INTERACTIVE DISCUSSIONON

PRICING STRATEGY

VASUNDHRA GOELMAFMG -10154

“The impact of change in pricing strategies from cost based to market oriented pricing

strategy on the profits of Masoom (Non governmental organization)”

Masoom special school

Masoom, a school for children and youth with special needs is a registered non-governmental organization, situated in Timarpur, North Delhi.

55 children and youth with special needs aged between 6-22 years.

Handloom weaving process

Handloom products

“Today you have to run faster to stay in pace”

(Philip Kotler)

Price: how much customers pay for a

product

Product: the features and appearance of goods and

services

Place: the point where products are made available

to customers

Promotion: how customers are informed about products

Marketing mix

Focus area

How has the concept of price and costing evolved?

Exchange of coincidence wants – Barter system Invention of money. Industrial revolution (18th to 19th century):

Industries

Factories

Production

Costing

Price

Kotler (1976) and Assael (1985) identified three major strategies to be:1.Cost-oriented - methods based on cost plus mark-up, break-even, and target rate of return.2.Competition-oriented - entailing following the prices of competitors.3.Demand-oriented - pricing based mainly on the going price or customers perceived value.

But, Gabor (1977) on the other hand classified pricing policies into two basic approaches - cost-based pricing and market-oriented pricing.

Different views……………………………..

COST BASED PRICING STRATEGY

(Raw materials + labor + overhead )+ profit margin = Price

Cost based pricing is the simplest pricing method. The firm calculates the cost of producing the product and adds on a percentage (profit) to that price to give the selling price.

Cost of production + profit percentage = Selling price

(Cost of production)

But, this all has changed!

Today – plenty of products available in the market!!!

Customers have a choice………………

Now its, the customer who decides the price that he is willing to pay $$$$

Should Masoom continue to sell at Rs 15 – or should they

do a consumer analysis and develop a pricing strategy

based on the customer analysis in order to generate more

profits?

Question arises??????????????

This is what is known as MARKET ORIENTED PRICING STRATEGY.

- Setting a price based upon analysis and research compiled from the targeted market.

- It is the pricing of products based on the market into which they are going to be sold.

Today many companies are adopting this strategy.

For example: BRITANNIA BISCUITS

(Rs 5) (Rs 50)

But even the best make mistakes!!!!!!!

UK leading retailers in clothing, home products and quality food. Launched in India 2005, with their clothing line with up market

prices. Assumed that their brand name would sell ,and did not do an

intensive customer analysis. DID NOT DO WELL………………IN THE MARKET!

“Today they have re priced their collections and targeted the pricing at what the market is willing to pay”.

BUT, smaller companies without marketing professionals etc.

are facing a problem as they still follow cost based pricing

strategy.

Case study: Increase in profits of Masoom due to shift from cost based pricing to market oriented pricing strategy.

Based on a survey conducted by a marketing professional –

Masoom raised it price per piece by 10%. As a result, the sales in volume stayed the same. But, profits went up by 20%.

According to cost based pricing method used by Masoom for mop:

Manufacturing costs

Stipend Profit Selling price

13 1 1 15

According to new strategy i.e. market oriented pricing method used by Masoom for mop:

Selling price Profit Stipend Manufacturing costs

17 3 1 13