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Md. Shahadat Hossain Sunny BBA, First Batch Department of Marketing Comilla University
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LETTER OF TRANSMITTAL
July 3, 2011 Md. Abdullah Al Jamil Lecturer Department of Marketing Comilla University Subject: Submission of a Term Paper Report. Dear Sir With due regards and respect we state that we are very thankful to you as you assigned us to prepare this Term Paper on Pricing Theory & Practices, which you asked us to prepare it last April 26, 2011. Our Term Paper topic is- Comparison in Pricing Policies: Product Pricing vs. Service Pricing. It is a great opportunity for us to acquire theoretical and practical knowledge that would be needed for us to meet todays challenging job market. We have tried my best to gather what we believe to be the most complete information available. Your kind acceptance and any type of appreciation would surely inspire us. We would always be available and ready to explain further any of the context of the whenever you asked. Sincerely yours
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ACKNOWLEDGEMENT
No reports can be made itself. We owe much to the pioneers, our honorable sir, who first made a confidence among us to identify the major issues & development of it, concepts & techniques about our report topics. Mr. Md. Abdullah Al Jamil, a fellow business education teacher who gave timely insightful advice. Sonia Sultana, whose passion spurred this report on her inspiration. Moinuddin Shafiqur Rahman, who supported on the report behind the scenes. Mamunur Rashid, whose integrity and strength were surpassed. Rokibul Islam, who pushed to make the report best. Mahamuda Binta Nour & Selina Akter, who supported writing instruction.
Contributions:___________________
Shahadat Hossain, whose vision and leadership inspired this report. Shahedul Islam whose organizational skills helped keeps us on track. Obayed Hussen & Gulam Kibria, who shored their expertise on communication and diversity. Moinuddin Shafiqur Rahman who helped to find the voice as well as the purpose. Nurul Alam, who shared his knowledge related to the topics at all. Amit Sinha Roy, who coached us to out of stuck-points. All the group members worked hard to make the report. They all involved throughout every place of this report.
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PREFACE
To submit a term paper report is part and parcel of our BBA program. With a view to shaping human abilities, it is necessary for a human to amass a practical knowledge with the theoretical exercises. Without practical knowledge it is difficult for a man to cope himself with a new environment. We are the student of BBA, Department of Marketing. Our topic is Comparison in Pricing Policies: Product Pricing vs. Service Pricing . Though it is very difficult to collect all kinds of information, we have tried our level best to present a real picture of the scenario of current situation. In the present competitive arena, only the fittest and qualified business people will survive. At present, BBA and MBA are very lucrative degree for the business personnels and the submission of the term paper report is a very important part of the BBA examination. During the study period, the students get the opportunity to show their theoretical skill in practical field. If they accomplish it successfully, they will be the future business talent and play important role in trade, commerce, industrialization and future economic as well as infrastructure development of the country. We as the student of Marketing took this opportunity and attempted to focus the every points of the topic. This report will provide some recommendation, which we believe our contribution to take any correct decision. We have given all of our efforts towards making it a perfect one.
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PART A
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EXECUTIVE SUMMERY
Price is a monetary expression of the value for dimension of features for a given product or service as compared with other product or service. Price is only one component of marketing mix which generates profit other generates cost. Companies do their pricing in a variety of ways. In small companies, prices are often set by the top manager. In large companies, pricing is handled by decision and product line managers. The company first decides where it wants to position its market offerings. The clearer a firms objective, the easier it is to set price. Each price will lead to a different level of demand and therefore have a different impact on companies marketing objectives. The company wants to charge a price that covers its costs of producing, distributing, and selling the product. With in the range of possible prices determined by market demand and company costs, the firm must take competitor costs, prices and possible price reactions into account. The firms have to select a pricing policy to set the price of products or services. There are various types of pricing strategies for product pricing and service pricing. The pricing policy of product and service is different in various cases. Generally, product pricing policy refers how a company sets the prices of its products based on costs, value, demand, and competition. There are some general methods of product pricing policy. They are- Cost Based Pricing, Value Based Pricing, Demand Oriented Pricing, and Competition Oriented Pricing. Other methods of product pricing policies are- Markup Pricing, Target Return Pricing, and Product Mix Pricing Policy. New product pricing strategies are Market Skimming Pricing Policy, and Market Penetration Pricing Policy. A Service marketer wants to deliver features or benefits to the customer at an attractive price. An attractive price can be described as either a lower price than competitors or a premium price that is more than offset by added value enhancements. Like as product pricing strategy, there are some also service pricing policies. They are- Cost Based Pricing, Demand Based Pricing, Competition Based Pricing, Benefit Pricing, Capacity Pricing, and Price Bundling Policy. Though the strategies of product pricing and service pricing are quite same, but they are different in the application of pricing.
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CONTENTS
Page No.
PRICE10 HOW COMPANIES PRICE11 PRODUCT PRICE11 SERVICE PRICE..11 SETTING THE PRICE..12 SELECTING THE PRICING OBJECTIVES..13 DETERMINING THE DEMAND14 ESTIMATING THE COSTS14 ANALYZING COMPETITORS COSTS, PRICES, & OFFERS14 SETTING A PRICING POLICY.15 PRODUCT PRICING POLICY15 Cost Based Pricing..15 Value Based Pricing16 Demand Oriented Pricing......16 Competition Oriented Pricing..17 Markup Pricing.17 Target Return Pricing18 Product Mix Pricing19 Market Skimming Pricing..20 Market Penetration Pricing20 SERVICE PRICING POLICY..21 Cost Based Pricing..21 Demand Based Pricing.22 Competition Based Pricing.22 Benefit Pricing..23 Capacity Pricing...23 Price Bundling..24 CASE STUDY..26 Matri Vandar Sweets: A Manufacturer of Sweets.....26 Dr. Rezaul Karim: Medicine Specialist & Consultant..28 CONCEPT MAP.......31 BIBLIOGRAPHY...32 REFERENCES......33
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PART B
LITERATURE REVIEW
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PRICE______________________________
Price is only one component of marketing mix which generates profit. Simply, Price means sacrifice. In the narrowest sense, Price is the amount of money charged for a product or service. More broadly, Price is the sum of all the values that companies give up in order to gain the benefits of having or using a product or service. It refers to what a buyer is willing to pay, a seller is willing to accept and the comparison is allowing to be charged. In economic point of view, Price is defined as the ratio between the quantities of goods and the money that are exchanged for each other. From marketing point of view, Price is a monetary expression of the value for dimension of features for a given product or service as compared with other product or service. Price has been the major factor affecting buyer choice. Price still remains one of the most important elements determining a firms market share and probability. Price is also one of the most flexible marketing mix elements. Unlike product features and channel commitments, price can be change quickly. At the same time price is the number one problem facing mainly executives, and many companies do not handle pricing well. Some managers view pricing as a big headache, preferring instead to focus on the other marketing mix elements. However, smart marketers treat pricing as a key strategic tool for creating and capturing customer value. Prices have a direct impact on a firms bottom line. According to a expert of pricing, A 1 percent price improvements generates a 12.5 percent profit improvements for most organizations. So, we can say pricing is the most important task for all business activities.
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PRODUCT PRICE______________________
Product pricing is a creative and important task for any business organization. Product is anything that can be offered to a market for attention, acquisition, use or consumption that might satisfy a want or need. Products introduce more than just tangible goods. Broadly defined, Product includes physical objects, services, events, persons, places, organizations, ideas, or mixes of these entries. Thus an Apple iPad, Toyota car, clothing are products.
SERVICE PRICE_______________________
Service pricing is a critical task for any business firm. Services are a form of product that consists of activities, benefits, or satisfactions offered for sales that are essentially intangible and do not result in the ownership of anything. Services are grown dramatically in recent years. Services are growing faster in the world economy, making up 37% of the value of all international trade. Example of services are banking, hotels, airlines, retail, tax preparation, and home repair services.
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Step Five : Setting a Pricing Policy & Selecting the Final Price.
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Survival:
Companies pursue survival as their major objectives if they are plagued with overcapacity, intense competition or changing consumer wants. As long as price cover variable costs and some fixed costs, the company stays in business. Survival is a short-run objective, in the long run, the firm must learn how to add value or face extinction.
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Fixed Costs:
Fixed costs are also known as over costs that do not vary with production or sales revenue. A company must pay bills each month for rent, heat, interest, salaries and so on regardless of output.
Variable Costs:
Variable costs vary directly with the level of production of goods or services. These costs tend to be constant per unit produced. They are called variable because their total cost varies with the number of units produced.
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VALUE
PRICE
COST
For example, assume that a television manufacturer is capable of producing 5000 units of particular model. Marketing analysis shows four possible prices: $299, $260, $230, and $200. With this type of data, the firm can prepare a break even chart showing the various break even points as determined by interactions of the total revenue, each price and the total costs.
Markup Pricing
The most essentially pricing method is to add a standard markup to the product costs. Construction companies submit job bids by estimating the total costs and adding a standard markup for profit. For example, suppose a toaster manufacturer has the following costs and sales expectations. Fixed cost Variable cost per unit Expected unit sales $ 300000 $ 10 50000
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The manufacturer unit will be, Unit Cost = Variable Cost + = $ 10 + = $ 16 Now, if the manufacturer wants to earn a 20 percent markup on sales, the manufacturer markup price will be, Markup Price = =
Unit _ Costs (1 Desired _ Re turn _ on _ Sles)
$300000 50000
$16 (1 0.20 )
= $ 20
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By Product Pricing:
Setting a price for a by products in order to make the main products price more competitive. In producing processed meats, petroleum and agricultural products, there are often by products. By products can even turn out to be profitable.
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New product pricing strategiesPricing strategies usually change as the product passes through in life cycle. The introductory stage is essentially challenging. Companies bringing out a new product face the challenge of setting prices for the first time, they can choose between two strategies for their new products in the market.
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Benefit Pricing
Benefit pricing refers to pricing strategy where the price will be determined based on benefit of services that consumer buy. The basic assumption of this policy is that the perceived benefit of a services and the price resulting from this customer valuation is unrelated to the cost of determining a service or what consumer willing to pay or disconnects from cost components. If the determined benefit price does not provide desired returns on investment, increased features and values must be added in such a way that overall service performance commands a higher price. For example, one financial service company added increased beneficial service by adding new value like free consultation. The benefit pricing involves some steps. That are Defining service and the fundamental rationale for the system. Interactions with the customers. Physical and environmental support for the service or personal contact.
Capacity Pricing
Capacity pricing is a service pricing strategy that permits desired return on equipment with a competitive price. This strategy involves some steps. The first step is determined competitive price for equivalent price. This may stated in terms of a range rather than a single price. The second step is to break down the services into its equipment return and possible cost components. The purpose is to determine what costs could be eliminated and what costs could be deduced through increasing productivity. Knowing the market and cost structure is the next step is to divide return plus personal costs by competitive price to find the numbers of units of services necessary to break even given competitive conditions expressed in terms of price.
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For example, suppose a data processing company set desired rate of rate of return is $1000 per day and the minimum acceptable rate is $900 per day. Personnel related costs total $200 per day with possible productivity improvements equal to a savings of $20 per day or 10percent. Suppose further that competitive price for similar processing for transactions rate from 7.5 per transaction to 9 per transaction with the major competitor charging 8.2 per transaction.
Price Bundling
Price bundling refers to offering more than one service at a reduced price. Bundling of services is the combination of two or more services in a single package of a special price that is less than the total price of the services of purchased separately. For example, Tour operators use price bundling for their services offered. In their travel packages include air travel, loading at destination, transportation, hotel costs, food, and sight seeing charges. There are two types of bundling. One is pure bundling, and the other is mixed bundling. The purpose of pure bundling is to create a differentiated product and enhance the value of a core service. In mixed bundling, the customer has the option of buying services individually, or as part of a package with a price incentive for buying the package. Mixed bundling can be divided as mixed leader and mixed joint. Mixed leader bundling is pricing one service at the regular price and another at a discount. Mixed joint bundling is setting a price for two services purchased jointly.
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PART C
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determine of that product. Then the price is set by combining with other competitors price. He said that the other sweets shop Shital Vander sells normal sweets at Tk. 150 per Kg. So, if they set Tk. 200 per Kg. of sweets, which will not be acceptable to the customers. So they set price after estimating cost, value, demand, and considering the price of other competitors.
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such as rent of chamber, salaries of his assistant, electricity bill, and some other expenses for the clinic equipments. He regularly purchases many books and publications on medicine to gain more knowledge and make his service effective for the patients. He also has some variable costs, such as patient examining instruments, some medicines and others.
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PART D
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CONCEPT MAP
Comparative Pricing Policy:
Product Pricing and Service Pricing
Competition Oriented
Pricing
Markup Pricing
Capacity Pricing
Price Bundling
Market Penetration Pricing
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BIBLIOGRAPHY
Philip Kotler & Gray Armstrong, Principles of Marketing. Nessim Hanna & Robert Dodge, Pricing: Policies
and Procedures.
Stephen. L. Montgomeny, Profitable Pricing Strategies. Philip Kotler, Marketing Management. Class Lecture of the Course Teacher. Matri Vander Sweets, Manahorpur, Kandirpar, Comilla. Midland Hospital Pvt. Ltd., Ramghat, Comilla.
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REFERENCES
The References on the topics included in Pricing Term Paper Comparison in Pricing Policies: Product Pricing vs. Service Pricing are given below.
Price: Class lecture on Various definitions of Price. Lecture no. 1 Philip Kotler. Edition- 11th, Page- 472-480.
Philip Kotler & Gray Armstrong. Edition- 12th, Page- 309-312. Philip Kotler & Gray Armstrong. Edition- 12th, Page- 308-309. Nessim Hanna & Robert Dodge. Edition- Latest, Page- 178-184.
Mr. Sanker Sen Gupto. Monohr pur, Kandirpar, Comilla. Midland Hospital Pvt. Ltd. Ramghat, Comilla.
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