Year: 2020

Price goes by various names-freight, fare, license fee, tuition fee, professional charge, rent, interest, etc. But price in an enterprise/business system is seldom so simple. By definition, price is the money that customers must pay for a product or service. In other words, price is an offer to sell for a certain amount of currency.

Here, the word, offer indicates that price is subject to change if there are found insufficient number of customers at the original price of the product. That is why prices are always on trial. If they are found to be wrong, either they must be immediately changed or the product itself must be withdrawn from the market.

Pricing of the product is something different from its price. In simple words, pricing is the art of translating into quantitative terms the value of a product to customers at a point of time. Someone has opined that, “The key to pricing is to build value into the product and price it accordingly.”

Pricing is one of the key elements of marketing mix.

The salient ingredients of pricing are:

(i) Pricing covers all marketing aspects like the item-goods or services-mode of payment, methods of distribution, currency used, etc.

(ii) Pricing may carry with it certain benefits to the customers like guarantee, free delivery, installation, free after-sale servicing and so on.

(iii) Pricing refers to different prices of a product for different customers and different prices for the same customer at different times.

Pricing – Buyers’ and Sellers’ View

In general terms price is a component of an exchange or transaction that takes place between two parties and refers to what must be given up by one party (i.e., buyer) in order to obtain something offered by another party (i.e., seller).

Yet this view of price provides a somewhat limited explanation of what price means to participants in the transaction.

In fact, price means different things to different participants in an exchange:

1. Buyers’ View

For those making a purchase, such as final customers, price refers to what must be given up to obtain benefits. In most cases what is given up is financial consideration (e.g., money) in exchange for acquiring access to a good or service. But financial consideration is not always what the buyer gives up.

Sometimes in a barter situation a buyer may acquire a product by giving up their own product. For instance – two farmers may exchange cattle for crops. Also, as we will discuss below, buyers may also give up other things to acquire the benefits of a product that are not direct financial payments (e.g., time to learn to use the product).

2. Sellers’ View

To sellers in a transaction, price reflects the revenue generated for each product sold and, thus, is an important factor in determining profit. For marketing organizations price also serves as a marketing tool and is a key element in marketing promotions. For example – most retailers highlight product pricing in their advertising campaigns.

Objectives of Pricing

1. Target Rate of Return

Firms following this objective design their pricing strategy in such a way that will yield desired return on total investment (ROI). Rate of return refers to the amount of net profits divided by investment or capital employed. This goal often leads to cost plus pricing. The price of a product or service is determined by adding the expected margin of profit to the cost of production and distribution.

2. Price Stabilization

This goal is adopted in industries having a few firms. In an oligopolistic situation where one firm is very big and all others are small, the big firm acts as the price leader and other firms follow it. All the firms try to avoid price wars. No firm is willing to cut its prices for fear of retaliation by other firms.

In order to avoid fluctuations in prices, they may even forgo maximizing profits during the period of scarce supply or prosperity. This objective is followed in case of products which are vulnerable to price wars or which are advertised at the national level. Price stability helps in planned and regular production in the long run. However, it may create rigidity in pricing.

3. Target Share of the Market

In an expanding market, market share is a better indicator of a firm’s success than the target rate of return. When the market has a potential for growth, a firm earning the target rate of return may, in fact, be decaying if its share of the market is decreasing. Therefore, maintenance or improvement in the market share is a more worthwhile objective in growing markets. Market share measures a firm’s sales vis-a-vis the sales of its competitors.

4. Facing Competition

Under conditions of intense competition, a firm may seek to meet or prevent competition. It may fix prices at a very low level (even below cost) to eliminate its competitors or to prevent the entry of new firms in the market. Some firms follow this practice while introducing a new product. This goal is not very popular and cannot be adopted on a regular basis. In the long run, a firm cannot survive if it continues to charge less than the cost of the product or service.

5. Profit Maximization

Traditionally, profit maximization is considered to be the objective of pricing. The classical economic theory suggests the fixation of prices in such a way that the marginal cost is equal to marginal revenue where profits are maximized. Even today some firms are not very conscious of social responsibilities and try to maximize profits. But in recent years there has been a change in the philosophy of business and profit maximization is not considered rational business behaviour. In practice, no firm states explicitly that profit maximization is its pricing objective due to the fear of public criticism and government regulation.

6. Improving Public Image

Another objective of pricing may be to enhance the firm’s public image. The firm may launch a premium product at a high price for this purpose. Alternatively, it may offer the new product at a low price to appeal to the common buyer. The pricing policy should be consistent with the established reputation of the firm.

In addition to the foregoing, business firms may design their pricing policy to achieve the goals of full capacity utilization, market exploration, diversification, etc.

Marketing Environment is a wide scope which covers all the outside factors, forces which affects marketing management’s decisions and their relationship with target customers. Companies must constantly adopt and change to the changing environment.

Marketing Environment is a study of all the external atmosphere of the organization affecting all the internal factors within the organization which ultimately requires attention of the Marketing management for sound decision making in the long run as well as short period.

Marketing environment encompasses the marketing team within an organization and includes all of the outside factors of marketing that affect the team’s ability to develop and maintain successful customer relationships with their targeted customer group.

Micro Environment

Philip Kotler explains this environment in his definition as, “The micro environment includes all the actors close to the company that affect, positively or negatively, its ability to create value for and relationship with its customers”

Thus, Customer satisfaction and communication should be developed for healthy relationship.

Marketing managers cannot make this relationship working because of several factors affecting at the same time.

The factors are as follows:

(i) The Company

The company is a hierarchical entity consists of different departments like purchasing, production, top management, research and development, finance etc. All these interrelated groups forms the internal environment of organization.

Top management is responsible for companies’ mission, objectives, and broad strategies, policies. Marketing management make decisions within the actions and decisions of top management. Other departments also have impact on marketing department. Harmony must be established with all the departments.

(ii) Suppliers

Suppliers are important part of the overall link of customer to company. Suppliers supplies goods and resources needed to produce goods and services to the company.

Their problems must be studied because they can seriously affect marketing. Cost and supply availability must be checked by marketing department.

In current scenario marketers treat suppliers as their partners in creating and delivering customer value.

Many suppliers provides valuable information on their web portals about their marketers and give important feed back to them about customer responses.

Supply shortages, delays, labor strikes and other events can cost sales in the short run and affect customer satisfaction in the long run.

(iii) Marketing Intermediaries

Intermediaries helps the company to promote, sell and distribute its products to final buyers. Marketing intermediaries includes resellers, physical distribution firms, marketing services agencies and other intermediaries including financial intermediaries.

Reseller includes distribution channel firms that help the company to find customers or make sales to them.

In India it is a growing trend that in near future manufacturers will now be facing competition of large and powerful intermediaries. Some resale organizations in India have emerged and troubled the manufacturers. For example Big Bazaar, Shoppers Stop. Pantaloons retail. Like suppliers, intermediaries form an important component of the company’s overall marketing strategic management.

For optimizing customer satisfaction company must become partner with these intermediaries to balance the performance of whole system.

(iv) Competitors

Marketing Management must takes into account the activities of its competitors because of their similar aim of satisfying customer. Marketers must take strategic advantage by performing more efficiency in this modern age of cut throat competition.

Every organization must study its own nature and structure and implement marketing strategy accordingly. All policies are not suitable for every organization so choice must be made and policies must be planned accordingly.

(v) Public

Public is any group that has an actual or potential interest in or impact on organization’s ability to achieve its objectives.

Noted marketing author and thinker Philip Kotler identifies seven types of public which attracted and which affects organization’s decisions which are:

• Financial Public: Banks, Investment Agencies, Stockholders, Debenture holders etc. are included in this type.
• Media public: Newspaper, Magazine, reporters, editors etc.
• Government Public: Lawyers, Tax consultant, Government Personnel etc.
• Citizen- Action public: minority groups, social groups, RTI activists, other social activists etc.
• Local public: Neighborhood residents, community organization etc.
• General Public: General public in the country
• Internal Public: Leaders, Board of Directors, Volunteers, Managers etc.

Each class of public have different agenda and needs to be treated differently.

There are number of factors which influences the marketing decisions.

Hence it is very important to understand each parameter. Macro environment generic in nature, impacts the whole business environment, while micro environment specific to the industry affects industrial decisions on personal level.

The macro environment includes all the factors which are external to the firm and which cannot be controlled by the organization. Macro environment influence is not specific to any particular industry but influence all the firms on a different level. Marketing management must have knowledge of different factors which influences the marketing decision of a firm. Since they are not controllable, one must adjust the decisions as per the changes in the environment.

“The macro environment consists broader forces that affects the actors in the micro environment.”

The conditions that exist in the economy as a whole, rather than in a particular part of a region affects organization very much rather than micro economic forces. Macro Environment generally includes trends in gross domestic product (GDP), inflation, employment, spending, and monetary and fiscal policy. The macro environment is closely linked to the normal business cycle, as opposed to the performance of an individual business sector.

The macro environment affects micro environment and therefore business.

The macro environment in which an organization is operating will be influenced by its forces and in return is affected by organization’s performance as well.

This macro environment forces are so influential that can result in a major changes in organization’s outlook to a large extent. Service sector have contributed largely towards economic growth of a country, this macro environment change affects every organization in respect of providing services and fulfillment of consumer needs.

All the departments and people in the organization work under the bigger impactful macro environment.

Following are the elements of macro environment:

• Demographic Environment
• Economic Environment
• Natural Environment
• Technological Environment
• Political and Social Environment
• Cultural Environment

1. Demographic Environment

Changes in demography’s in the nature of human population means ultimate changes in markets. Demographic environment is study of human population in terms of size, density, location, age, gender, race, occupation and other statistics. It is the study of people who are nothing but market. People are responsible for demand for a product and some other people contribute towards the supply of the product. So people and people mix are the most important factor of macro environment.

Thus as a marketer, one must understand the demographics of the nation and the also due to globalization, global population also influences the marketing decisions.

(i) Population Mix

Population study is very important because it is very dynamic and rapidly changing. Not only growth of population should be considered but also composition of population is equally important. In India where youth is the largest denominator, promotion must be made accordingly.

(ii) Population Growth

India is the second largest populated country after china. According to 2011 census report Indian population reached 1.21 billion constituting 17.5 % of the world population. India is projected to be the World’s most populous country by 2025, surpassing china. This provides an exceptional opportunity for business. Many foreign companies got attracted with this market because of its dynamism and power to increase sale with very high percentage.

(iii) Geographical Shift

Very diversified culture is present on Indian soil with changes spotted every 100 kilometers including change languages and traditions. Marketer must have this knowledge of different culture where he wants to sale his product.

(iv) Changing Family System

India had a tradition of joint family system in which all the parents, grandparents and sometimes great grandparents would live together under one shelter. The eldest man being the Head or Chief of the family and the able bodied men would work for daily bread and butter and women were responsible for kitchen and other household responsibilities.

(v) Changing Role of Women in India

Women in India were basically engaged in household activities and took responsibility of kitchen and other work including maintenance, cleaning of house, raising kids etc. Today more and more women, even from rural area, are completing graduation and even post-graduation. Women are working shoulder to shoulder with men in every sphere of activity, be it in education, organization, hospital, or a science research Institute.

(vi) Rural Population

The MGI India consumer Demand Model forecasted that the population in rural India will be 900 million by 2015. Which will result in rising demand at a compounding rate. Such demographic factors affects marketing decisions.

(vii) Middle Class Factor

India is showing tremendous growth in middle class with their own set of nature, features, likes, dislikes and demands. It is a study subject for marketing managers because it changes product requirements, demands for services etc. It is predicted that middle class will dominate the urban consumption in near future.

2. Economic Environment

The economic environment can offer both opportunities and threats. It refers to the factors that affects consumer buying power and spending patterns.

To attract the India’s growing middle class, Tata motors introduced the small, affordable Tata Nano car designed to be the Indian model T- the car that puts the developing nation on wheel.

Economic considerations includes, inflation, GDP, bank policies, market trends, union budget. Fiscal policies, credit issues, financial crisis or progress, and global economic situation.

All these environmental factors must be studied in depth because they affect buyer’s demands and hence product’s demand. Consumer spending pattern and income distribution must also be looked for so as to have a bulls eye view about economic environment.

Credit availability and saving trends in economy has an influence on the purchasing ability of the consumer. The availability of installment schemes and EMI options has boosted service sector, reality sector and consumer durable products.

Following are some of the factors of economic environment:

(i) Recession or Boom

If the economy is going through a recession it is obvious that businesses generally will not be doing well due to low aggregate demand in the economy. On the other hand, a boom period will lead to higher business profits and revenue for most of the businesses in the economy. Recent global recession brought software industry in country to perform at very lower profit levels.

(ii) Inflation

High rate of inflation leads to lower purchasing power for consumers resulting in lower demand for goods and services. Moreover, a higher inflation rate will make business uncompetitive in the international market leading to lower sales for the business.

(iii) Tax Structure in Country

High level of taxes will lead to low disposable income and contraction of demand in the economy. Business will find it difficult to attract consumers. Moreover, taxes affects overall spending pattern. Debit card swapping sometimes attracts 2 percent tax hence many consumer purchase products with cash only.

(iv) Unemployment

High level of unemployment in the country can also adversely affect a business. People will not have enough money to purchase a firm’s product. With the rising per capita income in India as a result of increase in job opportunities, spending increased rapidly in a last decade

(v) Labor Costs

High labor cost will result higher production costs. This will make a firm’s product more expensive as compared to other firms affecting its sales and profit margin.

(vi) Prevailing Rates of Interest

Higher Interest rates will lead to a fall in the aggregate demand in the economy thus leading to difficulty for business to find customers willing to buy its product. Lower interest rates will lead to an increase in demand in the economy.

(vii) Income Distribution

High level of disposable income is good for business producing luxury goods. A large disparity in income distribution will promote businesses dealing in luxury goods as well as inferior goods.

With duel income sources per home, spending and distribution pattern have changed significantly.

3. Natural Environment

Marketers need to be aware of the threats and opportunities associated with the four trends associated in the natural environment which are stated below:

• Shortage of raw material
• Increased cost of energy
• Increase in pollution
• Government policies

Natural environment consists of natural resources that are required as inputs by marketers or that are affected by marketing activities.

All corporates are now looking for eco-friendly approach because of showing respect towards Mother Nature and trying to act more pollution free in an effort to save environment.

First cause of concern for marketer is the shortage of raw material is growing because of increase in consumption. Second is government intervention in natural resource management. So companies should accept social responsibility and less expensive devices can be found to control and reduce pollution.

It is a common practice in the scenario of pollution and social natural awareness. Companies are making Eco- friendly strategies to deal with problems of pollution and short resources.

Many companies are using handmade papers for internal use and promoting save paper campaign.

Idea launched this concept of paper saving on a broad scale. Aircel introduced save tiger campaign for saving tigers all over the country.

4. Technological Environment

Technology is the most influential force that is shaping marketing environment which includes forces that are the new technologies affecting new product and market opportunities. Technology has created miracles in the area of robotic surgery, antibiotics, laptop computers, which affect every organization’s marketing environment.

The technology is a synonym for change. It changes rapidly with destroying all the previous researches, like invention of handy sub devices demolished floppy from the market. Android based smart phones have destroyed all the other previous platforms like java based and Symbian based operating system compelling mobile manufacturers to use new android based operating system. Even school going kids are well aware of the latest smart phone product and features of that.

Internet usage have increased very drastically, so because of increase in the usage of smart phones with the availability of internet in a fingertip, number of internet cafes have reduced. Such is a power of technology.

There are approximately 700 million mobile users in India in 2012 rising up to 900 million in 2016 shows the technological advancement and factor needs attention of marketers.

New technologies create new markets and opportunities. However every new technology replaces an older technology. Thus marketers should watch the technological environment closely. Companies that do not keep up will soon find their products outdated.

5. Political and Social Environment

Markets works best under some regulative forces. Well-conceived regulation can encourage competition and ensue fair markets for goods and services.

Thus, governments sets up public policies to guide businesses that also limit business for the good of society as a whole. Almost every business activity including marketing activities are subject to laws and regulations.

Every company operates under some obligation and without that chaos will rule the corporate sector with competition running the top management. Social sector is keeping corporate sector to work under some obligatory forces which show some responsibility towards society and country.

Many organizations are now engaged in social work for showing their concern for problems of economy and providing some assistance to the government and other social agencies for overcoming them.

Many corporate sector companies are initiating Fund raising campaigns, portals for child education, drought management, water purity education, save girl child campaign etc. showing social responsibilities.

India’s top most software company’s CEO took project named ‘AADHAR’ to give unique identification number to every citizen of the country. This project got praised by government and corporate sector.

This cause related marketing have been criticized because of intention of increase in sale rather than tendency of giving.

6. Cultural Environment

Cultural factors affects how people think and how they consume. So marketers are keenly interested in the cultural environment.

The cultural environment generally includes people’s thinking about following:

• People’s view of themselves: It includes people view about themselves which vary in their emphasis than their view of outer world
• People’s view of others: People are becoming more and more introvert and so their views of others are changing
• People’s view of organization: People vary in their attitudes toward corporations, government agencies, trade unions, universities and other organization.
• People’s view of society: People vary in their attitudes toward their society based on their culture, opinions, character etc.
• People’s view of nature: Recently people in general have recognized that nature is fragile and can be destroyed by human activities.
• People’s view of universe: Finally, people differ in their beliefs about the origin of the universe and their place in it.

Religion plays an important role in every human being even if in life of a staunch atheist.

The cultural environment includes institutions and other forces that affects society’s basic values, perceptions, preferences and behaviors etc.

Cultural core beliefs are so strong that it affects buyers’ demands to that respect greatly. So company must take that environment into consideration before making marketing strategies. Because of software sector development in India, sale of consumer durable goods increased widely. So marketing department must have studied nature and culture of this software sector employees before even their introduction in India.

The marketing environment refers to all internal and external factors, which directly or indirectly influence the organization’s decisions related to marketing activities. Internal factors are within the control of an organization; whereas, external factors do not fall within its control. The external factors include government, technological, economic, social, and competitive forces; whereas, organization’s strengths, weaknesses, and competencies form the part of internal factors.

Marketers try to predict the changes, which might take place in future, by monitoring the marketing environment. These changes may create threats and opportunities for the business. With these changes, marketers continue to modify their strategies and plans.

Features of Marketing Environment

Today’s marketing environment is characterized by numerous features, which are mentioned as follows:

1. Specific and General Forces

It refers to different forces that affect the marketing environment. Specific forces include those forces, which directly affect the activities of the organization. Examples of specific forces are customers and investors. General forces are those forces, which indirectly affect the organization. Examples of general forces are social, political, legal, and technological factors.

2. Complexity

It implies that a marketing environment include number of factors, conditions, and influences. The interaction among all these elements makes the marketing environment complex in nature.

3. Vibrancy

Vibrancy implies the dynamic nature of the marketing environment. A large number of forces outline the marketing environment, which does not remain stable and changes over time. Marketers may have the ability to control some of the forces; however, they fail to control all the forces. However, understanding the vibrant nature of marketing environment may give an opportunity to marketers to gain edge over competitors.

4. Uncertainty

It implies that market forces are unpredictable in nature. Every marketer tries to predict market forces to make strategies and update their plans. It may be difficult to predict some of the changes, which occurs frequently. For example, customer tastes for clothes change frequently. Thus, fashion industry suffers a great uncertainty. The fashion may live for few days or may be years.

5. Relativity

It explains the reasons for differences in demand in different countries. The product demand of any particular industry, organization, or product may vary depending upon the country, region, or culture. For example, sarees are the traditional dress of women in India, thus, it is always in demand. However, in any other western country the demand of saree may be zero.

Types of Marketing Environment

The sale of an organization depends on its marketing activities, which in turn depends on the marketing environment. The marketing environment consists of forces that are beyond the control of an organization but influences its marketing activities. The marketing environment is dynamic in nature.

Therefore, an organization needs to keep itself updated to modify its marketing activities as per the requirement of the marketing environment. Any change in marketing environment brings threats and opportunities for the organization. An analysis of these changes is essential for the survival of the organization in the long run.

A marketing environment mostly comprises of the following types of environment:

• Micro Environment
• Macro Environment

The discussion of these environments are given below:

1. Micro Environment

Micro environment refers to the environment, which is closely linked to the organization, and directly affects organizational activities. It can be divided into supply side and demand side environment. Supply side environment includes the suppliers, marketing intermediaries, and competitors who offer raw materials or supply products. On the other hand, demand side environment includes customers who consume products.

(i) Suppliers

It provides raw material to produce goods and services. Suppliers can influence the profit of an organization because the price of raw material determines the final price of the product. Organizations need to monitor suppliers on a regular basis to know the supply shortages and change in the price of inputs.

(ii) Marketing Intermediaries

It helps organizations in establishing a link with customers. They help in promoting, selling, and distributing products.

Marketing intermediaries include the following:

• Resellers: It purchases the products from the organizations and sell to the customers. Examples of resellers are wholesalers and retailers.
• Distribution Centers: It helps organizations to store the goods. A warehouse is an example of distribution center.
• Marketing Agencies: It promotes the organization’s products by making the customers aware about benefits of products. An advertising agency is an example of marketing agency.
• Financial Intermediaries: It provides finance for the business transactions. Examples of financial intermediaries are banks, credit organizations, and insurance organizations.

(iii) Customers

Customers buy the product of the organization for final consumption. The main goal of an organization is customer satisfaction. The organization undertakes the research and development activities to analyze the needs of customers and manufacture products according to those needs.

(iv) Competitors

It helps an organization to differentiate its product to maintain position in the market. Competition refers to a situation where various organizations offer similar products and try to gain market share by adopting different marketing strategies.

2. Macro Environment

Macro environment involves a set of environmental factors that is beyond the control of an organization. These factors influence the organizational activities to a significant extent. Macro environment is subject to constant change. The changes in macro environment bring opportunities and threats in an organization.

(i) Demographic Environment

Demographic environment is the scientific study of human population in terms of elements, such as age, gender, education, occupation, income, and location. It also includes the increasing role of women and technology. These elements are also called as demographic variables. Before marketing a product, a marketer collects the information to find the suitable market for the product.

Demographic environment is responsible for the variation in the tastes and preferences and buying patterns of individuals. The changes in demographic environment persuade an organization to modify marketing strategies to address the altering needs of customers.

(ii) Economic Environment

Economic environment affects the organization’s costs structure and customers’ purchasing power. The purchasing power of a customer depends on the current income, prices of the product, savings, and credit availability.

The factors economic environment is as follows:

• Inflation: It influences the customers’ demand for different products. For example, higher petrol prices lead to a fall in demand for cars.
• Interest Rates: It determines the borrowing activities of the organization. For example, increase in interest rates for loan may lead organizations to cut their important activities.
• Unemployment: It leads to a no income state, which affects the purchasing power of an individual.
• Customer Income: It regulates the buying behavior of a customer. The change in the customer’s income leads to changed spending patterns for the products, such as food and clothing.
• Monetary and Fiscal Policy: It affects all the organizations. The monetary policy stabilizes the economy by controlling the interest rates and money supply in an economy; whereas, fiscal policy regulates the government spending in various areas by collecting the revenue from the citizens by taxing their income.

(iii) Natural Environment

Natural environment consists of natural resources, which are needed as raw materials to manufacture products by the organization. The marketing activities affect these natural resources, such as depletion of ozone layer due to the use of chemicals. The corrosion of the natural environment is increasing day-by-day and is becoming a global problem.