Published on April 17, 2008
Slide1: Tarun Gupta V.S.S.Naresh Sukhendhra singh T.Tejaswi Siddharth Singh Sumit Singh Srinivas Reddy Sharadhee Ram A RENDEZVOUS WITH PRICING ANALYSIS BROUGHT TO YOU BY Pricing analysis - It is basically price comparison. It is the evaluation of proposed price without analyzingany of its separate cost elements. Pricing objectives - It gives direction to whole pricing process. Determining what are our objectives are in first step in pricing. When deciding on pricing objectives we must consider :-(1) Overall financial ,marketing and strategic objectives of company. (2)The objectives of our product of brand. (3)Consumer price elasticity and price points(4)Resources available: Pricing analysis - It is basically price comparison. It is the evaluation of proposed price without analyzing any of its separate cost elements. Pricing objectives - It gives direction to whole pricing process. Determining what are our objectives are in first step in pricing. When deciding on pricing objectives we must consider :- (1) Overall financial ,marketing and strategic objectives of company. (2)The objectives of our product of brand. (3)Consumer price elasticity and price points (4)Resources available COMMON PRICING OBJECTIVES(1)Increases sales quantity(2)Increase market share(3)Obtain a target rate of return on investment.(4)Stablize market price (5)Company growth(6)Avoid government investigation or intervention(7)Discourage new entrants into industry(8)Social objectives(9)Discourage competitors from cutting prices(10)Enhance the image of the firm, brand product : COMMON PRICING OBJECTIVES (1)Increases sales quantity (2)Increase market share (3)Obtain a target rate of return on investment. (4)Stablize market price (5)Company growth (6)Avoid government investigation or intervention (7)Discourage new entrants into industry (8)Social objectives (9)Discourage competitors from cutting prices (10)Enhance the image of the firm, brand product Law of Demand:-: Law of Demand:- It states that the effective demand for the goods or services varies inversely to price. Quick recap Law of supply: Law of supply It states that there is direct relationship between the price of a commodity or service and the quantity which is supplied. This happens because the supplier always try to get maximum profit. WHAT IS MARKET?: WHAT IS MARKET? A market is simply a collection of people or institution who wish to buy and sell whether they meet in a confined area or communicate worldwide. Markets can be thought as independent and very frequently linked together with one market kept supplied by other markets. ASSUMPTIONS: ASSUMPTIONS 1. Prices are determined by the interplay of the desires and objectives of consumers as well as those of producers. 2.Consumers and producers are behind the key decisions about the prices. 3.There is a price mechanism in the market. TYPES OF MARKET : TYPES OF MARKET (a) BY PRODUCT The financial markets Commodity markets Retail markets Property markets (b) BY COMPETITIVE STRUCTURE Perfect markets Monopoly markets Imperfect markets Slide10: Financial markets :- this includes the markets that trades in financial products. Such markets are mainly found in big cities. Eg:- insurance market, stock exchange etc. Commodity markets : such markets includes not only traditional places, where there is face to face communication between buyer and seller, but also auction rooms, telephone, fax and computer links between dealers in cereals, tea ,coffee, gold, copper and other basic raw materials. Dealing in many of these is by samples rather than by taking full loads to auction. Retail markets : such markets includes local markets ,street markets etc. Property markets :property is different from other products because it is immovable, it doesn’t changes it forms frequently and it is long lasting. Eg:-house PERFECT MARKET ANDPERFECT COMPETITION: PERFECT MARKET AND PERFECT COMPETITION Perfect markets exhibit a feature known as perfect competition. Perfect competition is a system of resource allocation found in perfect markets. They are very difficult to find in real life but give us a thorough concept based on which ,usual real world markets run. PERFECT MARKET OR PERFECT COMPETITION: PERFECT MARKET OR PERFECT COMPETITION CONDITIONS 1.There must be large no. of buyers and sellers 2.No one buyers or sellers can influence the price prevailing in the market 3.The product is homogeneous in nature 4.There is perfect knowledge and information throughout the market 5.There is free access on the market for new firms and buyers and ability to leave the market without restriction EQULIBRIUM IN PERFECT MARKET: EQULIBRIUM IN PERFECT MARKET In a perfect market we have MR =AR, since whether it sells 1 or 1000 units ,it will gain the same price per unit. Similarly MC=AC will be there at the point of equilibrium. Profit happens to be maximum where the marginal cost and marginal revenue become equal to each other. i.e. MR=MC. So we get a 4-term equilibrium point (MR=MC=AR=AC). In this case it is said that the output is in perfect competition. EQUILIBRIUM IN PERFECT MARKET: EQUILIBRIUM IN PERFECT MARKET EQULIBRIUM IN PERFECT MARKET: EQULIBRIUM IN PERFECT MARKET Explanation: As we can see from the figure that initially average cost will be higher than the marginal cost as MC doesn’t contain any part of fixed costs ,but variable cost only (like wages etc). EQM. IN PERFECT MARKET: EQM. IN PERFECT MARKET When we reach at the point where they meet each other , If extra income from the sale of an additional unit is greater than the MC of producing that unit, then it will be firm’s advantage, which is not desirable under perfect conditions. And if firm goes Past the point MR=MC then the cost of the extra unit will be more than the revenue and the firm would be inviting financial trouble . Monopoly: Monopoly One form of market was the Perfect Competition.This is the another form of market that we are going to elaborate our discussion on The word Monopoly is a Greek word. It is composed of two word: ( i) Mono which means single, ( ii ) Poly, which means a seller Slide18: Thus, we can say that monopoly is a market organization in which there is only one seller of the product. The monopolist’s product has no close substitute in the market.Further, there are strong barriers to entry into the industry.As a result, seller has full control over the supply of the commodity.Thus, he is the price maker. Features of Monopoly: Features of Monopoly One seller and large number of buyers. No close substitute. Restriction on the entry of new firms. Full control over the supply of the commodity The seller is not afraid of the action of his rivals Slide20: Equilibrium under a monopoly Slide21: Explanation: 1)Under monopoly, the AR curve slopes downwards from left to right illustrating the point that monopolist can sell more at a lower price. 2)Under monopoly, the MR curve is always to the left of the AR. For example: Slide22: The equilibrium output is at the point where the marginal cost curve cuts the marginal revenue curve i.e. where MC=MR Therefore, MC=MR fixes the output at Qe and Y is a point on the AR curve which corresponds with Qe of output. Thus, Pe is the equilibrium price. Shaded region in the graph represents the profit level. Can a monopolist incur losses?: Can a monopolist incur losses? One of the misconceptions about a monopolist is that it always makes profits. It is to be noted that nothing guarantees that a monopolist makes profits. It all depends upon his demand and cost conditions. If he faces a very low demand for his product and his cost conditions are such that ATC > AR, he will not be making profits but incur losses. The next slide will show you that position graphically. Slide24: Equilibrium of the monopolist : losses in the short run IMPERFECT COMPETITION: It is a very common kind of market wherein there are a limited number of firms supplying a market and where at least some of them have a significant impact on total supply and on price. IMPERFECT COMPETITION Slide26: The characteristics A. Duopoly B.Oligopoly 2.Monopolistic competition: Loyalties develop towards certain products which give rise to monopolistic competition (brand image). 1.Limited number of buyers and sellers EQUILIBRIUM: EQUILIBRIUM In the imperfect competition the firm faces a falling demand curve in much the same way as the monopolist. Output can be increased only if the price is lowered and the firm can’t at the same time ,determine both its output and price of the goods. In this case also successful profit making is possible as the definition itself suggests that some of the firms have significant impact on total supply and on price. Contd..: Contd.. CONCLUSION: CONCLUSION A quick wrap up of things………… Pricing analysis - it is basically price comparison. It is the evaluation of proposed price without analyzing any of its separate cost elements. Such an analysis gives us direction to the whole pricing process. CONCLUSION: CONCLUSION our group has covered the following areas in the PRICING ANALYSIS Basics and common objectives of pricing. The LAW OF DEMAND. Forms of market. In the forms of market we have done an exhaustive analysis of PERFECT , MONOPOLY , IMPERFECT markets and their equilibrium conditions.