Business to Business Marketing

Q . How the pricing of any industrial products can be done ? Discuss the pricing of industrial product/services of your choice .

WHAT IS PRICING?
Pricing is the process of determining what a company will receive in exchange for its products. Pricing factors are manufacturing cost, market place, competition, market condition, and quality of product . Pricing is a fundamental aspect of financial modeling and is one of the four Ps of the marketing mix. The other three aspects are product, promotion, and place. Price is the only revenue generating element amongst the four Ps, the rest being cost centers. Pricing is the manual or automatic process of applying prices to purchase and sales orders, based on factors such as: a fixed amount, quantity break, promotion or sales campaign, specific vendor quote, price prevailing on entry, shipment or invoice date, combination of multiple orders or lines, and many others. The needs of the consumer can be converted into demand only if the consumer has the willingness and capacity to buy the product. Thus pricing is very important in marketing.

CHARACTERISTICS OF PRICE
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The factors like delivery, installation costs, discounts, training costs, trade-in allowances etc. influences the true price of the industrial goods

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Pricing is also affected by product, promotion and distribution strategies Price of a particular product is decided by taking into account other products that are substitutes or complements sold by the company

Price is more flexible decision area (changing quantity of goods provided by the seller , changing premium and discounts that are offered , changing in time and place of payment)

Price are established by industrial bidding and in many cases by means of negotiations

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Industrial price increases are justifiable on basis of cost increase or product improvement

Industrial price are also affected by inflation , interest rate changes and exchange rate

What a price should do?

A well chosen price should do three things:
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achieve the financial goals of the company (e.g., profitability) fit the realities of the marketplace (Will customers buy at that price?) support a product's positioning and be consistent with the other variables in the marketing mix 1. price is influenced by the type of distribution channel used, the type of promotions used, and the quality of the product 2. price will usually need to be relatively high if manufacturing is expensive, distribution is exclusive, and the product is supported by extensive advertising and promotional campaigns 3. a low price can be a viable substitute for product quality, effective promotions, or an energetic selling effort by distributors

From the marketer's point of view, an efficient price is a price that is very close to the maximum that customers are prepared to pay. In economic terms, it is a price that shifts most of the consumer surplus to the producer. A good pricing strategy would be the one which could balance between the price floor (the price below which the organization ends up in losses) and the price ceiling (the price beyond which the organization experiences a no demand situation).

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Factors affecting Industrial Pricing:

INTERNAL FACTORS
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Pricing objectives Cost conditions Pricing policies

EXTERNAL FACTORS
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Competition Demand conditions Government Regulations

PRICING OBJECTIVES:
It is necessary that the marketing manager decide the objective of pricing before actually setting price. According to experts, pricing objectives are the overall goals that describe the role of price in an organizations long-range plans. The objectives help the marketing manager as guidelines to develop marketing strategies. The following are the important pricing objectives.
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Market penetration Market skimming Target rate of return Price stabilization Meet of follow competition Market share Profits maximization Cash flow Product line promotion

Market penetration :
In the initial stages of entering the market, the entrepreneurs may set a relatively low price. This is mainly to secure a large share of the market. In a highly price sensitive market, the
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businessman may continue to sell his products even without profit. He is interested in growth rather than in making a profit. In brief, market penetration objective is an attempt to secure a large share of the market by deliberately setting the low prices.

Market skimming :
Market skimming means utilizing the opportunities in the market to reap the benefits of high sales, increased profits and low unit costs. Some of the entrepreneurs study the buyers needs and try to provide the suitable goods, but charge them high prices. This objective is realized in those markets where the magnitude of competition is very low. The entrepreneurs, in this situation, make profits over a short period

Target rate of return :

Rate of return is normally measured in relation to investment and sales. The producers enjoying some protection may prefer to earn a target rate on investment. This would be possible where the entrepreneur enjoys a franchise or a monopolistic situation.. Mostly, middleman like wholesalers, retailers will price their merchandise to earn a particular rate of return on sales.

Price stabilization :
Frequent changes in the prices of product will harm the long-term interests of the companies. Hence, they aim at stabilization of prices. They do not exploit a short supply position to earn the maximum. During the periods of good business, they try to keep prices from rising and during the periods of depression, they keep prices from falling too low. Thus, they take a long-term view in achieving price stability.

Meet or follow competition :

Pricing is often done to meet or even prevent competition. If a company is a price leader, it is better to follow it to ward off the possibility of competition.

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Market share :
A company may either have the objective of maintaining the present market share or increase its share depending upon its stature. Particularly, big business houses adopt such pricing that it enables them to retain their market share. If they raise their market share, they may draw the attention of the government and if they shed their share, they may lose revenues As a matter of fact, this is an objective to be adopted by new firms cautiously.

Profit maximization :
Profit maximization does not mean profiteering. There is nothing wrong in this policy if practiced over the long run. As a matter of fact, many of the enterprises strive to maximize their profits. Maximization of profits should be on the total output and not on a single item. In such case, consumers do not get dissatisfied since a particular group is not called for paying a high price.

Cash flow :
One of the important objectives of pricing is to recover invested funds within a stipulated period. Most of the time you will find different prices for the cash and credit transactions. Generally, you find lower prices for the cash sales and high prices for the credit sales. But this pricing objective could be implemented with good results only when the firm has monopoly in the market.

Product line promotion :

Product line means a group of products that are related either because they satisfy similar needs of different market segments or because they satisfy different but related needs of a given market segment. While framing the product line, the marketer may also include such goods, which are not popular. The intention of the marketer is to push through all the goods without any discrimination

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PRICING STRATEGIES
Managers normally set prices one of three ways. The first is for management to maintain a strong internal orientation, basing prices on its own costs, and, usually, adding some standard industry markup to average costs. Cost-plus is a simple system, but it fails to consider competitors, customers, or the volume, price, and profit relationships among costs. A wellknown sophisticated version of this approach, target rate-of-return pricing, was developed at General Motors during the 1920s and 1930s. While it included consideration of volume fluctuations through the business cycle and the cost of the capital involved in the business, target rate-of-return prices were still based totally on internal costs, not on the market. The second approach is to let competitors set prices, and then to meet them head-on. This strategy assumes that a marketers company, its products, its image and position in the marketplace, and its cost structure are exactly like the competitions. A slightly more sophisticated version of this approach involves maintaining a set dollar or percentage differential between ones prices and the competitors. A manager might, for instance, maintain a price of 5% below the market leader to allow for the leaders stronger reputation. However, this approach is mechanistic and does not allow managers either to build on their products and companys unique strengths or to adjust for their unique weaknesses. The third approach, which is more difficult than the other two, focuses on the customer. It requires marketers to assess carefully the value customers place on the product. Typically, industrial marketers have shied away from this approach, but now, given the difficult market conditions we have described, the need for such a thorough, customer based approach seems clear. Fortunately, the opportunity for its application has been advanced by the emergence of new concepts and techniques. In what follows we will go into the customer-based approach and these concepts in more detail.

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Let us take an example of an Industrial Product :

Fairchild Industrial Products Company

Head Quarters
3920 Westpoint Blvd. Winston-Salem, North Carolina 27103 USA

COMPANY PHILOSOPHY
At Fairchild, they strive to be "easy to do business with," which encompasses our commitment throughout the organization to provide World Class products and support for every customer. Their continuing improvement efforts ensure Fairchild's commitment to provide only the highest quality goods and services for our requirements. SERVICE TO THE MARKETPLACE They understand a "One size fits all" approach does not always meet your needs, so they are continually engaged in developing or modifying customized products to ensure the best fit for our application.

Product offered:
FR/FRL - Filter Regulator and Filter Regulator Lubricator

Take full advantage of compressed gases in pneumatic systems. The gas must be adequately prepared. Fairchild's new FRL preparation package provides the clean, dry, lubricated air essential for optimum performance of pneumatic systems. With their modular construction, the FRL unit provides compact efficiency, high flow, and superior 5 micron filtration.

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New Line of P/I Pressure Transmitters

You've trusted and depended upon Fairchild for years for your pressure control needs. Now the same Fairchild high quality manufacturing provides a full line of rugged and accurate P/I Pressure Transmitters for your pressure measurement and monitoring needs. M72 High Performance Mini-Regulator When you need high accuracy in a tiny package, the M72 is the Miniature Pressure Regulator for the job. It delivers accuracy with 0.025 psi max supply pressure effect to hold setpoint regardless of fluctuating supply.

CONCLUSION:
Price is the only element of the marketing mix that brings in revenue and affects the organizations profits. Utmost care should be taken by the management to formulate the pricing strategy. Several factors have to be kept in mind while doing so. The objectives of pricing include profit maximization and sustenance of competitive advantage in the market. Pricing policy consists of general guidelines that govern pricing decisions in different situations. Pricing policies are evolved keeping in mind the pricing objectives. This is what we deeply put forth our effort to know about Industrial Product Pricing, which give immense knowledge in studying the different categories of pricing involvement in Industries.

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