It is not an exaggeration to say that pi cing is the most important and crucial decision in the area of marketing organisation. The revenue from sales depends mainly on the level of prices. In a free market economy all economic activities revolve round prices. Price is a factor which gives life to economic system. The reirnuieration payable to various factors of production such as wage-rate, rent, rate of interest and profit depend upon price. The base on which the structure of sale revenues and net profits are built is the level of prices of their products. All the programmes of the companies are framed on the basis of prices and price expectations. A company for instance will be ready to improve the quality of its product as a part of its product development programme if it is convinced that buyers are ready to pay a higher price for a better quality product. The demand for a company product and its economic strength to face the competition also depend on the level of price of its product. If a sales promotion programme is to be launched on an extensive scale, the product price will have to be raised to cover its costs after allowing for a reasonable rate of profit. Thus, even sales promotion activity is influenced by the level of price. There is an inverse relation between price and volume of sales. In normal circumstances, sales decline with the rise in price and sales increase with the fall in price. Profit is directly related to price. The per unit

profit increases with the rise in price and decroaes with the fall in price. In view of the importance of price as a determinant of tho volume of sales and. profits, the management has to decide very carefully tho level of price of their product to be fixed, the basic objective of pricing to bo adoptcd and the pricing policy to be select.Producers have to take decisions about pricing under various circumstances. They have to fix initial price for a newly introduced product. Even if their products get established after a definite period of time, they have to refix their prices in the context ofchanged circumstances i.e. changes in general price level in the economy, the extent of competition in the market, government policy, organised groups of consumers etc. If a company is engaged in producing more than one product, it has to cvolvc a proper price- structure, by fixing different prices for its different products.But a firm may not have full control over the prioin of its product. In many cases, a producer cannot charge a price even slightly higher than the price prevailing in the market. This is the case with most of the agricultural products. The problem of pricing arises only in those situation& in which manufacturers have at least some control over the prices of their products. In a perfectly competitive market, no individual producer has any ontrol over the price. Every producer has to accept the price which is determined by the impersonal market forces of demand and supply. But perfect competition exists nowhere in the world. Rather, imperfect competition is a general nile in ptactice. Under imperfect competition, price has to be fixed in a manner that profit is maxiinised. Thus there are various situations, wherein manufacturers individually cafl change price and hence they face the problem of pricing.While deciding prices of their products, they have to keep in mind various factors such as level of demand for their products, average cost of their production, extent of competition in the market, buyer behaviour, degree of product differentiation, govermnent regulations, objective of the company etc. Thus, a host of forces are at work in the process of price determination.2. MEANING OF PRICE:It is difficult to give a generally acceptable meaning of the tenn price. Ordinarily, it is interpreted to mean money value received against exchange of goods or services.. For example, if a television set is exchanged against Rs. 4,000, the price of T. V. set is Rs. 4.000 per set. The term price indicates buyers intensity of desire to purchase also. In other words, it may mean the price which buyers are willing to pay for a product, keeping in view its utility or usefulness to them. Buyers will be ready to pay a higher price for a product if they expect to derive a higher level of utility from its consumption. Thus, price of a product is the value in monetary units which a buyer is prepared to pay against its utility value.

PRICING OBJECTIVES :*Just as for any business activity to c perfonned properly, its objectives must be determined, similarly, pricing is not possible unless a definite objective is clearly defined. Of course it is difficult to know the objects which different manufacturers keep in mind while fixing prices of their products. They are generally not prepared to disclose anything about their price policy because (i) either competitors may misuse the information (ii) or the govermnent may impose restrictions on receiving information about their price policy. On the basis of a survey of pricingin 20 of th largest companies in the U.S.A. the Brookings Institution came to the conclusion that the most typical objectives of pricing are as follows*(1) To achieve target return on investment or on net sales.(2) To stabilise prices.(3) To maintain or improve a rge share of the market.(4) To meet or prevent competition.(5) To maximise profit.Though these are the objectives of pricing in big companies, they can be adopted by small firms too.(1) Return on Investment : In many of the firms, this is the main objective of pricing. They try to fix price such that a efinite return is obtained on the investment in different products or departments of the company, and the overall profit gives the targeted rate of return on total investment.(2) Price Stability: Some of the leading finns which care for long term interests of business, aim at price stability. Their attempt is not to let price fall too low during depression. nor let them rise too high during boom.(3) To Maintain or Increase Market Share : Behind this objective is the assumption that market share can be maintained only at a definite level of product price. Most of the finns are ready to reduce prices of their products, thereby they can increase their share in the market.(4) To Meet Competitio : Every manufacturer has to adopt a price policy that helps him meet the competition in the market successfully. This objective compels a manufacturer not to charge a price higher than the cOmpetitors prices.

(5) To Maximise Profits : Price policy of the majority of the firms is in practice aimed at maximisatimi of profit. Of course, they may not accept it in public, because generally profit maximisation is believed to be associated with exploitation. But if profit maximisation is accepted as a long term objective, it is beneficial to the company and general public both.I 4. FACTORS AFFECTING PRICING :*There are a number of factors which affect pricing and do not allow management to formulate price policy independently.(1) Goal of the Company : If a company can pursue a price policy independently, it will adopt a price policy, such that its goal whatever it may be, is achieved. For instance, if a company has monopolised the product market, it will fix that price for its product which maximises its profit.(2) Cost of Product: Cost of production is an important factor affecting price of a product. Even in times of depression. price must be a little higher than cost of production The production cost includes such expenses as cost of raw materials, wages and other overheads, taxes, depreciation, interest etc. Besides, a definite amount of return for risks must also be included in production cost. In India, price is fixed generally on tho basis of production cost and a certain percentage of profit added to it. However, it is true that if price is always fixed on the basis of cost of production, there will be little scope for improvement in efficiency.(3) Competitors Prices: The nature of competition depends mainly on the nature of business. Some businesses are highly competitive while some are least competitive. Yet as a rule, it may be said that it is not desirable to charge a price higher than those charged by rival finns. A well established firm can charge a slightly higher price without losing its customers, yet a very high price is not advisable from the long run point of view.(4) Types of Buyers and their Purchasing Power : Price of a product cannot be fixed without taking into consideration the economic status of its buyers. If buyers belong to well-to-do class, a higher price can be fixed. But if they belong to middl class or poor class, a lower price will have to be fixed. If buyers are vell infonned of the quality and usefulness of the product only that price will have to be fixed which they consider to be reasonable. Generally, the industrial buyers are better informed in this respect as comparedto the buyers of consumer goods.(5) Distribution Channels : The channels of distribution and the rates of discount and coinmissioii to be paid also afrect price policy of the company.

The larger the number of intermediaries and more indirect the channels of ditrihution, the less will be the freedom of price determination for the company.(6) Government Controls : In practice, there are many controls and restrictions imposed by modern govermnent on business. The producers have therefore, little freedom to fix the prices as they wish. They arc always under the fear of the probable government controls, if they fix a high price causing resentment among the public.(7) Quality of the Product : If the product is of better quality, a slightly higher price is justifiable. Sometimes, a higher price can be obtained only by creating an impression among the buyers anyhow that the product is really of superior quality. This implies that it is not the actual or genuine quality of the product, but it is the opinion of the customers about quality that matters most. If customers believe that a product is superior in quality, they will be ready to pa more for it, while, in fact, the product may not actually be so.(8) Service : Many buyers give importance to the sellers services as much as to the quality of the product. If sellers services are satisfactory, they will be ready to pay a higher price for their products.(9) Demand and Supply : As a general rule, price of any commodity is determined by the market forces of demand and supply. If demand for a product is in excess of its supply, its producers can easily increase the price. But if its total demand is less than its total supply, its manufacturers will have to reduce its price, whether the are willing to do so or not.(10) Stage of Product Life Cycle : While determining price, the stage of product life cycle has also to be taken into consideration. In the introduction stage the prices will be kept low to attract customers. But if it is a monopoly item, the price will be kept very high. In the development stage, normal price is charged. In the declining stage, the prices will have to be reduced.In addition, it may be pointed out that a high price can be charged for the seasonal or fashionable products if their demand is seasonal. But if ii becomes customary to charge a definite price for a product or service, the producers do not dare change it. For instance,.the price of a toilet soap has, since long been Rs. 7 by tradition, its manufacturers cannot raise it above this level except when they can successfully convince customers that their soap is distinct from others.[jBIcMETHODS OF SETTING PRICA company fonnulates a defmite price policy in accordance with its objectives. The market trends are also taken into account while actually setting the price. The following are the basic pricing methods

(1) Cost-oriented pricing(2) Demaiid-oriented pricing(3) Comeptition-oriented pricing.If price is fixed on the basis of cost, it is called cost-oriented pricing. If ice is fixed on the basis of 1e.rel of demand, it is known as demand-oriented icing. If price is fixed on the basis of competitors prices, it is described as mpetition-oriented pricing.Let us consider each of these practices in some detailCOST-ORIENTED PRICING:Most of the producers take into account the cost of production while fixing e prices of their products, The cost of production includes the total cost and )t only marginal cost. The various forms of this price policy are as follows:1. PRICING POLICIES:hi order to know how prices are determined and whether to make frequent tanges in the prices or not, let us, study some of the pricing policies:(1) High Pricing: Here prices are determined at as high level as the traffic n bear. This is generally possible under monopoly. Just as competitors start itering the market the prices have to be reduced. Till then maximum profit can earned by high pricing.(2) Stable Pricing : The price once determined will have to be kept stable id not changed at least for a particular period. This policy is necessary to induce rnfidence among customers that the company is not exploiting them.(3) Skimming Pricing or Maximum- Profit Pricing: This policy involves tting a very high price for a new product in the beginning and reduce the price adually as competitors enter the market. This will result in maximising the ofit and recovering the cost of introducing new product within the shortest )ssible time. (4) Penetration Pricing: This is opposite to the above policy of skimming icing. It is intended to help the product to penetrate into the market. This can achieved by keeping the price very low in the initial stage or till such time the oduct is finally accepted by the customers.(5) Target Pricing: Some finns adopt a policy of fixing prices, so as to earn particular percentage of profit on investment. The electricity companies have adopt this policy bylaw. Sonic firnis fix price so as to earn a certain percentage profit 011 selling price.(6) What the Customers can Bear Pricing: This is a policy of charging ices according to the capacity of customers. Those who can pay high prices will charged higher prices in the form of new packing or by some other mode.

(7) Discouraging Competitor Pricing : This is a method of pricing which will not allow competitor to settle in the market. Whenever a ne competitor enters a market, the price is inunediately lowered to a very low level, which the competitor cannot afford. e.g. when Scindia Steam Navigation Co. started its operation in 1919, the British companies adopted this type of price strategy.(8) Prevailing Pricing : This kind of pricing is adopted to meet the competition. Whenever the competitors raise the prices, the company will also raise its price. This is treated as a safe pricing policy.(9) Price Discrimination : * It refers to a practice of charging different prices for the same product to different groups of buyers. Different prices are fixed for different groups of custoier. e.g. in railways, different freight rates are fixed for different types of goods. Sometimes, by making a slight change in tile product, it is possible to charge high prices to rich customers. Secondly, the policy of charging lower price for a large scale buyer is perfectly justified. Some companies adopt different prices for individual customers and company customers. e.g. fans are available to educational institutions at concessional rates. Generally, one-price policy is the best policy. This is because customers look to the company with suspicion when it follows discrimination price policy. But in certain circumstances, the policy of price discrimination becomes necessary. The main types of price discrimination are as follows(i) Price Discrimination Among Customers : Sometimes different prices are charged to different types of customers although the product is the same. For example, a motor-car company may sell its car to a person at a price stated in its price list and the same car.may be sold at a discount to some other person who is clever enough to dictate his terms and conditions. Similarly,is a matter of common experience that there is always sonic difference between the price charged for cash purchase and that charged for credit purchase.(ii) Product-wise Price Discrimination : The same product giving the same service to all customers, may be available in different forms or designs. And the utility or satisfaction derived by different customers may differ. For example, the hard bound copy of a book has greater utility than a paper back of the same book. Those buyers (i.e. libraries) who wish to preserve it forlong time prefer to pay a high price for the hard bound copy, while those buyers who want to use it for a short period prefer to purchase paper back editiona lower price, Tile price difference between two fonns of a product is not always equal to the difference in their costs. It is greater than cost difference in most cases.

(iii) Time-oriented Price Discrimination : The level of demand for a )rOduct is different at different points of time. For this reason, market price )f the same product differs at different points of time. For instance, the rates )f trunkcalls during daytime are different from those during night time. The ental charges of halls are high during marriage season as compared to that luring off season.(vi) Geographical Price Discrimination: Price of a product may differ it different places in the market. This is because utility of a product is different it different places. The most popular example is that of difference in charges or balcony, upper stall and. lower stall in the theatres.Price discrimination is possible however, only when following conditions ire fulfilled : (a) It should be possible to divide a market into different groups md price elasticitiy of demand for the product should be different in different roups. (b) Resale of the product should be impossible, that is, it should not be iossible to transfer a product from low priced market to high priced market for esale. (c) There should be no rival in the high priced market, otherwise, a ,ossibililv arises that the competitor may sell at a low price and capture the narket. (d) The cost of dividing a market into different parts and controlling hem should not be greater than the increase in profit resulting from price liscrimination. (e) Price discrimination should not be so unreasonable as to ause resentment among the buyers and inducing them to turn to other finns.PRICING METHODS:There are three main methods of pricing (1) Price determination on the basis of cost(a) Cost-margin (b) Marginal cost (c) Break-even point.(2) Balance between demand and suppy(3) Competition-oriented pricing.(A) Price Determinationon Cost Basis : * There are three bases for price cterniination viz. (I) Cost-plus pricing (2) On marginal cost basis and (3) On e basis of break-even point.(1) Cost-plus Pricing : Here the price is determined on the basis of the rule at no product can be sold at a price lower thaii its cost in the long run. By dividing e total cost by total number of units produced, cost per unit is obtained and lung price is determined by adding a certain percentage of profit on full cost. us method is simple and easy to understand. But pricing also depends upon the st and prices of competitors. If the competitors also follow the same method and cir cost is lower, then the company will have also to keep its price low, unless can create a special impression on customers through advertisements that its isserior__-

The method of full cost pricing has a limitation that it does not take into account the nature arious expenses included in cost. Some expenses remain fied irrespective of whether the production increases or decreases. Due to such fixed expenses the per unit cost will decrease when the production increases and cost will rise when production decrease. If prices are determined on this basis, it will create difficulties for the firm in facing competition.The wholesalers and retailers generally follow this method. A retailer purchases goods at a particular price and determines selling price by adding his own expenses and a desired margin of profit. Sometimes, he adds a certain percentage to his purchase price, so as to earn a particular margin of profit after recovering his cxpenses(2) Marginal COst-Plus Pricing : We have seen above that the total cost is made up of two types of expetues, fixed expenses and variable expenses. Due to inclusion of fixed cost, the cost of per unit differs for various levels of production. To avoid such a situation, fixed costs are excluded and price is determined on the basis of marginal cost which is variable cost only. In times of depression the pices are so determined that full cost may not be recovered, but at least marginal cost is recovered. Similarly, for introducing new product into the market and for dumping in foreign market, prices are fixed on the basis of marginal cost only.But no selling price will be profitable in the long run, if fixed costs are not recovered. In addition, if price of some product is fixed on marginal cost and its fixed costs arc recovered from price of another product, it means the finn is doing in justice to customers of the other product.(3) Break-even Point Based Pricing: In both the above pricing methods, price is deteniuined from the viewpoint of producer only. But break-even point will be useful in determining price based on demand and cost both. Break-even point is that level of sales at which the total costs and sales revenue will be equal. A graph may be drawn to find out break-een point. In this graph a fixed cost line is drawn horizontallv.Then a total cost line is drawn above that line. Then a sales line is drawn. The point at which total .cos line and intersect is called break-eveii point. At this point of sales, neither profit is made nor loss is incurred, but incomes and expenses remain equal.Now, an estimate will be made to determine sales at various prices and various sales lines will be drawn. The price vjll be determined at that level of price at which there will be maximum profit.(B) Demand and Supply Balance Pricing : As economists say, price will be determined in perfect competition at a price at which demand and supply will be equal. The producer vill go on selling at a price till the sales revenue ill exceed his cost of product. At the stage when his marginal revenue and marginal ost arc the same. lie will continue to sell.

(C) Competition-oriented Pricing: Many times the producer has to fix his price, keeping in view the prices charged by the competitors. Such prices are, of three types : (i) Price equal to competitors price (ii) Price higher than competitors prices (iii) Price lower than competitors prices.(i) Prices equal to competitors price : When there is a severe competition in the market the producer cannot charge prices higher than those of competitor. Secondly, for certain product like rice, it is not possible to charge price more than what competitors charge,(ii) Price higher than that of competitor: Generally such pricing is not advisable. However, a producer will adopt such pricing when he wants to create impression on the minds of customers that his product.is superior to that of his competitor. This will work successfully with customers who think that the products bearing high prices are superior in quality.(iii) Price lower than that of competitor: Some firms adopt such policies. In cases, when the cost of producer is low or quality of his product is inferior, he will charge price lower than that of his competitor. e.g. Nirma adopted this policy for its washing powder against Hindustan Lever Ltd. Sometimes, when the competitors are spending huge sums on sales promotion schemes, some producer may adopt such pricing policy.