Pricing Policies

Pricing Policies

Different pricing problems may appear in any company. Pricing policy should be made to determine to solve pricing problems. This policy provides guidelines to marketing manager. Such policy does not change in usual situation. Main policies of pricing are mentioned in the following figure:

1. Flexible Price Policy

Any firm or company can make pricing policy in several ways. It may make policy to fix price of product or service on the basis of flexibility. Such policy includes the following two policies:

a) One price policy: One price policy is such a policy which collects same/one price from all customers. This type of price policy makes price administration easy, saves time of marketing experts, customers feel convenience etc. Apart from this, customers do not compare price and so it also becomes beneficial to the
company. Firm/ company may adopt such policy at the place where sales are done. For instance, this policy may be suitable for departmental store, super market, chain store etc.

b) Price discrimination policy: Price discrimination policy is made just opposite to the one price policy. Producers or companies charge different prices for same products in different geographical areas of the market segment that is called the price discrimination. The discrimination in pricing is made on the basis of consumers’ class or different zones. Sometimes the firm itself or the sellers sell some products to different customers at different prices. Generally, the sellers use this pricing policy for consumer products. some examples of price discrimination have been given as follows:
  1. Customer discrimination: The task of fixing different prices of the same products for different customers is called customer discrimination. Discount facilities for students in cinema hall, transport service, zoo are some of the examples of discrimination.
  2. Product version: Different prices can be changed for the same product, according to the features, utility and its services. It is called product version discrimination. This type of discrimination is made in prices of books for students and regular readers by different organizations including libraries.
  3. Different time: Different prices charged for the same service are called time discrimination. Nepal Telecom has discriminated prices for telephone calls for different times such as morning, evening, day, night etc. On Saturday price for national trunk serve has been fixed nearly 50 percent less than normal as facility.
  4. Different locations: Differentiation in pricing is made on the basis of location which is called locational discrimination. For example, ticket prices for same service such as travelling by train, tram, etc. and film halls, stadium, become different according to classes, but services are of the same nature.

2. Discount and Allowance Facilities

Some discount from listed price can be given to the customers. Cutting down price of product or services is called discount and allowance policy. Discount policies are also of different types. They are mentioned as follows:

a) Quality discount: Sales department can make policy to give discount on the basis of sale quantity. This type of discounts can motivate the customers to buy a lot of goods from the same seller. For example, $30 is charged for one unit of product, but if one dozen is bought by any customer, the same product can be charged only $29 per unit. In the same way, if one gross is bought by anybody, then $28 per unit can be charged. So, the more quantity is sold, the higher discount/allowance may be given to the customers. That means the more the sale quantity, the lower the price becomes.

b) Seasonal discount: Every product has its seasonal importance. Cutting down price of season – off products or services is called seasonal discount. Price of such product has high price in season and low in off season, for example, hotel service, plane service etc. Price at the hotel in Kathmandu decreases in off-season and increase in season. They give heavy discount due to competition. Similarly, in the months of Poush and Magh, the price of woolen sweaters, jackets etc. are sold at high rate and the price is cut down in Jesth and Asadh.

c) Cash discount: The discount in cash given for getting quick payment of price for the goods sold on credit is called cash discount. Suppose credit period is for 30 days, but if it is to collected within 10 days or the buyer wants to pay soon, cash discount is given for such sooner payment. Discounts have also their own terms and conditions. If the credit period is for 30 days and the customer wants to pay the price in 10 days, up to 2% discount may be given. The discount given in this way is cash discount. Such discount develops in customers as a trend of quick payment of credit.

d) Trade discount: The discount given to distribution channels for selling or storing is called trade discount. Trade discount helps in sale promotion. For example, per unit price of some ‘A’ product is $15, if it is sold for $14, the rest $1 is trade discount. This discount is given to wholesalers and retailers. As it is the discount to them for working as the distribution channel, this is also called operating or working discount. Cutting down listed price of goods or services for performance of nay work or giving some cash to the distribution channels is called allowance. Such allowances may be promotional allowances and trade in allowances. They are mentioned as follows:
  1. Promotional allowance: Agents, dealers and wholesalers advertise products and provide different services to customers. For providing such services, the products either cut down price of the products for them or give some amount of money as reward. Such facility provided by producers is called promotional facility.
  2. Trade in allowance: Trade in allowance is price reduction given by an organization for returning in an old product when buying a new one. Such services one most common in the car industry and other durable goods. Generally, such allowances are also provided in the situation of high competition.

3. Geographical Pricing Policy

Price of products or services can also be determined on the basis of geographical situation. Buyers or customers may live in different geographical regions. The cost for supplying the products to such regions and customers, transport costs, insurance cost, management expenses, advertising expenses etc. may be different. Price of product cannot be same in all geographical regions. So, the following policies can be adopted under geographical pricing policy.

a) F.O.B. Price: According to FOB pricing policy, producers determine factory price of their products and they transport the products up to airport or seaport for shipping at the factory price rate. After then, all the expenses for transport should be incurred by the purchasers themselves. So, as transport fare for long distance becomes high, the price of the products also becomes high. For short distance, transport fare becomes low due to which price also becomes low. In short, in Free on Board price policy, all the transport expenses should be incurred by the purchasers. Prices in different regions may be different for the same product.

b) Zone price: At first big market should be segmented on the basis of zone or area for adopting zone price policy. Then price should be determined for different zones/ areas by fixing average transport fare. As the average transport fare becomes different for each zone, the prices may also differ in different zones. But in same zone, the price becomes same. In Nepal, price of petroleum is different in different zones, but it is same in all parts of same zone.

c) Base point price: Producers may also adopt base point pricing policy. Under this policy, producers determined price rate of product by fixing a base point. Transport expenses for the transport of products from the base point to the purchaser’s place are incurred by the purchasers themselves. So, price of any product may be different at different places on the basis of the transport charge paid by the purchasers.

d) Uniform price: Policy to provide any product to the customers of all geographical regions at same price rate may also be adopted. For this, average transport fare to the markets is calculated and price is fixed same for all geographical regions. This is called uniform price. Products are supplied to the customers at any place or region at the same price rate. In our country Nepal, CocaCola and Pepsi companies have adopted uniform price policy.

e) Freight absorb price: Price of any product may be determined incurring all transport fare by the producers themselves. Price may also be determined incurring some or cent percent fare by the producers. To supply new products to target market or face intense competition, this type of transport fare attraction policy is adopted. This policy may attract the attention of the customers.

4. Product Mix Price Policy

Every firm may produce different types of goods. Prices of all goods may not be the same. Price rate of different products should be fixed differently according to the quality and features of the products. Product mix policy includes the policies as follows:

a) Captive product price: One task may be completed using some two products. In other words, one product needs for using other product. Such products are called captive products. In captive products one may be main and the other auxiliary product. For example, camera and film are captive products. Only camera can do nothing or only film can do anything. Camera may be taken as main product and film as auxiliary. So, a policy may be adopted to fix the price of main product more than the price of auxiliary product.

b) Product line price: Producer may adopt product line pricing policy. There may be different products of different quality, features, colors, design etc. under one product line. Different price should be fixed for different products. This makes customers feel easy to discriminate products. They can get opportunity to select products comparing price and quality of the products.

c) Optional feature price: Policy may be adopted to determine price of any product by adding or taking off some features to or from any product. The price of computer may be determined on the basis of features. It may be sold by adding all the different features and facilities or only with some features. Addition of different facilities and features to computer increases price. However, customers become ready to pay more amount of price for the added facilities and features. If they do not like to have various facilities and features, the computers may be sold at low rate. It depends on the desire of the customers.

d) Two parts price: Under this policy, prices of products or services can be fixed at two stages: they are as fixed and variable costs. In other word, one price rate for products or services is paid up to a certain limit, and other price rate is paid if the products or services go beyond the limit. For example, the price for the services of Nepal Telecom can be cited as an example. Nepal Telecom has fixed certain amount of price for certain calls (one rate for up to 175 calls) and if the fixed calls cross the limit, different rate is charged for the extra calls. Similarly, Nepal Electricity Authority has fixed one rate for certain units and if the fixed limit is crossed, other price rate is charged for the extra units.

e) Product bundle price: Fixing price for a mixed bundle of different products is called product bundle price. Combined price may also be fixed for a bundle of different products mixed together. With such policy different products can be sold together. Make up set, cosmetics set, suit set, ornament set, cup and plate set, tea set etc. are the examples of product bundle price.

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