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PROCESS OF PRICE DETERMINATION


PROCESS OF PRICE DETERMINATION

          The process of price determination varies from industry to industry due to various e.g. nature of product, government rules and policies, competition etc. Thus, no single process can be applicable to every marketing company. However, the following process may be adopted with required modification for the purpose of price determination:

(1) Estimate the demand for the Product: The first step in price determination process is to estimate the total market demand for the product. This is easier to do for an established product than for new one. Demand for the product can be estimated properly by calculating expected price and probable sales volume of the product at different prices. The expected price for a product is the price at which customers would like to buy the product. The expected price for a product is the price at which customers would like to buy the product. The prices of a product should not be set below the expected price and much higher than the expected price.

(2) Anticipate the Competitive influences: In the second step a marketing company should anticipate present and potential competition for its products. It is easier to assess present competition but it is difficult to access potential competition. The threat of potential competition will be greater when the market has good profit prospects and easy entry. A marketing company should take into account the various sources of competition e.g. available substitutes of the company’s product, present similar products in the market and unrelated products influencing customer’s budget.

(3) Anticipate Expected Market Share of the Product: The third step in price determination is to anticipate what share of the market the company expects. The expected market share for the product will be influenced by existing production capacity of the company’s plant, company’s capacity to sell the product, cost of plant expansion if necessary and prospective competition. If the company assesses a large market share in future it may keep lower prices to capture maximum market share.

(4) Consider Company Policies Regarding Product, Promotion and Pricing objective: Another major step is the promotional policies, distribution policies and pricing objectives. Product policy with regard to quality, size and branding affects pricing decision. If a company is marketing the products under its own brand name, the prices of product would be higher. When it is marketing products under middleman brands, prices may be kept lower. The promotional methods used and the extent to which the work is price of product. Pricing decision also affected by the pricing objectives formulated by the management of the company.

(5) Selection of Pricing Policies and Strategies: The fifth step in the process of price determination is the selection of relevant policies and strategies. These policies and strategies provide clear guidelines and action plan for price determination to secure maximum consumer satisfaction and effective market share. These pricing policies and strategies are skim the cream pricing, market penetration pricing, geographical pricing, discount and allowances, psychological pricing, price lining etc.

(6) Selection of Specific Price:  After the completion of above steps in the process of price determination, the management may be poised for the task of selection of a specific price for the product of the company. In the first validity of this price during test marketing. With the help of feedback from channels of distribution and consumers the company should make required changes in the price of the product to select final price of product.

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