Class 12 Marketing Pricing Notes and Important Questions

Class 12 Pricing Notes (Marketing)

Chapter 3 Pricing NEB Class 12 | Marketing (Mar. 308) | Unit 3 Allotted Teaching Hours: 12 Hours Topics: 3.

Marketing | Class 12 Ch. 3

Chapter 3 Pricing NEB Class 12 | Marketing (Mar. 308) | Unit 3 Allotted Teaching Hours: 12 Hours Topics: 3.1 - 3.6 Why this chapter matters: Price is the only element of the marketing mix that generates revenue - Product, Place and Promotion are all costs. A wrong pricing decision can undo excellent work done in product design, packaging and branding. This chapter explains what price is, why firms charge what they charge, and what pulls prices up or down. 3.1 Meaning and Definition of Price and Pricing Price is the amount of money charged for a product or service, or the sum of all the values a customer gives up (money, time, effort) in exchange for the benefits of owning or using a product. Pricing is the managerial process of deciding what value/price to set. Philip Kotler: "Price is the amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service." Note: Price is the only 'P' of the marketing mix that brings in revenue - all other elements (Product, Place, Promotion) represent cost to the firm. 3.2 Forms of Price Price is not always called 'price' - depending on what is being exchanged, it takes many different names in everyday life: - Fee / Tuition - price of education. - Rent - price for the use of property (house, land, equipment). - Interest - price for the use of money (loan).

Marketing | Class 12 Ch. 3

- Premium - price for insurance cover. - Fare - price for transportation/travel. - Toll - price for the use of a road, bridge or highway. - Wage / Salary - price for labour. - Commission - price for an agent's or broker's service. - Honorarium / Fee - price for a professional's service (doctor, lawyer, consultant). - Fine / Penalty - price for breaking a rule or law. - Duty / Tax - price paid to the government for goods, services or income. 3.3 Objectives of Pricing A firm sets its pricing objective first, and then decides the actual price to match that objective. Pricing objectives fall into three broad groups: A. Profit-Oriented Objectives - Maximum current profit - setting price to earn the highest possible profit in the short run. - Target return on investment (ROI) - price is set to achieve a specific rate of return on the capital invested. B. Sales-Oriented Objectives - Maximum sales volume / market share - price is kept low to sell more units and capture a larger share of the market (e.g. market-penetration pricing). - Sales growth - price is set to encourage steady growth in sales over time, even at low initial profit. C. Status-Quo (Stability) Objectives - Meeting competition - price is set at, or close to, the level charged by competitors. - Price stabilisation - avoiding frequent price changes and price wars, to maintain a stable market. 3.4 Importance of Pricing

Marketing | Class 12 Ch. 3

A. Importance to the Firm - Price is the only revenue-generating element of the marketing mix. - Helps the firm recover cost of production and marketing, and earn profit. - Acts as a competitive tool to attract customers away from rivals. - Influences the firm's market position and image (premium vs budget). B. Importance to the Customer - Helps the customer judge value for money before buying. - Guides customers' budgeting and purchase decisions. - Fair pricing (through competition) raises the customer's standard of living. C. Importance to Society and the Nation - Prices guide the allocation of resources in the economy (what gets produced, and how much). - Affects the general price level and inflation in the economy. - Is a source of government revenue through taxes and duties linked to price. - Helps maintain overall economic stability. 3.5 Pricing Allowances and Discounts An allowance/discount is a reduction given by the seller from the normal list/quoted price, usually to reward a buyer for certain favourable actions (prompt payment, bulk buying, off-season buying, or performing a marketing function). - Cash discount - reduction given for prompt/immediate payment (e.g. '2/10, net 30' = 2% off if paid within 10 days). - Trade discount - reduction given to wholesalers/retailers for performing marketing functions like storage, transport and selling. - Quantity discount - reduction given for buying in bulk; can be cumulative (based on total purchase over a period) or non-cumulative (based on a single order).

Marketing | Class 12 Ch. 3

- Seasonal discount - reduction given to buyers who purchase out of season (e.g. discounts on raincoats in winter). - Promotional allowance - payment/reduction given to dealers for advertising or promoting the seller's product locally. - Trade-in allowance - a price reduction given when a customer exchanges an old product while buying a new one (e.g. old phone exchange). 3.6 Factors Affecting Pricing A. Internal Factors (within the firm's control) - Marketing objectives of the firm (profit, sales growth, survival, image). - Cost of production and marketing - price must at least cover total cost in the long run. - Marketing mix strategy - price must fit with product quality, distribution channel and promotion strategy. - Organisational factors - who within the firm is authorised to set/change prices. B. External Factors (outside the firm's control) - Nature of the market and demand - type of market (perfect competition, monopoly, oligopoly) and price elasticity of demand. - Competition - number of competitors, their prices and strategies. - Government and legal regulations - price controls, taxes, subsidies imposed by the state. - Economic conditions - inflation, recession or boom affect purchasing power and cost. - Middlemen / channel members - their margin expectations affect the final price. - Consumer perception - how buyers perceive value and quality relative to price. Exam tip: When asked to 'list the factors affecting pricing', always split your answer into two clear headings - Internal Factors and External Factors - examiners give marks for this structure. Quick Revision - Key Points to Remember - Price is the ONLY revenue-generating element of the marketing mix.

Marketing | Class 12 Ch. 3

- Forms of price: Fee, Rent, Interest, Premium, Fare, Toll, Wage, Commission, Fine, Tax. - 3 pricing objectives: Profit-oriented, Sales-oriented, Status-quo. - Importance covers 3 groups: Firm, Customer, Society/Nation. - 6 discount types: Cash, Trade, Quantity, Seasonal, Promotional, Trade-in. - Factors affecting price: Internal (objectives, cost, mix, organisation) and External (market, competition, govt, economy, middlemen, perception). Possible Exam Questions Short Answer Questions - Define price and pricing. Mention any four forms of price. - Explain the objectives of pricing. - What is meant by discount? Explain any three types of discount. Long Answer Questions - Explain the importance of pricing to the firm, customer and nation. - Discuss the internal and external factors affecting the pricing decision of a firm. End of Chapter 3 (12 Hours) | Next -> Chapter 4: Distribution/Place (22 Hours)