of demand.
d. penetration pricing
A low price is fixed in the initial stage with a view to capture
greater market share.
e. geographical pricing
The distance between the seller and the buyer is considered in
this kind of pricing.
i FOB (original) pricing
The buyer will have to incur the cost of transit in FOB
(destination).
ii zone pricing
The company divides the market into zones and quotes
uniform price to all buyers who buy within a zone. The prices
are not uniform throughout the country but uniform within the
zone.
iii base point pricing
It is partial absorption of the transportation cost by the
company.
iv administered pricing
It is the price from managerial decision & not on the
basis of cost, competition, demand, etc.
v dual pricing
A producer is required compulsorily to sell a part of his
production to the government or its authorized agency at a
substantially low price. The rest he sells in the open market at a
price fixed by the producer.
vi mark up pricing
It is also known as cost plus pricing. It is generally
adopted by wholesalers and retailers. While pricing initially, a
certain percent is added to the cost before making the price.
vii price lining
It is generally followed by retailers than wholesalers. It
consists of selecting a limited number of price at which the
store will sell its merchandise.
viii negotiated pricing
Also known as variable pricing. Price is not fixed but to
be paid on a sale depending upon bargaining.
ix competitive bidding
Big firm or the government calls for competitive bids
when they want to purchase certain product or specialized item.
x
monopoly pricing
Price is fixed by a single producer as there is no
competitor or no substitute for the product.
xi oligopolistic pricing
Here any firm may take initiative in fixing the price of a
product and others will follow.