Pricing and Promotion Mix

Meaning of Pricing:

Pricing is a process of fixing the value that a manufacturer will receive in the exchange of services and
goods. Every businessperson starts a business with a motive and intention of earning profits. This
ambition can be acquired by the pricing method of a firm. While fixing the cost of a product and
services the following point should be considered
 The identity of the goods and services
 The cost of similar goods and services in the market
 The target audience for whom the goods and services are produces
 The total cost of production (raw material, labour cost, machinery cost, transit, inventory cost
etc).
 External elements like government rules and regulations, policies, economy, etc.,

 Price may be defined as the exchange of goods or services in terms of money.

 Without price there is no marketing, in the society.
 Price = Quantity of money received by the seller/Quantity of goods and services rendered
received by the buyer.
 The term ‘price’ needs not be confused with the term ‘pricing’. Pricing is the art of translating
into quantitative terms (Rupees and Paisa) the value of the product or a unit of a service to
customers at a point in time.

Objectives of Pricing:

 Survival- The objective of pricing for any company is to fix a price that is reasonable for the
consumers and also for the producer to survive in the market. Once the survival phase is over
the company can strive for extra profits.

 Expansion of current profits-Most of the company tries to enlarge their profit margin by
evaluating the demand and supply of services and goods in the market. So the pricing is fixed
according to the product’s demand and the substitute for that product. If the demand is high,
the price will also be high.
 Ruling the market- Firm’s impose low figure for the goods and services to get hold of large
market size. The technique helps to increase the sale by increasing the demand and leading to
low production cost.
 A market for an innovative idea- Here, the company charges a high price for their product and
services that are highly innovative and use cutting-edge technology. The price is high because
of high production cost. Mobile phone, electronic gadgets are a few examples.
Factors influencing Pricing
1. Internal Factors

 Top Level Management: Top-level management has a full authority over the issues related to
pricing. Overall management philosophy and practice have a direct impact on pricing decision.
Price of the product may be high or low; may be fixed or variable; or may be equal or
discriminative depends on top-level management.

 Elements of Marketing Mix: Price is one of the important elements of marketing mix. Therefore, it
must be integrated to other elements (promotion, product, and distribution) of marketing mix. For
example, high quality product should be sold at a high price. When a company spends heavily on
advertising, sales promotion, personal selling and publicity, the selling costs will go up, and
consequently, price of the product will be high
 Costs: Costs and profits are two dominant factors having direct impact on selling price. Here,
costs include product development costs, production costs, and marketing costs. It is very
simple that costs and price have direct positive correlation.

 Stages of Product Life Cycle: Each stage of product life cycle needs different marketing
strategies, including pricing strategies. Pricing depends upon the stage in which company’s product
is passing through. Price is kept high or low, allowances or discounts are allowed or not, etc.,
depend on the stage of product life cycle.

2. External Factors
External factors are also known as environmental or uncontrollable factors. Compared to internal
factors, they are more powerful.
 Demand for the Product: Demand is the single most important factor affecting price of
product and pricing policies. Demand creation or demand management is the prime task of
marketing management. Company must set price according to purchase capacity of its buyers.
Price is kept high when demand is high, and price is kept low when demand of the product is
low.

 Competition: A marketer has to work in a competitive situation. To face competitors, defeat

them, or prevent their entry by effective marketing strategies is one of the basic objective
organizations. Therefore, pricing decision is taken accordingly.

 Price of Raw Materials and other Inputs: Change in price of needed inputs has direct positive
effect on the price of finished product. For example, if price of raw materials increases,
company has to raise its selling price to offset increased costs.

 Seasonal Effect: Certain products have seasonal demand. In peak season, demand is high;
while in slack season, demand reduces considerably. To balance the demand or to minimize
the seasonal-demand fluctuation, the company changes its price level and pricing policies.
 Pricing Strategy

A) New product development strategy: Companies which bring out a new product face the challenge
of setting price for the first time. They can choose between two broad strategies- Market skimming
and Market penetration pricing.

 Market-skimming pricing: it involves setting a high price for a new product to skim maximum
revenues by layer from the segment willing to pay the high price. The company makes fewer
but more profitable sales. For Ex. world’s first HDTV from Sony.

 Market-penetration pricing: it involves setting a low price for a new product in order to attract
number of buyer and a large market share. Ex Dell used this method when it entered into
personal computer market.

B) Product mix Strategy: The strategy for setting a product’s price when product is part of product
mix. In this case, the firm looks for a set of prices that maximize its profits on the total product mix.

 Product line Pricing: setting the price of various products in a product line based on cost
differentiation between the product, and customer expectation of different feature and
competitors prices. Clothing is a great example.

 Optional product pricing is when a company sells a base product at a relatively low price, but
sells complementary accessories at a higher price. For example Mobile with Earphone,

 Captive Product Pricing: Captive Product Pricing is the pricing strategy adopted by the
marketers wherein, the price of the core product is generally kept low, whereas the captive
products are highly priced. The Captive Products are the products that are specifically designed
to be used with the core products, or these products are necessary for the functioning of the
core product
  Difference Between Optional Product & Captive Product
 Every product is made to offer a core benefit. However, there are several accessories or
products which are useful while using the core product. Optional products are those
which do not disturb or stop the main functionality of a product. On the other hand,
captive product is an accessory which is essential for the core product to function. For
e.g. if a camera is a core product, a camera bag is an optional product & a film roll or
memory card to save images is a captive product.

 By-product pricing refers to setting a price for by-products to make the main product’s price
more attractive and competitive.

 Product Bundle Pricing: The last one of the product mix pricing strategies is product bundle
pricing. Using product bundle pricing, companies combine several products and offer the
bundle at a reduced price. For example Johnson and Johnson baby kit.

C) Price adjustment Strategy: Companies must adjust their basic prices to account for
differences in customers and situations.

 Discount allowed Pricing: The first one of the price adjustment strategies is applied in a large
share of businesses. Especially in B2B, this price adjustment strategy is rather common. Most
companies adjust their basic price to reward customers for certain responses, such as the early
payment of bills, volume purchases and off-season buying.

 Segmented Pricing: companies adjust their basic prices to allow for differences in customers,
products and locations. In short: adjusting prices to account for different segments. In
segmented pricing, the company thus sells a product or service at different prices in different
segments, even though the price-difference is not based on differences in costs.

 Psychological Pricing: Psychological pricing is a pricing strategy that utilizes specific techniques
to form a psychological or subconscious impact on consumers. It integrates sale tactics with
price.
 It can also be described as setting prices lower than a whole number. The idea behind it is that
customers will read the slightly lower price and treat it lower than the price actually is.
For example: Pricing Rupees 999.

 Promotional Pricing: Promotional pricing is when a seller reduces the price of a product or
service to attract customers as a marketing or sales tactic. For example- Buy one get one free,
Save 20% off today, Black Friday and Christmas sales

 Dynamic pricing: It is a pricing strategy that utilizes variable prices instead of fixed ones. At its
core, the idea behind the dynamic pricing model is to sell the same product at different prices
to different groups of people. In practice, retailers can update their prices whenever they want
to capitalize on the changing market. Technically, this is the same definition as “price
discrimination”.
 International Pricing: Prices are almost never the same in international markets. They vary due
to taxes, cost structures, local market needs, currency exchange rates, tariffs, differences in
competitive situations and a myriad of other reasons.

 Geographical Pricing: Geographical pricing is the practice of adjusting an item's sale price
based on the location of the buyer. Sometimes the difference in the sale price is based on the
cost to ship the item to that location. But the difference may also be based on what amount
the people in that location are willing to pay.

 FOB Pricing: Free On Board, in short FOB, is a term frequently used in shipping terms where the
seller quotes a price including the cost of delivering goods to the nearest port. The buyer bears
all the shipping expenses and is responsible to get the products from that port to its final
destination. In simple terms, FOB price means the buyer has to bear the shipping costs
completely.

 Uniform Delivery Pricing: A pricing method sometimes referred to as 'postage stamp' pricing, It
is type of pricing in which buyer would be able to buy at same price irrespective of its location.
Here the seller includes the transportation charges and keeps the price same for all the
locations in that zone.

 Zone Pricing: Zone pricing is the process of establishing prices for products and services
depending on where people buy them. If a consumer buys something in Zone A and then the
same thing in Zone B, they may have to pay different prices.
A company may use a zone pricing system to pay for transportation costs. In other words,
something may cost more the further away it is from where it was made.

 Base Point Pricing: A basing point pricing system is a geographic pricing strategy whereby
companies determine a fee for a good sold, plus an additional freight charge that is calculated
based upon the customer's distance from a starting, or “basing point.” Buyers located nearer to
the basing point pay less for shipping than those based further away.
 Sales Promotion
A sales promotion is a marketing strategy that involves offering a short-term incentive to increase brand
awareness, demand sales for a particular product or service. Companies typically use this type of strategy to
introduce new products to their targeted demographic, attract new customers, and temporarily increase sales.

Definition: The Promotion Mix refers to the blend of several promotional tools used by the business to create,
maintain and increase the demand for goods and services.

The fourth element of the 4 P’s of Marketing Mix is the promotion; that focuses on creating the awareness
and persuading the customers to initiate the purchase. The several tools that facilitate the promotion
objective of a firm are collectively known as the Promotion Mix.

The Promotion Mix is the integration of Advertising, Personal Selling, Sales Promotion, Public Relations and
Direct Marketing. The marketers need to view the following questions in order to have a balanced blend of
these promotional tools.

Philip Kotler, “A company’s total marketing communication mix also called promotion mix consists of specific
blends of advertising, personal selling, sales promotion, public relations and direct marketing tools that the
company use to pursue its advertising and marketing objectives.”

Elements of Promotion Mix

1. Advertising: The advertising is any paid form of non-personal presentation and promotion of goods
and services by the identified sponsor in the exchange of a fee. Through advertising, the marketer tries
to build a pull strategy; wherein the customer is instigated to try the product at least once. The
complete information along with the attractive graphics of the product or service can be shown to the
customers that grab their attention and influences the purchase decision.
 2. Personal Selling: This is one of the traditional forms of promotional tool wherein the salesman
interacts with the customer directly by visiting them. It is a face to face interaction between the
company representative and the customer with the objective to influence the customer to purchase
the product or services.
3. Sales Promotion: The sales promotion is the short term incentives given to the customers to have an
increased sale for a given period. Generally, the sales promotion schemes are floated in the market at
the time of festivals or the end of the season. Discounts, Coupons, Payback offers, Freebies, etc. are
some of the sales promotion schemes. With the sales promotion, the company focuses on the
increased short-term profits, by attracting both the existing and the new customers.
4. Public Relations: The marketers try to build a favourable image in the market by creating relations with
the general public. The companies carry out several public relations campaigns with the objective to
have a support of all the people associated with it either directly or indirectly. The public comprises of
the customers, employees, suppliers, distributors, shareholders, government and the society as a
whole. The publicity is one of the form of public relations that the company may use with the intention
to bring newsworthy information to the public.
E.g. Large Corporates such as Dabur, L&T, Tata Consultancy, Bharti Enterprises, Services, Unitech and PSU’s
such as Indian Oil, GAIL, and NTPC have joined hands with Government to clean up their surroundings, build
toilets and support the swachh Bharat Mission.

5. Direct Marketing: With the intent of technology, companies reach customers directly without any
intermediaries or any paid medium. The e-mails, text messages, Fax, are some of the tools of direct
marketing. The companies can send emails and messages to the customers if they need to be informed
about the new offerings or the sales promotion schemes.
E.g. The Shopper stop send SMS to its members informing about the season end sales and extra benefits to
the golden card holders.

Thus, the companies can use any tool of the promotion mix depending on the nature of a product as well as
the overall objective of the firm.
Objectives for promotion mix
1. Build Awareness:
New products and new companies are often unknown to a market, which means initial promotional efforts
must focus on establishing an identity. In this situation the marketer must focus promotion to effectively reach
customer and tell the market who they are and what they have to offer.

2. Create Interest:
Moving a customer from awareness of a product to making a purchase can present a significant challenge.
Consumer buying behaviour depends on the type of customer so the customer must first recognize they have
a need before they actively start to consider a purchase.
The focus on creating messages that convince customers that a need exists has been the hallmark of
marketing for a long time with promotional appeals targeted at basic human characteristics such as emotions,
fears, humor, etc.

3. Provide Information:
Some promotions are designed to assist customers in the search stage of the purchasing process. In some
cases, such as when a product is so novel it creates a new category of product and has few competitors the
information is simply intended to explain what the product is and may not mention any competitors.
In other situations where the product competes in an existing market, informational promotion may be used
to help with a product positioning strategy.

4. Stimulate Demand:
The right promotion can drive customers to make a purchase. In the case of products that a customer has not
previously purchased or has not purchased in a long time, the promotional efforts may be directed at getting
the customer to try the product.
This is often seen on the internet where software companies allow for free demonstrations or even free
downloadable trials of their products. For customer base products, promotion can encourage customers to
increase their purchasing by providing a reason to purchase products sooner or purchase in greater quantities
than they normally do.

5. Reinforce the Brand:

Once a purchase is made a marketer can use promotion to build a strong relationship that can lead to the
purchaser becoming a loyal customer. For instance, many retail stores now ask for a customer’s email address
so that follow-up emails containing additional product information or even an incentive to purchase other
products from the retailer can be sent in order to strengthen the customer marketer relationship.
Media selection
The advertising medium refers to the means through which the advertiser can convey his message to
audience. Proper selection of the media enables the advertiser to achieve the desired results.
Hence, advertising media selection is vital for the success of an advertising campaign.

An advertising medium is any object or device that carries the advertising message. It should be capable of
accomplishing following three objectives:
1. To reach the largest number of people possible.
2. To gain their attention.
3. To be less expensive.
The character of the medium is largely determined on the objective and factual basis such as whether the
coverage of the medium should be national, regional or only local.

Factors affecting Advertising Media Selection

 Class of the audience
 Extent of coverage
 Nature of the product
 Nature of the competition
 Reputation of the medium
 Cost of the media
 Time and location of buying decisions
 Level of education

CHARACTERISTICS OF IMPORTANT MEDIA

 Mural advertising:- Mural or outdoor advertising has long life. It has a general and wide appeal. It can
attract attention of numerous people; it is good to remind prospects. An advertiser has ample scope to
use his skill and art in advertising.
However, outdoor advertising has certain limitations. It cannot .have a long message. It is not useful in
selective advertising or for specialized products. It has a low retention value. Its effectiveness cannot
be accurately measured and it may lead to considerable wastage also. Bill boards and hoarding are not
welcome today on the highways due to adverse public opinion. (They spoil the natural beauty and
environment).

 Press Advertising
 Film Advertising
 Radio Advertisements
 Television Advertisement
 Transit Advertising
 Direct Mail
 Advertising Specialties
 Point-of-Purchase Advertising