Comparison in Pricing Policies- Product Pricing vs. Service Pricing

Based on a Study of“Pricing Theory and Practices”

Pricing Theory and Practices Page 1 out of 37

Mr. Md. Abdullah Al JamilLecturerDepartment of MarketingComilla University

Md. Shahadat Hossain Sunny BBA, First Batch

Department of Marketing Comilla University

Date of submission: July 3, 2011

LETTER OF TRANSMITTAL

July 3, 2011

Md. Abdullah Al JamilLecturer


Department of MarketingComilla 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 today’s 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

Md. Shahadat HossainOn behalf of the group.

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.

Teacher Who Made A Difference:________

Mr. Md. Abdullah Al Jamil, lecturer, Department of Marketing, whose passion for teaching and love for students remain unequalled. He is a great man who taught with humility, he provided leadership that shaped our values to prepare the report that led to our understanding. He also set the right properties for teaching, whose intense focus served as a model. We all are grateful to our honorable teacher. Our special thanks to our sir for his constant & invaluable advice & assistance.

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.


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 personnel’s 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.


Comparison in Pricing Policies:Product Pricing vs. Service Pricing

PART A

EXECUTIVE SUMMARY,& CONTENTS


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 firm’s 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.

CONTENTSPage No.

PRICE………………………………………………………………………………10HOW COMPANIES PRICE…………………………………………………11PRODUCT PRICE………………………………………………………………11SERVICE PRICE………….…………………………………………………….11SETTING THE PRICE………………………………………………………..12SELECTING THE PRICING OBJECTIVES…………………………..13DETERMINING THE DEMAND…………………………………………14ESTIMATING THE COSTS…………………………………………………14ANALYZING COMPETITORS COSTS, PRICES, & OFFERS…………14SETTING A PRICING POLICY…………………………………………….15PRODUCT PRICING POLICY………………………………………………15

Cost Based Pricing…………………………………………………..15


Value Based Pricing…………………………………………………16

Demand Oriented Pricing……………………………………......16

Competition Oriented Pricing…………………………………..17

Markup Pricing……………………………………………………….17

Target Return Pricing………………………………………………18

Product Mix Pricing…………………………………………………19

Market Skimming Pricing………………………………………..20

Market Penetration Pricing………………………………………20SERVICE PRICING POLICY………………………………………………..21

Cost Based Pricing…………………………………………………..21

Demand Based Pricing…………………………………………….22

Competition Based Pricing………………………………….……22

Benefit Pricing………………………………………………………..23

Capacity Pricing…………………………………………….………..23

Price Bundling……………………………………………….……….24CASE STUDY…………………………………………………………….……….26

Matri Vandar Sweets: A Manufacturer of Sweets...……..26

Dr. Rezaul Karim: Medicine Specialist & Consultant……..28

CONCEPT MAP……………………………..………………….……..….…….31


BIBLIOGRAPHY………………………………………………….…………..…32REFERENCES………………………………………………….…...………..…33


PART B

LITERATURE REVIEW


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.

HOW COMPANIES PRICE________________

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. Even here, top management sets general price objectives and policies and often approve the prices proposed by lower levels of management. In industries, where pricing is a key factor, companies will often establish a pricing department to set or assist others in determining appropriate prices.

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.

SETTING THE PRICE___________________

A firm must set a price for the first time when it develops a new product or service, or when it introduce its regular product or service into a new distribution channel or geographical area, and when it enters bids or new contract work. The firm must decide where to position its product or service quality and price. The firm has to consider many factors in setting its pricing policy.

Now we will describe five steps procedure for setting product price and service price.

Step One : Selecting the Pricing Objectives.

Step Two : Determining the Demand.


Step Three : Estimating the Costs.

Step Four : Analyzing Competitors Costs, Prices, & Offers.

Step Five : Setting a Pricing Policy & Selecting the Final Price.

SELECTING THE PRICING OBJECTIVES_____

The company first decides where it wants to position its market offerings. The clearer a firm’s objective, the easier it is to set price. A company can pursue any of the following major objectives through pricing.

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.

Maximize Current Profit: Many companies try to set a price that will maximize current profits. They estimate the demand and costs associated with alternative prices and choose the price that produces maximum current profits, cash flow or rate of return in investment.

Maximize Market Share:Some companies want to maximize their market share. They believe that a higher sales volume will lead to lower unit costs and higher long-run profits. They set the lowest price, assuring the market is price sensitive.

Product Quality Leadership:A company might aim to be the product quality leader in the market. Many brands strive to be “affordable luxuries” product characterized by high level of product quality, status with a price just high enough not to be out of consumers reach.

DETERMINING THE DEMAND____________

Each price will lead to a different level of demand and therefore have a different impact on companies marketing objectives. In the normal case, demand and price are inversely related: the higher the price, the lower the demand. In the case of prestige goods, the demand curve sometimes slopes upward. A perfume company raised its price and sold more perfume rather than loss! Some companies take the higher price to signify a better product.


ESTIMATING THE COSTS________________

Demand sets a ceiling on the price the company can charge for its product. Costs set the floor. The company wants to charge a price that covers its costs of producing, distributing, and selling the product. The company’s costs are two forms.

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.

ANALYZING COMPETITORS COSTS, PRICES, & OFFERS____________________________

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 firm should first consider the nearest competitors price. If the price offer contains features which is not offered by the nearest competitor, their worth to the customer should be evolved and added to the competitor’s price. If the competitors offer contains some features not offered by the firm, their worth to the customer should be evaluated and subtracted from the firm’s price. Competitors can change their price in reaction to the price set by the firm.

SETTING A PRICING POLICY_____________


Setting prices is one of the principal tasks of marketing and finance managers in that the price of a product or service often plays a significant role in that product's or service's success, not to mention in a company's profitability. 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.

PRODUCT PRICING POLICY

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.

Cost Based Pricing

The traditional pricing policy can be summarized by the formula;Cost + Fixed profit percentage = Selling price.

Cost based pricing policy involves the determination of all fixed and variable costs associated with a product or service. After the total costs attributable to the product or service have been determined, managers add a desired profit margin to each unit. The goal of the cost based approach is to cover all costs incurred in producing or delivering products or services and to achieve a targeted level of profit.

This pricing approach does not involve examining the market or considering the competition and other factors that might have an impact on pricing. Cost based pricing also is popular because it is an age-old practice that uses internal information that managers can obtain easily. In addition, a company can defend its prices based on costs, and demonstrate that its prices cover costs plus a desired profit.

But sometimes the cost based pricing policy fails to provide a company with an effective pricing policy. One problem with the


cost based strategy is that determining a unit's cost before its price is difficult in many industries because unit costs may vary depending on volume. As a result, many business analysts have criticized this method, arguing that it is no longer appropriate for modern market conditions.

Value Based Pricing

Good pricing begins with a complete understanding of the value that a product or service creates for customer. Value based prices uses buyers’ perceptions of value, not the seller costs as the key to pricing. Value based pricing means that the marketer cannot design a product and marketing programs and then set the price.

Figure: Value Based Pricing.

There are two types of value based pricing.

Good Value Pricing:Good value pricing strategies means offering the right

combination of quality and good service at a fair price. Good value pricing involved redesigned existing brands to offer more quality for a given price or the same quality foe less. An important type of good value pricing at the retail level is everyday low pricing (EDLP). EDLP involves charging a constant everyday low price with few or no temporary price discounts.

Value Added Pricing:Attaching value added features to differentiate a

company’s offers from the competitors who offer similar products in the market. In this pricing strategy, the company charges high price then the competitors.


CUSTOMERS

VALUE PRICE COSTPRODUCT

Demand Oriented Pricing

Under this approach of pricing products, the price maker looks beyond the main costs of material; labor, overheads, and other expenses associated with the production or the marketing of the product and consider instead the intensity of demand for it. A demand schedule for the product in question is needed for this type of pricing. The demand schedule becomes in turn the basis for determining which level of production and sales would be most profitable for the firm.

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.

Competition Oriented Pricing

Under competition oriented pricing, prices are set on the basis of what the firms competitors charging. The firm first has to determine who the competitors are at the present time. This step is followed by a competitive evaluation of its own product. Taking this knowledge into consideration, the price set for the firm’s product can be raised or lowered from the prevailing market price, taking into consideration the unique characteristics of its own brand, the relative strategies or weaknesses of its competitive position and the reaction of competitors to the set prices.

Other methods of product pricing policies are-


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 $ 300000Variable cost per unit $ 10Expected unit sales 50000

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 =

=

= $ 20

Target Return Pricing


In target return pricing, the firm determines the price that would yield its target rate of return on investment (ROI). Target pricing is used by General Motors (GM), which prices its automobile to achieve a 15 to 20 percent return on investment. This method is also used in public utilities.

For example, suppose a manufacturer has invested $1 million in a business and wants to set a price to earn a 20 percent return on investment, specifically $200000. The target return price is given by the following formula-

Target Return Price = Unit Costs +

= $ 16 +

= $ 20

Product Mix Pricing

Product mix pricing is the strategy for setting a product’s price is often charged when the product is part of a product mix. Five product mix pricing strategies are discussed below.

Product Line Pricing:Companies usually develop product lines rather than

single products. It is the setting of price steps between various products in a product line based on cost differences between the products, customer evaluations of different features, and competitors’ prices.

Optional Product Pricing:Many companies use optional product pricing offering to

sell optional or accessory products along with their main product.


For example, a car buyer may choose to order alloy wheels and a CD changer, Refrigerator comes with optional ice makers.

Captive Product Pricing:Companies that make products that must be used along

with a main product are using Captive product pricing. Such as, blades for a razor, film for a camera.

By Product Pricing:Setting a price for a by products in order to make the main

product’s 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.

Product Bundle Pricing:Using product bundle pricing, sellers often combine

several of their products and offer the bundle at a reduced price. Fast food restaurants offer bundle prices for a burger, fries and a soft drink at a combo price.

New product pricing strategies-

Pricing 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.

Market Skimming Pricing

Setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price; the company makes fewer but more profitable sales. Market skimming pricing make sense only under certain


conditions. First, the products quality and image must support its higher price. Second, the cost of producing a similar volume cannot be so high. Finally, competitors should not be able to enter the market easily and undercut the high price.

For example, Citycell introduced mobile phone first time in Bangladesh. At that time they used market skimming pricing strategy.

Market Penetration Pricing

Rather than setting an initial price to skim off small but profitable market segments, some companies use market penetration pricing. This pricing is setting of a low price for a new product in order to attract a large number of buyers and a large market share. This high sales volume results in falling costs, allowing the company to cut its price even further. This strategy is taken under certain circumstances. First, the market must be highly price sensitive. Second, production and distribution costs must fall as sales volume increases. Finally, the low price must help to keep out the competition.

For example, Dell computers used penetration pricing to enter the personal computer market.

SERVICE 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. The mostly used service pricing policies are as follows.

Cost Based Pricing

Cost based pricing is a policy of service pricing that determines the price of service by adding per unit cost plus profit margin. It is common for professional service such as law, consulting, and medicine.

By using this strategy the professional service organizations assumes that they are delivering a distinctive quality service to their client than competitors. It is also considered that consumers choose the service organization as for their distinctions.

For example, Pricing for a facial treatment service in a beauty parlor depends on the cost of used materials, chemicals, and instruments, with a desired profit margin.

Cost based pricing for services faces some problems. They are-

Several types of costs to produce service difficult to tress. Labor more difficult to price than materials. Costs may not have equal value all-time. It vary from time

to time.

Demand Based Pricing


Demand based pricing is a pricing strategy for services where price is determined based on customers perceived value to the services. One of the characteristics of services is the largely uncomfortable ups and downs of demand. Differential pricing schemes are charged based on the customers demand. Lower price will be charged on non peak period that stimulate shift of demand or increase primary demand for the services. But there is a risk of reducing profitability and incremental losses in the demand based pricing.

For example, Pricing of a room in hotels, and motels are used demand based pricing policy. High price is charged in a peak/weekend, and lower price is charged for off peak periods for a room in hotels/motels.

Demand based pricing for services has some limitations. They are-

Monitory price just be adjusted to reflect the value of non monitory cost.

Information on service cost is less available to customers; hence price may not be a central factor.

Competition Based Pricing

Competition based pricing mainly focused on the competing brands and the competitors pricing strategy. It is not always imply to charging the identical rate. In this pricing, the company has to focus on the competitors’ price and the price should be lower or upper than the competitors’ price and it depends on the competitive factors in the market.

For example, ‘GMG Airlines’ offer the price of Dhaka-Chittagong one way air travels at Tk. 5000. But ‘Best Air’ charges Tk. 4750 for the same way air travel. ‘Best Air’ use competition based pricing policy.


Competition based pricing for services have some problems. They are-

Small firms may charge too little for their services. Heterogeneity of services may be limited comparable.

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.

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.


PART C


CASE STUDY,& INTERVIEW

Matri Vandar Sweets:A Manufacturer of Sweets

“Matri Vander Sweets” of Comilla has a famous brand name for their manufactured sweet meats all over the country. The sweets of Matri Vander, especially Rasmalai are the most favorite sweet of all the people in Bangladesh. Traditionally Comilla is famous for Rasmalai, and Matri Vander produses the best Rasmalai. Matri Vander is located at the Manahorpur, Kandirpar in Comilla, without having any branch in the other side of the country. Matri Vander Sweets is established in 1930 at present address. The founder is Mr. Fonindra Bhuson Sen Gupto. The present owner of this business is Mr. Sanker Sen Gupto. He is the son of the founder. They are doing business for such a long time with same fame with maintaining their quality.

The products of Matri Vander Sweets are- Ras Malai Malai Quari Chanamuki Ras Golla Sondesh Pera


Normal Sweets Dadhi etc.

Our group visits the Matri Vander Sweets and made an interview with Mr. Sanker Sen Gupto. We asked several questions to him about the pricing system of their sweet products. The summery of the interview is given below.

How you determine cost for your products?

They estimate the cost of their products based on some specific matters. Their main cost involves in raw materials and labor costs. Every month they have to pay a big amount of charge as Gas bill. After estimating all the costs they add a limited marginal profit.

How you determine specific price for your products?

The owner Mr. Sanker Sen Gupto describes how they determine price for the sweets. He said that they set price to adjusting the profit, cost, value, demand and supply. They estimate the cost at first for specific product and

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.

Have you any promotional expenses for your products?

Mr. Sanker Sen Gupto replied that they do not have any promotional expenses. They need not any promotional activities, because their quality products are the main promotion for the demand of their sweets. They do not have any branches, even no sign board Matri Vander Sweets.


How you set the price of Ras Malai?

Mr. Sanker Sen Gupto said, they sell Ras Malai now at Tk. 180 per Kg. They determine the cost at first, the cost involves, cost of milk, sugar, powder, labor, and packaging. With the cost they add a minimum profit they set the price of Ras Malai.

Milk Tk. 75Sugar Tk. 20Milk Powder Tk. 25Labor & Fuel Tk. 30Others & Packing Tk. 10

Total Cost Tk. 160Add. Profit Tk. 20

Price of per Kg. = Tk. 180

Which method you follow in determining price?

Matri Vander Sweets follows cost based pricing strategy. They always try to charge the least price for the sweets. They want to satisfy customers with a cost and giving high value. If they use demand based pricing, the price would be too high, because there is a big demand for their sweets, especially for ras malai. They are the manufacturer of ras malai through Comilla, also in Bangladesh. If they set competition oriented price, they will be benefited, but the consumer will suffer. So, they want a limited profit and happy to serve the customer and satisfy them.

Dr. Rezaul Karim: A Medicine Specialist & Consultant

“Dr. M. Rezaul Karim” is a famous and reputed doctor over the district Comilla. He is the best medicine specialist of Comilla Medical College. He has completed his MBBS course from Dhaka Medical College and got FCPS degree in medicine from USA. Now, he is a professor of medicine department of Comilla Medical College. He is a senior consultant of a clinic “Midland


Hospital Pvi. Ltd.” He has a private consultancy chamber in Kandirpar, Comilla.

Mr. Karim is a man of Comilla, born in October 1958 in Laksam upazilla of Comilla. He comes from a middle class family and his father was a general government employee. He studies with a lot of sufferings and faces a various obstacles. By working hard, he reaches now in this position. He always has a vision to do something for the people. At present time, he is the most reputed medicine specialist of Comilla, also in Bangladesh.

Our group made an interview with Dr. Rezaul Karim. We asked several questions to him about pricing system of his medical consultancy service. The summary of the interview is given below.

What is your service?

Mr. Karim said, he helps the people when they are in a physical problem. He try to survive people from diseases by giving suggestions, advice and treatment. Specially, consultancy is the main service of him.

What is the price objective of your service?

Mr Karim describes, his price objective is to survive him and earn money to lead a happy life. Sometimes the price helps to meet the over capacity demand of his consultancy service.

What is the cost of your service?

Mr Karim said, basically consultancy services do not costs too much. But it needs a lot of investment in gaining knowledge, experience, and higher degree. It can be said as the capital of the consultancy service. He had spent a lot of money for his FCPS degree in USA. He has some fixed costs,

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.

How you determine the price of your service? Which strategy you followed?

Mr. Karim smiled! He said, he is a doctor, his main responsibility is to help the patients, but he has to charge consultancy fee for various circumstances. He is the senior consultant and the best medicine specialist in the town. A lot of patients come to visit him everyday and the number is out of capacity to serve. In this consideration he charges Tk. 500 as the fee of consultancy each time. He used competition based pricing policy. As he is the best and senior consultant, on medicine, so he has to charge more than the others. He does not follow cost based or demand based pricing policy. His fee is fixed in all time, but sometimes he does not charge any from the poor patients.

Do you consider competitors price and offers?

“Yes, I consider my competitors price”, Mr. Karim replied. Because of he is the senior and specialist than the competitors and the demand for his service is more than others, that’s why he charges higher than the competitors.

Do you have any promotional expenses?

Dr. karim described that, he does not have any promotional expenses. He believes his good service is the main promotion and his satisfied patients are media of promotion. So, he is not in need of any promotional activities and expenses for his service.



PART D

CONCEPT MAP,& BIBLIOGRAPHY

CONCEPT MAP



Comparative Pricing Policy:Product Pricing and Service Pricing

Product PricingPolicies

Service PricingPolicies

Competition Based Pricing

Demand Based Pricing

Cost Based Pricing

Benefit Pricing

Capacity Pricing

Cost Based Pricing

Value Based Pricing

Demand Oriented Pricing

Market Penetration Pricing

Market Skimming Pricing

Product Mix Pricing

Target Return Pricing

Markup Pricing

Competition Oriented Pricing

Price Bundling

BIBLIOGRAPHY

Philip Kotler & Gray Armstrong, “Principles of Marketing”.

Nessim Hanna & Robert Dodge, “Pricing: Policiesand 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.

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

Setting the Price: “Marketing Management”Philip Kotler.Edition- 11th, Page- 472-480.

Product Pricing Policy: “Pricing: Policies & Procedures”Nessim Hanna & Robert Dodge.Edition- Latest, Page- 51, 67, 74.

Other Product Pricing Policy: “Marketing Management”

Philip Kotler.Edition- 11th, Page- 481-485.

Product Mix Pricing: “Principles of Marketing”Philip Kotler & Gray Armstrong.Edition- 12th, Page- 309-312.

New Product Pricing Strategies: “Principles of Marketing”

Philip Kotler & Gray Armstrong.Edition- 12th, Page- 308-309.

Service Pricing Policy: “Pricing: Policies & Procedures”Nessim Hanna & Robert Dodge.Edition- Latest, Page- 178-184.

With Class lecture on “Service Pricing Policies”.Lecture no. 4

Case Study on Matri Vander Sweets:Mr. Sanker Sen Gupto.Monohr pur, Kandirpar, Comilla.

Case Study on Dr. Rezaul Karim:Midland Hospital Pvt. Ltd.

Ramghat, Comilla.


Documents

Comparison in Pricing Policies- Product Pricing vs. Service Pricing