The answer depends upon whether the concept is viewed from the market place or from the stand point of costs. Consumers view price as a monetary expression of the value for dimensions of quality or features benefits for a given products or services. This relationships can be expressed as follows: Price = Quality Value In other words , Price is the payment for quality as interpreted by the valuation of the marketplace. From a psychological standpoint , price represents a quantitative estimate and or subjective image of the benefits from a selective group of product features for a good or service.
As such psychological prices serve as expected prices or references points in purchasing products. Pricing Stategies: Price a an integral part of the marketing mix will contribute to the attainment of marketing objectives, which in turn are derived from objectives set forth for the farm as a whole . Focusing on gaining a competitive advantage , marketing management analysis the situation , sets specific functional objectives and formulation strategies or ways of achieving these objectives .
The decision confronting a marketing is , what pricing strategy is appropriate , indeed necessary , under different environmental condition to reach a given objectives ? Development of rules such as following can be help in formulating specific pricing strategies; 1. Scale : Does the size of purchases merit pricing separately for individual customers ? 2. Customers knowledge : Are customers able to evaluate the value of a product in taka and recognize differences between price levels. 3. Demand : Does price play an important role in consumer pricing decisions ?
4. Information : Can a marketer accurately determine price/value evaluations and levels of demand? 5. Competitive substitute : Are their other products in the category that provide relatively close substitutes against which prices can be compared? 6. Patronage : will customers favour competitors for non- price reason? Consumer and market Demand : Consumer demand is defined as the various quatities of a particular commodity that an individual consumer is willing and able to buy as the price of that commodity varies, with all other factors that affect demand held constant.
The demand relation simply defines the relationship between price and the quantity purchased per unit of time while holding other factors constant . Price and quantity vary inversely ; that is , the demand curve has a negative slope . This inverse relationship is sometimes called the law of demand and it can be explained the terms of the substitution and income effects of a price change. The substitution and income effects of a change in price can be illustrated by constructing an indifference map, which is a graphical method of describing consumers preferences.
In figure , the quantity of x is shown on the horizontal axis and the aggregate quantity of all other commodities (Y) is shown on the vertical axis . Each indifference curve or isoquant ( U1, U2, U3) identifies the various combination of X and Y that will give the consumers equal satisfaction or utility. For example the consumer depicted will be equally as well as on U1 with 20 units of X and 65 units of Y. The higher the indifference curve the greater is the consumer’s utility.
Assuming that the consumer has TK 500 to spend each month and that the price of Y is TK 5 per unit, the maximum amount of Y that can be purchased per month is 100 units. Likewise ,if the price of X is Tk 10 per unit , the consumer can purchase a maximum of 50 units per month. Based on the foregoing price and income assumptions a line AB or Y that can be purchased per unit of time with Tk. 500 . This price –ratio lines establishes the upper boundary for purchase of X and Y.
Any combination of X and Y on or below line AB represents a feasible purchase plan; any combination above and to the right is not feasible. The slope of AB is determined by the price of Y relative to X. The consumers total utility is maximized by selecting the Combination of X and Y that enables the individual to reach the highest feasible point on the utility surface. This is the point at which the budget line just touches the highest indifference curve . CRITICAL FACTORS IN THE PRICING DECISIONS:
The price of a product determines that products contributions to profit ability. The motivation in setting a high price is that it creates bigger margins , which in turns lead to increased profits with low prices the opposite happens margins are reduced and there is less contribution from the particular product . The factors which are related to the pricing decision are discussed below: Effective cost information: Management needs to look carefully at the cost involved in the allocation of resources to create and define the product.
This mean of only manufacturing and distribution costs, but special management and technological costs . Customer valuation : Rather than compete on price alone , marketers must think in terms of total value as perceives by the customer , or the combination of features and experience that create a total customer perception of value Conuptualization of providing total value to customers Customer segment Market Targets : The total market for a product /service package can be segmented because of the differences between groups of customers .
These differences may allow for product and pricing differentials whereby no market segment is buying the same product or paying the same price as another . This presents the possibility of higher profitability in that the firm can optimize its comparative value position in each market segment, with some segments willing to pay more than other for a version of a product / service package . Competitive Dynamics : Competitor reactions have a significant impact on pricing to the extent they may keep a firm from making a price adjustment.