An Assignment

On

Marketing Process of Tooth Pest.

Date of submission: 03/01/2014

An Assignment
On

Marketing Process of Tooth Pest.

Submitted to:
Md. Moynul Hasan Le tu!e! De"a!tment of Ma!#eting $omilla %ni&e!sity

Submitted by:
'ame (D 'O

Md. )ai*ul Ha+ue

12030,0,

Date of Submission: 03 / 01 / 2014

('D-. Ma!#eting /!o ess of 0oot1 /est.

Des !i"tion
(nt!odu tion Definitions of /!i ing
)a to!s to $onside! 31en Setting /!i es 11 $osts 12 $osts at diffe!ent le&els of "!odu tion 14 01e Ma!#et and Demand 24 $om"etito!s osts5 "!i e and offe!s: 31 $on lusion

/age 'o
4 2 4

Introduction:
SQUARE has setup a plant tissue culture laboratory to de elop a!ricultural/a!ro processin! sector in the country and is co""itted to brin! i"pro ed #uality plantin! "aterials and year round production throu!h A!ri $iotech% &he "a'or acti ities o( A!ri $iotech is to pro ide disease (ree) stress (ree) hi!h yieldin! seed * seedlin!s such as potato) banana) !in!er) tur"eric and so"e (lo+ers includin! arieties o( orchids to the (ar"er * nursery"en to sol e #uality seed proble"s in this a!ro based country% ,ell e#uipped around 4000 SQUARE (eet tissue culture laboratory is situated at Uttara) a con enient location) ha in! care(ul desi!nin! and plannin!) (acilitated to produce 10)00000 seedlin!s per year% &he other acti ities o( this pro'ect +ill be o( research and de elop"ent in the (ield o( $iotechnolo!y to protect so"e o( endan!ered "edicinal plant and to brin! so"e ne+ as cane) rattan) ba"boo +hich is al"ost e-tinct in the country% &he hospital is nearin! co"pletion at a cost o( o er US. 40 "illion and is scheduled to !o into operation in "id 200/% 0ocused to pro ide International standard healthcare ser ices at an a((ordable price SQUARE 1ospitals 2td% is a "ulti3disciplinary hospital +ith specialty in 4ancer) 4ardiac and 5ediatrics% 6ne stop state o( the art 7ia!nostic Ser ices +ill be it8s another "a'or ser ice% &he hospital +ill be e-clusi ely "ana!ed by $u"run!rad 1ospital International o( &hailand) only US accredited hospital in Asia% &he 3003bed hospital is located in the city center% 1200 patients can be ser ed per day by its out patient depart"ent throu!h it8s /0 e-a" roo"% 1oused in an 19 storied buildin! co erin! 40)000 s#% "eters the (acility can also acco""odate 200 cars in its 3 base"ent par:in! areas 7edicated to brin! the nature8s best (or hu"an health An endea or o( SQUARE ;roup that has been e ol ed to ensure the a ailability o( "odern 1erbal <edicines to the people o( this country% &o ensure "odern 1erbal <edicines) the co"pany is 3 = 7ealin! +ith the products o( natural sources that ha e scienti(ic data to pro e their clinical indications and e((icacy% = 6peratin! a ;<5 co"pliant "anu(acturin! plant and #uality assurance that are in line +ith the practices o( de eloped +orld% = Sourcin! ra+ "aterials (ro" the reno+ned suppliers only%

= Ensurin! the products ha in! #uality assurance co""ensurate to SQUARE8s #uality policy% = In ol in! hi!hly #uali(ied) s:illed and +ell trained personnel in "anu(acturin!) "ar:etin!) sales and distribution%

/!i e in 01eo!y In ordinary usa!e) price is the #uantity o( pay"ent or co"pensation (or so"ethin!% 5eople "ay say about a cri"inal that he has >paid the price to society8 to i"ply that he has paid a penalty or co"pensation% &hey "ay say that so"ebody paid (or his (olly to i"ply that he su((ered the conse#uence% Econo"ists ie+ price as an e-chan!e ratio bet+een !oods that pay (or each other% In case o( barter bet+een t+o !oods +hose #uantities are - and y) the price o( - is the ratio y/-) +hile the price o( y is the ratio -/y% &his ho+e er has not been used consistently) so that old con(usion re!ardin! alue (re#uently reappears% &he alue o( so"ethin! is a #uantity counted in co""on units o( alue called nu"eraire) +hich "ay e en be an i"a!inary !ood% &his is done to co"pare di((erent !oods% &he unit o( alue is (re#uently con(used +ith price) because "ar:et alue is calculated as the #uantity o( so"e !ood "ultiplied by its no"inal price% &heory o( price asserts that the "ar:et price re(lects interaction bet+een t+o opposin! considerations% 6n the one side are de"and considerations based on "ar!inal utility) +hile on the other side are supply considerations based on "ar!inal cost% An e#uilibriu" price is supposed to be at once e#ual to "ar!inal utility ?counted in units o( inco"e@ (ro" the buyer8s side and "ar!inal cost (ro" the seller8s side% &hou!h this ie+ is accepted by al"ost e ery econo"ist) and it constitutes the core o( "ainstrea" econo"ics) it has recently been challen!ed seriously% &here +as ti"e +hen people debated use3 alue ersus e-chan!e alue) o(ten +onderin! about the 7ia"ond3,ater 5arado- ?parado- o( alue@% &he use3 alue +as supposed to !i e so"e "easure o( use(ulness) later re(ined as "ar!inal bene(it ?+hich is "ar!inal utility counted in co""on units o( alue@ +hile e-chan!e alue +as the "easure o( ho+ "uch one !ood +as in ter"s o( another) na"ely +hat is no+ called relati e price% /!i e in 6eal Life 5rice) thou!h sounds si"ple) is ery di((icult to e-plain% &his si"ple ter" "ay "ean di((erent thin!s to di((erent people% &raditionally) by price +e "ean the a"ount o( "oney +e pay or char!e (or a product or ser ice% 5rice "ust there(ore be concei ed o( as a "ultidi"ensional process in ol in! chan!e o( asset) pro in! ser ice) obtainin! ser ice) "aintenance o( assets) day to day e-penses and "any "ore% ,e can easily (ind that price is related +ith e ery aspect o( our li(e% I( +e ta:e one day a person8s li(e (or our e-peri"ent +e can easily decide +hat is price and ho+ it is a part o( our e ery day li(e% 0or e-a"ple +e ha e chosen <r% A% 1e li es in <oha""adpur +ith his (a"ily% 1e has to pay a certain a"ount o( "oney to the o+ner o( the (lat as he is li in! in it% &his price is called rent% 1e usually +a:es up B a" in the "ornin!% 1e then prepare (or his o((ice% 1e ta:es the bus (or +hich he has to bou!ht a tic:et and pay (or the tic:et% &his e-pense is called fare% ,hen he arri es at his o((ice his boss con!ratulates hi" and says that he has !ot pro"otion C

and his salary +ill be increased% &his is another :ind o( price because he has achie ed it +ith hard +or:% 0e+ hours later a person co"es to his des: and o((ers "oney i( he helps the person ille!ally% 1e re(used to do so% &his o((er is also a price called bride% A(ter a +hile he !oes to the ban: (or o((icial +or: the ban: o((icer said he has !ot ta:a 1300 interest in his account% &his a"ount o( "oney is also a price called interest% 2ater he +ent to pic: up his son (ro" the school and paid e-a" fees and the tuition% &hese types o( pay"ents are also a di"ension o( price% So +e can see that price is related in our e eryday li(e% 31at a "!i e s1ould do A +ell chosen price should do three thin!s :

achie e the (inancial !oals o( the (ir" ?e!%: pro(itability@ (it the realities o( the "ar:etplace ?+ill custo"ers buy at that priceD@ support a product8s positionin! and be consistent +ith the other ariables in the "ar:etin! "io price is in(luenced by the type o( distribution channel used) the type o( pro"otions used) and the #uality o( the product price +ill usually need to be relati ely hi!h i( "anu(acturin! is e-pensi e) distribution is e-clusi e) and the product is supported by e-tensi e ad ertisin! and pro"otional ca"pai!ns a lo+ price can be a iable substitute (or product #uality) e((ecti e pro"otions) or an ener!etic sellin! e((ort by distributors

0ro" the "ar:eters point o( ie+) an effi ient "!i e is a price that is ery close to the "a-i"u" that custo"ers are prepared to pay% In econo"ic ter"s) it is a price that shi(ts "ost o( the consu"er surplus to the producer% A !ood pricin! strate!y +ould be the one +hich could balance bet+een the 5rice (loor?the price belo+ +hich the or!aniEation ends up in losses@ and the 5rice ceilin!?the price beyond +hich the or!aniEation e-periences a no de"and situation@%

Definitions of /!i ing

&he effe ti&e "!i e is the price the co"pany recei es a(ter accountin! (or discounts) pro"otions) and other incenti es% /!i e lining is the use o( a li"ited nu"ber o( prices (or all your product o((erin!s% &his is a tradition started in the old (i e and di"e stores in +hich e erythin! cost either C or 10 cents% Its underlyin! rationale is that these a"ounts are seen as suitable price points (or a +hole ran!e o( products by prospecti e custo"ers% It has the ad anta!e o( ease o( ad"inisterin!) but the disad anta!e o( in(le-ibility) particularly in ti"es o( in(lation or unstable prices% A loss leader is a product that has a price set belo+ the operatin! "ar!in% &his results in a loss to the enterprise on that particular ite") but this is done in the hope that it +ill dra+ custo"ers into the store and that so"e o( those custo"ers +ill buy other) hi!her "ar!in%

0y"es of /!i ing )i7ed /!i ing A "odel o( pricin! in +hich a pro'ect is underta:en by the ser ice pro ider (or a pre3a!reed3 upon price is called (i-ed pricin!% 6ne ad anta!e is that it8s easy (or the client to bud!et (or the pro'ect% &+o disad anta!es are that the ser ice pro ider "ay o eresti"ate costs be(orehand (or possible un(oreseen conditions or cut corners durin! the pro'ect to co"pensate (or e-penses that are hi!her than anticipated% &he ser ice pro ider +ill char!e a pre"iu" (or a (i-ed price relati e to the ris:s in ol ed% It is appropriate (or the e((iciency o( deals% Dynami /!i ing 7yna"ic 5ricin! re(ers to (luid pricin! bet+een the buyer and seller) rather than the "ore traditional (i-ed pricin!% 4urrent "odels (or dyna"ic pricin! include auctions) re erse auctions ?+here buyers set the price they are +illin! to pay and then sellers bid (or their business@) tradin! e-chan!es) price "atchin!) #uantity pricin!) and !roup pricin! syste"s% &ypically these syste"s +ill better re(lect the true "ar:et alue o( the product in ol ed% E-a"ples o( dyna"ic pricin! in e3co""erce today include e$ay and 5riceline%co" )i7ed /!i ing 8s Dynami /!i ing &oday "any or!aniEation use dyna"ic pricin!% Internet has !i en us the opportunity to ha e dyna"ic pricin!% It is bene(iciary (or the sellers as +ell as buyers% Fo+) 9uye!s an

char!e lo+er prices) reap hi!her "ar!ins% "onitor custo"er beha ior and tailor o((ers to indi iduals chan!e prices on the (ly accordin! to chan!es in de"and or costs

Selle!s an

!et instant price co"parisons (ro" thousands o( endors (ind and ne!otiate lo+er prices

9ot1 9uye!s and selle!s an

ne!otiate prices in online auctions

Ou! fo us: S:%A6- 9anglades1 SQUARE has been usin! (i-ed pricin! strate!ies (or al"ost all o( its products% I( +e ta:e one o( their se!"ents (or our e-peri"ent then +e can easily conclude that% ,e ha e chosen (or our analysis% SQUARE has been settin! (i-ed price (or their products% I( so"eone +ant to :no+ detail in(or"ation includin! price o( any product o( SQUARE he can do it by consultin! directly +ith SQUARE Sales and Ser ice depart"ent or +ith the help o( internet% 0or e-a"ple +e ha e searched (or the product 5rotein 5lus <eril Sha"poo and the (ollo+in! in(or"ation% 0ro" this in(or"ation +e can easily conclude that SQUARE has been usin! (i-ed price strate!y% B

)a to!s to $onside! 31en Setting /!i es &he co"pany has to consider "any (actors in settin! its price% A co"pany8s pricin! decisions are a((ected by both internal co"pany (actors and e-ternal en iron"ental (actors%

(nte!nal )a to!s Affe ting /!i ing De isions &here are so"e internal (actors a((ectin! pricin! include the co"pany8s "ar:etin! ob'ecti es) "ar:etin! "i- strate!y) costs and or!aniEational considerations% Ma!#eting Ob;e ti&es: &he co"pany (irst has to decide +hat it +ants to acco"plish +ith its particular product o((er% I( the co"pany has selected its tar!et "ar:et and positionin! care(ully) then its "ar:etin!3 "i- strate!y) includin! price) +ill be (airly strai!ht(or+ard% &he clearer a co"pany8s ob'ecti es) the easier it is to set price% A co"pany "ay see: additional ob'ecti es% 4o""on ob'ecti es include sur i al) "a-i"u" current pro(it) "a-i"u" current re enue) "a-i"u" sales !ro+th) "a-i"u" "ar:et s:i""in!) product3 #uality leadership%

Su!&i&al:

4o"panies pursue sur i al as their "a'or ob'ecti e i( they are pla!ued +ith o ercapacity) intense co"petition) or chan!in! consu"er +ants% &o :eep the plant operatin! and the in entories turnin! o er) they +ill cut prices% 5ro(its are less i"portant than sur i al% As lon! as prices co er ariable costs and so"e (i-ed costs) the co"panies stay in business% 1o+e er) sur i al is only a short3run ob'ecti es% In the lon! run) the (ir" "ust learn ho+ to add alue or (ace e-tinction%

Ma7imum u!!ent "!ofits:

<any co"panies try to set the price that +ill "a-i"u" current pro(its% &hey esti"ate the de"and and costs associated +ith alternati e prices and choose the price that produces <a-i"u" current pro(its) cash (lo+) or rate o( return on in est"ent% 9

&here are proble"s associated +ith current pro(it "a-i"iEation% &his strate!y assu"es that the (ir" has :no+led!e o( its de"and and cost (unctionsG in reality) these are di((icult to esti"ate% Also) by e"phasiEin! current (inancial per(or"ance the co"pany "ay sacri(ice lon!3run per(or"ance) i!norin! the e((ects o( other "ar:etin!3"i- ariables) co"petitors8 reactions) and le!al restraints on price% Ou! fo us: S:%A6- 9anglades1 &his business se!"ent o( SQUARE has been usin! this ob'ecti e as their short ter" !oal% SQUARE8s in est"ent in this se!"ent (or Unit 1 is US. 20%00 "illion and (or Unit 2 is US. 13%C0 "illion% $ut its annual turno er is around US. 34%00 "illion% So +e can easily (ind that this se!"ent o( SQUARE has been (ocused on "a-i"iEin! current pro(it% A!ain +e ha e :no+n (ro" one o( their top e-ecuti es that they are concerned about 4hina and India in this sector% So they are tryin! to "a-i"iEe their current pro(it as lon! as possible

Ma7imum u!!ent !e&enue:

So"e co"panies set a price that "a-i"iEes sales re enue% Re enue "a-i"iEation re#uires esti"atin! only the de"and (unction% <any "ana!ers belie e that re enue "a-i"iEation +ill lead to lon!3run pro(it "a-i"iEation and "ar:et3share !ro+th%

Ma7imum sales g!o<t1:

So"e co"panies +ant to "a-i"iEe unit sales% &hey belie e that a hi!her sales olu"e +ill lead to lo+er unit costs and hi!her lon!3run pro(it% &hey set the lo+est price) assu"in! the "ar:et is price sensiti e% &his practice is called "ar:et3penetration pricin!% &he (ollo+in! conditions (a or settin! a lo+ price: ?1@ &he "ar:et is hi!hly price sensiti e) and a lo+ price sti"ulates "ar:et !ro+thG ?2@ 5roduction and distribution costs (all +ith accu"ulated production e-perienceG ?3@ A lo+ price discoura!es actual and potential co"petition

Ma7imum ma!#et s#imming:

<any co"panies (a or settin! hi!h prices to Hs:i"I the "ar:et% <ar:et s:i""in! "a:es sense under the (ollo+in! conditions: ?1@ A su((icient nu"ber o( buyers ha e a hi!h current de"andG ?2@ &he unit costs o( producin! a s"all olu"e are not so hi!h that they cancel the ad anta!e o( char!in! +hat the tra((ic +ill bearG ?3@ &he hi!h initial price does not attract "ore co"petitors to the "ar:etG ?4@ &he hi!h price co""unicates the i"a!e o( a superior product%

/!odu t=+uality leade!s1i":

A co"pany "i!ht ai" to be the product3#uality leader in the "ar:et% ,hen the co"pany is able to create a positi e i"a!e to the "ind o( people they can (ollo+ the product3#uality leadership strate!y% $ecause o( brand na"e people +ill purchase their product% Ot1e! /!i ing Ob;e ti&es: Fon pro(it and public or!aniEations "ay adopt a nu"ber o( other pricin! ob'ecti es% A uni ersity ai"s (or partial cost reco ery) :no+in! that it "ust rely on pri ate !i(ts and public !rants to co er the re"ainin! costs% A nonpro(it hospital "ay ai" (or (ull cost reco ery in its pricin!% A nonpro(it theater co"pany "ay price its productions to (ill the "a-i"u" nu"ber o( theater seats% A social ser ice a!ency "ay sat a social price !eared to the aryin! inco"e situations o( di((erent clients% Ma!#eting Mi7 St!ategy: &he "ar:etin! "i- is probably the "ost (a"ous "ar:etin! ter"% Its ele"ents are the basic) tactical co"ponents o( a "ar:etin! plan% Also none as the (our 58s) the "ar:etin! "iele"ents are price) place) product) and pro"otion% &he concept is si"ple% &hin: about another co""on "i-3 a ca:e "i-% All ca:es contain e!!s) "il:) (lour) and su!ar% 1o+e er) you can alter the (inal ca:e by alterin! the a"ounts o( "iele"ents contained in it% So (or a s+eet ca:e add "ore su!ar% It is the sa"e +ith the "ar:etin! "i-% 0or a hi!h pro(ile brand) increase the (ocus on pro"otion and desensitiEe the +ei!ht !i en to price% Another +ay to thin: about the "ar:etin! "i- is to use the i"a!e o( an artist8s palette% &he "ar:eter "i-es the pri"e colours ? "i- ele"ents @ in di((erent #uantities to deli er a particular (inal colours% E ery hand painted picture is ori!inal in so"e +ay) as is e ery "ar:etin! "i-% 5rice is only one o( the "ar:etin! "i- tools that a co"pany uses to achie e its "ar:etin! ob'ecti es% 5rice decisions "ust be coordinated +ith product desi!n) distribution) and pro"otion decisions to (or" a consistent and e((ecti e "ar:etin! pro!ra"% 7ecisions "ade (or other "ar:etin! "i- ariables "ay a((ect pricin! decisions% 0or e-a"ple) producers usin! "any resellers +ho are e-pected to support and pro"ote their products "ay ha e to build lar!er reseller "ar!ins into their prices% &he decision to position the product on hi!h3 per(or"ance #uality +ill "ean that the seller "ust char!e a hi!her price to co er hi!her costs% 4o"panies o(ten position their products on price and then tailor other "ar:etin! "idecisions to the prices they +ant to char!e% 1ere) price is a crucial product3positionin! (actor that de(ines the product8s "ar:et) co"petition) and desi!n% <any (ir"s support such price3 positionin! strate!ies +ith a techni#ue called tar!et costin!) a potent strate!ic +eapon% 0a!get osting: ,e ha e seen that costs chan!e +ith production scale and e-perience% &hey can also chan!e as a result o( a concentrated e((ort by the co"pany8s desi!ners) en!ineers) and purchasin! a!ents to reduce the"% &he "ethod called tar!et costin!% &hey use "ar:et research to establish a ne+ product8s desired (unctions% &hen they deter"ine the price at +hich the 10

product "ust dell !i en its appeal and co"petitions8 prices% &hey deduct the desired pro(it "ar!in (ro" this price and this lea es the tar!et cost they "ust achie e% &hey then e-a"ine each cost ele"ent3 desi!n) en!ineerin!) "anu(acturin!) sales) and so on3 and brea: it do+n into (urther co"ponents% &hey consider +ays to reen!ineer co"ponents) eli"inate (unctions) and brin! do+n supplier costs% &he +hole ob'ecti e is to brin! the (inal costs pro'ections into the tar!et cost ran!e% I( they can8t succeed) they "ay decide a!ainst de elopin! the product because it could not sell (or the tar!et price and "a:e the tar!et pro(it% ,hen they can succeed) pro(its are li:ely to (ollo+% 6ther co"panies dee"phasiEe price and use other "ar:etin! "i- tools to create non price positions% 6(ten) the best strate!y is not to char!e the lo+est price) but rather to di((erential the "ar:etin! o((er to "a:e it +orth a hi!her price% &hus) "ar:eters "ust consider the total "ar:etin! "i- +hen settin! prices% I( the product is positioned on non price (actors) then decisions about #uality) pro"otion) and distribution +ill stron!ly a((ect price% I( price is a crucial positionin! (actor) then price +ill stron!ly a((ect decisions "ade about the other "ar:etin! "i- ele"ents% $ut e en +hen (eaturin! price) "ar:eters need to re"e"ber that custo"ers rarely buy on price alone% Instead) they see: products that !i e the" the best alue in ter"s o( bene(its recei ed (or the price paid% $osts 4osts set the (loor (or the price that the co"pany can char!e% &he co"pany +ants to char!e a price that both co ers all its costs (or producin!) distributin!) and sellin! the product and deli ers a (air rate o( return (or its e((ort and ris:% A co"pany8s costs "ay be an i"portant ele"ent in its pricin! strate!y% 4o"panies +ith lo+er costs can set lo+er prices that result in !reater sales and pro(its% 0y"es of osts: A co"pany8s costs ta:e t+o (or"s) (i-ed costs and ariable costs%

)i7ed osts:

0i-ed costs ?also :no+n as o erhead@ are costs that do not ary +ith production or sales le el% 0or e-a"ple) a co"pany "ust pay each "onth8s bills (or rent) heat) interest) and e-ecuti e salaries) +hate er the co"pany8s output% 0or e-a"ple) a retailer "ust pay rent and utility bills irrespecti e o( sales% Unit (i-ed costs) called a era!e (i-ed costs ?A04@) decline +ith olu"e) (ollo+in! a rectan!ular hyperbola as the in erse o( the olu"e o( production%

8a!iable osts:

Kariable costs ary directly +ith the le el o( production% &hese costs tend to be the sa"e (or each unit produced% &hey are called ariable because their total aries +ith the nu"ber o( units produced% In the e-a"ple o( the retailer) ariable costs "ay pri"arily be co"posed o( in entory ?!oods purchased (or sale@) and the cost o( !oods is there(ore al"ost entirely ariable% In "anu(acturin!) direct "aterial costs are an e-a"ple o( a ariable cost% An e-a"ple o( ariable costs is the prices o( the supplies needed to produce a product%

11

0otal osts:

&otal costs are the su" o( the (i-ed and ariable costs (or any !i en le el o( production%

A&e!age osts:

A era!e cost is the cost per unit at that le el o( productionG it is e#ual to total costs di ided by production% <ana!e"ent +ants to char!e a price that +ill at least co er the total production costs at a !i en le el o( production% &he co"pany "ust +atch its costs care(ully% I( it costs the co"pany "ore than co"petitors to produce and sell its product) the co"pany +ill ha e to char!e a hi!her price or "a:e less pro(it) puttin! it at a co"petiti e disad anta!e% $OS0S A0 D())-6-'0 L-8-LS O) /6OD%$0(O' SQUARE aries its cost +ith di((erent le els o( production% 0or e-a"ple SQUARE produces C)000 bottle o( Fresh Gel Tooth Paste e ery day in a sin!le "achine% And cost o( one unit is ta:a 20% $ut i( SQUARE +ants to produces 10)000 unit per day it +ould cost the" 2C ta:a per unit% So) C)000 units is the opti"u" cost e((ecti e production unit (or Fresh Gel Tooth Paste per day% A!ain) SQUARE has a di((erent type o( "achine% SQUARE produces C)000 bottle o( Fresh Gel Tooth Paste e ery day in "achine 1% It can produce /)000units) B)000 units and 9)000 units +ith its other three "achines% And the cost o( one unit is ta:a 2C) ta:a 22) ta:a 20) and ta:a 22 per unit respecti ely (or (our "achines% ,e can !et SQUARE8S lon! run a era!e cost by ta:in! all o( the "achine8s short run a era!e cost% So) B)000 units is the opti"u" cost e((ecti e production unit (or Fresh Gel Tooth Paste per day%

$osts as a fun tion of "!odu tion e7"e!ien e: 12

&o price +isely) "ana!e"ent needs to :no+ ho+ its costs ary +ith di((erent le els o( production% &he a era!e cost per unit decreases o er so"e ti"e% $ecause o( e-perience people beco"e e-pert on sa"e :ind o( +or:s% &his drop in the a era!e cost +ith accu"ulated production e-perience is called the e-perience cur e or the learnin! cur e% -7"e!ien e $u!&e of Fresh Gel Tooth Paste of S:%A6-: ,e can see (ro" the e-perience cur e o( Fresh Gel Tooth Paste o( SQUARE that +hen it produces "ore and "ore o er ti"e its a era!e cost per unit decreases%

$osts as a fun tion of diffe!entiated ma!#eting offe!s: &oday8s co"panies try to adapt their o((ers and ter"s to di((erent buyers% &hus a "anu(acturer dealin! +ith di((erent retail chains +ill ne!otiate di((erent ter"s% 6ne retailer "ay +ant e eryday deli ery ?to :eep stoc: lo+er@ +hile another retailer "ay accept t+ice3a3 +ee: deli ery in order to !et a lo+er price% As a result) the "anu(acturer8s costs +ill di((er +ith each retail chain) and its pro(its +ill di((er too% &o esti"ate the real pro(itability o( dealin! +ith di((erent retailers) the "anu(acturer needs to use acti ity3based cost accountin! instead o( standard cost accountin!% Acti ity3based cost accountin! tries to identi(y the real costs associated +ith ser in! each entity ?the di((erent custo"ers@% $oth the ariable costs and the o erhead costs "ust be deco"posed and ta!!ed bac: to the entity% 4o"panies that (ail to "easure their real costs correctly are not "easurin! their pro(it correctly% &hey are li:ely to "isallocate their 13

"ar:etin! and other e((orts% Identi(yin! the true costs arisin! in a custo"er relationship also enables a co"pany to better e-plain its char!es to the custo"er% O!gani*ational $onside!ations: <ana!e"ent "ust decide +ho +ithin the or!aniEation should set prices% 4o"panies handle pricin! in a ariety o( +ays% In s"all co"panies) prices are o(ten set by top "ana!e"ent rather than by the "ar:etin! or sales depart"ents% In lar!e co"panies) pricin! is typically handled by di isional or product line "ana!ers% In industrial "ar:ets) salespeople "ay be allo+ed to ne!otiate +ith custo"ers +ithin certain price ran!es% E en so) top "ana!e"ent sets the pricin! ob'ecti es and policies) and it o(ten appro es the prices proposed by lo+er3 le el "ana!e"ent or salespeople% In industries in +hich pricin! is a :ey (actor) co"panies o(ten ha e a pricin! depart"ent to set the best prices or help others in settin! the"% &his depart"ent reports to the "ar:etin! depart"ent or top "ana!e"ent% 6thers +ho ha e an in(luence on pricin! include sales "ana!ers) production "ana!ers) (inance "ana!ers) and accountants% -7te!nal fa to!s affli ting "!i ing de isions 01e Ma!#et and Demand Ma!#et: In econo"ics) a "ar:et is a social structure (or e-chan!e o( ri!hts) +hich enables people) (ir"s and products to be e aluated and priced% &here are t+o roles in "ar:ets) buyers and sellers% &he de(inition i"plies that at least three actors are needed (or a "ar:et to e-istG at least one actor) on the one side o( the "ar:et) +ho is a+are o( at least t+o actors on the other side +hose o((ers) can be e aluated in relation to each other% A "ar:et allo+s buyers and sellers to disco er in(or"ation and carry out a oluntary e-chan!e o( !oods or ser ices% It is one o( the t+o :ey institutions (or or!aniEin! trade) alon! +ith the ri!ht to o+n property% In e eryday usa!e) the +ord H"ar:etI "ay also re(er to the location +here !oods are traded) or in other +ords) the "ar:etplace% Demand: &he a"ount o( a particular econo"ic !ood or ser ice that a consu"er or !roup o( consu"ers +ill +ant to purchase at a !i en price is called de"and% &he de"and cur e is usually do+n+ard slopin!) since consu"ers +ill +ant to buy "ore as price decreases% 7e"and (or a !ood or ser ice is deter"ined by "any di((erent (actors other than price) such as the price o( substitute !oods and co"ple"entary !oods% In e-tre"e cases) de"and "ay be co"pletely unrelated to price) or nearly in(inite at a !i en price% Alon! +ith supply) de"and is one o( the t+o :ey deter"inants o( the "ar:et price% I( supply is held constant) an increase in de"and leads to an increased "ar:et price) +hile a decrease in de"and leads to a decreased "ar:et price% Ma!#et3demand !elations1i": &o set a speci(ic price (or a speci(ic product) the "ar:eter "ust understand the relationship bet+een the "ar:et situation and the de"and o( the product in the "ar:et% ,ithout understandin! it) a "ar:eter can: 14

1% 6 er3price the product or 2% Under alue the product $oth these e((ects "ay be de astatin! the co"pany) especially +hen launchin! a ne+ product% In the (ollo+in! pa!es) +e tried to (ocus on ho+ the arious "ar:et situations and buyer perception o( the product "ay in(luence the pricin! decision% /!i ing in diffe!ent ty"es of ma!#et In the real +orld econo"y) arious (or"s o( "ar:et can be obser ed +hich drastically a((ect the pricin! and "ar:etin! o( the products o( the co"panies related to each (or"% Each type o( "ar:et situation re#uires "ar:eters to set reasonable prices +hich allo+ the" to obtain hi!hest pro(it% 0or" the ie+point o( econo"icsG +e can cate!oriEe the "ar:ets in (ollo+in! types:

1. /u!e o! /e!fe t om"etition: 5er(ect co"petition is an econo"ic "odel that describes a hypothetical "ar:et (or" in +hich no producer or consu"er has the "ar:et po+er to in(luence prices% Accordin! to the standard econo"ical de(inition o( e((iciency ?5areto e((iciency@) per(ect co"petition +ould lead to a co"pletely e((icient outco"e% &he analysis o( per(ectly co"petiti e "ar:ets pro ides the (oundation o( the theory o( supply and de"and Assum"tions of "e!fe t om"etition: 6(ten "odels o( per(ect co"petition assu"e that so"e subset o( the (ollo+in! si- conditions be (ul(illed% In such a "ar:et) prices +ould nor"ally "o e instantaneously to econo"ic e#uilibriu"% It should be noted ho+e er that these represent su((icient) not necessary conditions% Ato"icity An ato"ic "ar:et is one in +hich there are a lar!e nu"ber o( s"all producers and consu"ers on a !i en "ar:et) each so s"all that its actions ha e no si!ni(icant i"pact on others% 0ir"s are price ta:ers) "eanin! that the "ar:et sets the price that they "ust choose%

1C

1o"o!eneity ;oods and ser ices are per(ect substitutesG that is) there is no product di((erentiation% ?All (ir"s sell an identical product@ 5er(ect and co"plete in(or"ation All (ir"s and consu"ers :no+ the prices set by all (ir"s ?see per(ect in(or"ation and co"plete in(or"ation@% E#ual access All (ir"s ha e access to production technolo!ies) and resources are per(ectly "obile% 0ree entry Any (ir" "ay enter or e-it the "ar:et as it +ishes ?see barriers to entry@% Indi idual buyers and sellers act independently &he "ar:et is such that there is no scope (or !roups o( buyers and/or sellers to co"e to!ether +ith a ie+ to chan!in! the "ar:et price ?collusion and cartels are not possible under this "ar:et structure@ $eha ioral assu"ptions o( per(ect co"petition are that:

4onsu"ers ai" to "a-i"iEe utility 5roducers ai" to "a-i"iEe pro(it

6esults of "e!fe t om"etition:

In the short3run) it is possible (or an indi idual (ir" to "a:e abnor"al pro(it% &his situation is sho+n in this dia!ra") as the price or a era!e re enue) denoted by 5 is abo e the a era!e cost denoted by 4 1/

1o+e er) in the lon! run) abnor"al pro(it cannot be sustained% &he arri al o( ne+ (ir"s in the "ar:et causes the ?horiEontal@ de"and cur e o( each indi idual (ir" to shi(t do+n+ard) brin!in! do+n at the sa"e ti"e the price) the a era!e re enue and "ar!inal re enue cur e% &he (inal outco"e is that) in the lon! run) the (ir" +ill "a:e only nor"al pro(it ?Eero econo"ic pro(it@% Its horiEontal de"and cur e +ill touch its a era!e total cost cur e at its lo+est point% 1. Mono"olisti om"etition:

<onopolistic co"petition is a co""on "ar:et (or"% <any "ar:ets can be considered "onopolistically co"petiti e) o(ten includin! the "ar:ets (or restaurants) cereal) clothin!) shoes and ser ice industries in lar!e cities% <onopolistically co"petiti e "ar:ets ha e the (ollo+in! characteristics: 1% &here are "any producers and "any consu"ers in a !i en "ar:et% 2% 4onsu"ers percei e that there are non3price di((erences a"on! the co"petitors8 products% 3% &here are (e+ barriers to entry and e-it% 4% 5roducers ha e a de!ree o( control o er price% &he characteristics o( a "onopolistically co"petiti e "ar:et are al"ost the sa"e as in per(ect co"petition) +ith the e-ception o( hetero!eneous products) and that "onopolistic co"petition in ol es a !reat deal o( non3price co"petition ?based on subtle product di((erentiation@% A (ir" "a:in! pro(its in the short run +ill brea: e en in the lon! run because de"and +ill decrease and a era!e total cost +ill increase% &his "eans in the lon! run) a "onopolistically co"petiti e (ir" +ill "a:e Eero econo"ic pro(it% &his !i es the co"pany a certain a"ount o( in(luence o er the "ar:etG because o( brand loyalty) it can raise its prices +ithout losin! all o( its custo"ers% &his "eans that an indi idual (ir"8s de"and cur e is do+n+ard slopin!) in contrast to per(ect co"petition) +hich has a per(ectly elastic de"and schedule%

1B

S1o!t=!un e+uilib!ium of t1e fi!m unde! Mono"olisti $om"etition A "onopolistically co"petiti e (ir" acts li:e a "onopolist in that the (ir" is able to in(luence the "ar:et price o( its product by alterin! the rate o( production o( the product% Unli:e in per(ect co"petition) "onopolistically co"petiti e (ir"s produce products that are not per(ect substitutes% As such) brand A8s product) +hich is di((erent ?or at least percei ed to be di((erent@ (ro" all other brands8 products) is a ailable (ro" only a sin!le producer% In the short3run) the "onopolistically co"petiti e (ir" can e-ploit the hetero!eneity o( its brand so as to reap positi e econo"ic pro(it ?i%e% the rate o( return is !reater than the rate re#uired to co"pensate debt and e#uity holders (or the ris: o( in estin! in the (ir"@% 6ne possible e((ect o( ad ertisin! on a (ir"8s lon! run a era!e cost cur e +hen earnin! an econo"ic pro(it in the short run is to raise the cur e%

Long=!un e+uilib!ium of t1e fi!m unde! Mono"olisti $om"etition In the lon!3run) ho+e er) +hate er distin!uishin! characteristic that enables one (ir" to reap "onopoly pro(its +ill be duplicated by co"petin! (ir"s% &his co"petition +ill dri e the price o( the product do+n and) in the lon!3run) the "onopolistically co"petiti e (ir" +ill "a:e Eero econo"ic pro(it ?i%e% a rate o( return e#ual to the rate re#uired to co"pensate debt and e#uity holders (or the ris: o( in estin! in the (ir"@%

19

Unli:e in per(ect co"petition) the "onopolistically co"petiti e (ir" does not produce at the lo+est attainable a era!e total cost% Instead) the (ir" produces at an ine((icient output le el) reapin! "ore in additional re enue than it incurs in additional cost ersus the e((icient output le el% 2. Oligo"olisti om"etition:

An oli!opoly is a "ar:et (or" in +hich a "ar:et or industry is do"inated by a s"all nu"ber o( sellers ?oli!opolists@% &he +ord is deri ed (ro" the ;ree: (or (e+ sellers% $ecause there are (e+ participants in this type o( "ar:et) each oli!opolist is a+are o( the actions o( the others% &he decisions o( one (ir" in(luence) and are in(luenced by the decisions o( other (ir"s% Strate!ic plannin! by oli!opolists al+ays in ol es ta:in! into account the li:ely responses o( the other "ar:et participants% &his causes oli!opolistic "ar:ets and industries to be at the hi!hest ris: (or collusion% 6li!opoly is a co""on "ar:et (or"% As a #uantitati e description o( oli!opoly) the (our3(ir" concentration ratio is o(ten utiliEed% &his "easure e-presses the "ar:et share o( the (our lar!est (ir"s in an industry as a percenta!e% Usin! this "easure) an oli!opoly is de(ined as a "ar:et in +hich the (our3(ir" concentration ratio is abo e 40L% 6li!opolistic co"petition can !i e rise to a +ide ran!e o( di((erent outco"es% In so"e situations) the (ir"s "ay collude to raise prices and restrict production in the sa"e +ay as a "onopoly% ,here there is a (or"al a!ree"ent (or such collusion) this is :no+n as a cartel% 0ir"s o(ten collude in an atte"pt to stabiliEe unstable "ar:ets) so as to reduce the ris:s inherent in these "ar:ets (or in est"ent and product de elop"ent% &here are le!al restrictions on such collusion in "ost countries% &here does not ha e to be a (or"al a!ree"ent (or collusion to ta:e place ?althou!h (or the act to be ille!al there "ust be a real co""unication bet+een co"panies@ M (or e-a"ple) in so"e industries) there "ay be an ac:no+led!ed "ar:et leader +hich in(or"ally sets prices to +hich other producers respond) :no+n as price leadership% In other situations) co"petition bet+een sellers in an oli!opoly can be (ierce) +ith relati ely lo+ prices and hi!h production% &his could lead to an e((icient outco"e approachin! per(ect co"petition% &he co"petition in an oli!opoly can be !reater than +hen there are "ore (ir"s in an industry i() (or e-a"ple) the (ir"s +ere only re!ionally based and didn8t co"pete directly +ith each other% &he +el(are analysis o( oli!opolies su((ers) thus) (ro" sensiti ity to the e-act speci(ications used to de(ine the "ar:et8s structure% In particular) the le el o( dead+ei!ht loss is hard to "easure% &he study o( product di((erentiation indicates oli!opolies "i!ht also create e-cessi e le els o( di((erentiation in order to sti(le co"petition% In an oli!opoly) (ir"s operate under i"per(ect co"petition and a :in:ed de"and cur e +hich re(lects inelasticity belo+ "ar:et price and elasticity abo e "ar:et price) the product or ser ice (ir"s o((er) are di((erentiated and barriers to entry are stron!% 0ollo+in! (ro" the (ierce price co"petiti eness created by this stic:y3up+ard de"and cur e) (ir"s utiliEe non3 price co"petition in order to accrue !reater re enue and "ar:et share%

1J

Abo e the :in:) de"and is relati ely elastic because all other (ir"8s prices re"ain unchan!ed% $elo+ the :in:) de"and is relati ely inelastic because all other (ir"s +ill introduce a si"ilar price cut) e entually leadin! to a price +ar% &here(ore) the best option (or the oli!opolist is to produce at point E +hich is the e#uilibriu" point and) incidentally) the :in: point% Nin:edI de"and cur es are si"ilar to traditional de"and cur es) as they are do+n+ard3 slopin!% &hey are distin!uished by a hypothesiEed con e- bend +ith a discontinuity at the bend M the H:in:%I &here(ore) the (irst deri ati e at that point is unde(ined and leads to a 'u"p discontinuity in the "ar!inal re enue cur e% Ou! fo us: S:%A6- 9anglades1 SQUARE $an!ladesh (irst entured into the te-tile sector +ith the establish"ent o( the (irst unit o( the &e-tile 2td% in 1JJB% A year later the establish"ent o( the second unit (ollo+ed% In $an!ladesh there are so"e other co"panies +or:in! in this sector% 0ollo+in! na"es are the "ost pro"inent:

$ase &e-tile 2i"ited $e-i"co &e-tiles N7S Apparels) 4hitta!on!

In "ost cases SQUARE &e-tile 2td% and $e-i"co &e-tiles are do"inatin! the "ar:et and they respond to price chan!es o( each other se erely% In that sense) it can be said that SQUARE is operatin! in a oli!opolistic "ar:et structure% 4. Mono"oly: A "onopoly O(ro" ;ree: "ono ?PQRS@) alone or sin!le T polQ ?UVWX@) to sellY is a persistent situation +here there is only one pro ider o( a product or ser ice in a particular "ar:et% <onopolies are characteriEed by a lac: o( econo"ic co"petition (or the !ood or ser ice that they pro ide and a lac: o( iable substitute !oods% O1Y A "onopoly should be distin!uished (ro" "onopsony) in +hich there is only one buyer o( a product or ser iceG a "onopoly "ay also ha e "onopsony control o( a sector o( a "ar:et% 2i:e+ise) a "onopoly should be distin!uished (ro" a cartel ?a (or" o( oli!opoly@) in +hich se eral pro iders act to!ether to coordinate ser ices) prices or sale o( !oods% A !o ern"ent3!ranted "onopoly or le!al "onopoly is sanctioned by the state) o(ten to pro ide an incenti e to in est in a ris:y enture% &he !o ern"ent "ay also reser e the enture (or itsel() thus (or"in! a !o ern"ent "onopoly% - onomi analysis: 1% Fo close substitutes: A "onopoly is not "erely the state o( ha in! control o er a productG it also "eans that there is no real alternati e to the "onopoliEed product% 20

2% A price "a:er: $ecause a sin!le (ir" controls the total supply in a pure "onopoly) it is able to e-ert a si!ni(icant de!ree o( control o er the price by chan!in! the #uantity supplied% 6ther co""on assu"ptions in "odelin! "onopolies include the presence o( "ultiple buyers ?i( a (ir" is the only buyer) it also has a "onopsony@) an identical price (or all buyers) and asy""etric in(or"ation &he result o( these conditions is that a co"pany +ith a "onopoly does not under!o price pressure (ro" co"petitors) althou!h it "ay (ace pricin! pressure (ro" potential co"petition% I( a co"pany raises prices too hi!h) then others "ay enter the "ar:et i( they are able to pro ide the sa"e !ood) or a substitute) at a lo+er price% O2Y &he idea that "onopolies in "ar:ets +ith easy entry need not be re!ulated a!ainst is :no+n as the Hre olution in "onopoly theoryI% /!i e setting fo! un!egulated mono"olies: In econo"ics) a (ir" is said to ha e "onopoly po+er Z or at least a de!ree o( "ar:et po+er Mi( it is not (acin! a horiEontal de"and cur e ?see supply and de"and@% &his is in contrast to a price3ta:in! (ir" +hich al+ays (aces a horiEontal de"and cur e) and there(ore sells little or nothin! at prices abo e e#uilibriu"% In contrast) a business +ith "onopoly po+er can choose the price at +hich it +ants to sell%

In "ost "ar:ets) (allin! de"and associated +ith increased price is due partly to losin! custo"ers to other sellers and partly to custo"ers +ho are no lon!er +illin! or able to buy the product% In a pure "onopoly "ar:et) only the latter e((ect is at +or:% &here(ore) the drop in sales as prices rise "ay be "uch less dra"atic than one "i!ht e-pect) especially (or necessary co""odities such as "edical care% 1o+e er) unless the "onopoly is a coerci e "onopoly) there is also the ris: o( co"petition arisin! i( the (ir" sets its prices too hi!h% I( a "onopoly can set only one price) it +ill produce a #uantity +here "ar!inal cost ?<4@ e#uals "ar!inal re enue ?<R@) as seen on the dia!ra" at ri!ht% &he "onopolist +ill then set the hi!hest price at +hich that #uantity can be sold% &his) the opti"al price accordin! to 21

supply and de"and theory) is abo e the co"petiti e price ?5c@ and belo+ the co"petiti e #uantity ?Qc@% Ou! fo us: S:%A6- 9anglades1 In $an!ladesh "onopoly businesses can only be seen in the Social Ser ices sectors% &hese businesses are "ainly operated by the ;o ern"ent and no pri ate business institution is allo+ed to establish any business concernin! these sectors% ,ASA is one o( the "onopoly businesses re!ulated by the ;o ern"ent% 6ur "ain (ocus SQUARE $an!ladesh does not operate any :ind o( "onopoly business%

$onsume! "e! e"tion of "!i e and &alue:

&he ulti"ate end users o( the product basically deter"ine +hether the price o( the product is ri!ht or +ron!% &he "ar:eters "ust understand the need and +ant o( the consu"ers% 4onsu"ers (ore!o the alue ?price@ in e-chan!e o( the product% I( their percei ed alue o( the product is lo+er than the price they ha e (ore!one) then the product +ill (ace a critical phase o( (ailin!% A!ain i( the percei ed alue is hi!her than the price) then the "ar:eters +ill lose substantial a"ount o( pro(it% E((ecti e buyer3oriented pricin! in ol es understandin! ho+ "uch alue consu"ers place on the bene(its o( the product and settin! a price that (its this alue%

Analy*ing t1e "!i e demand !elations1i":

In econo"ics) the de"and cur e can be de(ined as the !raph depictin! the relationship bet+een the price o( a certain co""odity) and the a"ount o( it that consu"ers are +illin! and able to purchase at that !i en price% 7e"and cur es are used to esti"ate beha iors in co"petiti e "ar:ets) and are o(ten co"bined +ith supply cur es) o(ten to esti"ate the e#uilibriu" price ?the price at +hich all sellers are able to (ind a +illin! buyer) also :no+n as "ar:et clearin! price@ and the e#uilibriu" #uantity ?the a"ount o( that !ood or ser ice that +ill be produced and bou!ht +ithout surplus/e-cess supply or shorta!e/e-cess de"and@ o( that "ar:et% 5lease see the article on Supply and 7e"and (or "ore details on ho+ this is done%

22

7e"and schedules are tables that contain e-peri"entally obtained in(or"ation o( buyin! habits at aried prices% 0ro" these data a de"and cur e is then esti"ated and !raphed) usually +ith the a"ount o( a !ood or ser ice de"anded !raphed to the - a-is ?o(ten na"ed in e#uations as HQI@ and the price at +hich the !ood or ser ice +ould be purchased on the y a-is ?o(ten na"ed in e#uations as H5I@% 6ther deter"inants o( de"and such as inco"e) taste and pre(erence) prices o( related or substitute !oods/ser ices ?those consu"ed in place o( said !ood or ser ice@) etc% are supposedly held constant% A chan!e in one o( these constants +ill cause a shi(t in the de"and cur e) and the e-pected beha ior o( that "ar:et% <o e"ent alon! the de"and cur e sho+s the chan!es in the #uantity de"anded co"pared to chan!es in the price o( the !ood/ser ice% &he de"and cur e usually slopes do+n+ards (ro" le(t to ri!htG that is) it has a ne!ati e association ?(or t+o theoretic e-ceptions) see Keblen !ood and ;i((en !ood@% &his ne!ati e slope is o(ten re(erred to as the Hla+ o( de"and)I +hich "eans that +hen all thin!s but price are held e#ual) i( the price o( the !ood/ser ice increasesG the less o( that !ood/ser ice +ill be purchased by consu"ers%

/!i e elasti ity of demand:

6ne typical application o( the concept o( elasticity is to consider +hat happens to consu"er de"and (or a !ood ?(or e-a"ple) apples@ +hen prices increase% As the price o( a !ood rises) consu"ers +ill usually de"and a lo+er #uantity o( that !ood) perhaps by consu"in! less) substitutin! other !oods) and so on% &he !reater the e-tent to +hich de"and (alls as price rises) the !reater the price elasticity o( de"and% 4on ersely) as the price o( a !ood (alls) consu"ers +ill usually de"and a !reater #uantity o( that !ood) by consu"in! "ore) droppin! substitutes) and so (orth% 1o+e er) there "ay be so"e !oods that consu"ers re#uire) cannot consu"e less o() and cannot (ind substitutes (or e en i( prices rise ?(or e-a"ple) certain prescription dru!s@% Another e-a"ple is oil and its deri ati es such as !asoline% 0or such !oods) the price elasticity o( de"and "i!ht be considered inelastic%

0urther) elasticity +ill nor"ally be di((erent in the short ter" and the lon! ter"% 0or e-a"ple) (or "any !oods the supply can be increased o er ti"e by locatin! alternati e sources) in estin! in an e-pansion o( production capacity) or de elopin! co"petiti e products +hich can substitute% 6ne "i!ht there(ore e-pect that the price elasticity o( supply +ill be !reater in the lon! ter" than the short ter" (or such a !ood) that is) that supply can ad'ust to price chan!es to a !reater de!ree o er a lon!er ti"e% &his applies to the de"and side as +ell% 0or e-a"ple) i( the price o( petrol rises) consu"ers +ill (ind +ays to conser e their use o( the resource% 1o+e er) so"e o( these +ays) li:e 23

(indin! a "ore (uel3e((icient car) ta:e ti"e% So consu"ers as +ell "ay be less able to adapt to price shoc:s in the short ter" than in the lon! ter"

$om"etito!s osts5 "!i e and offe!s: 6ne o( the "ost i"portant (actors a((ectin! the "ar:eters pricin! decision is the co"petitor8s cost and prices% It is also ulnerable to the co"petitor8s possible reaction to the decisions o( its o+n product pricin!% 1o+ "uch the pricin! decision o( the co"petitor is !on! to a((ect the co"pany depends on the "ar:et situation% In the oli!opolistic "ar:et structure) price o( the co"petitors has se ere e((ect on the co"pany8s pricin! decision% 6n the other hand) in pure co"petition) it has no e((ect on the co"pany) because the price o( the product is sa"e o( e eryone% <onopolistically co"petiti e co"panies depend on the pricin! o( the co"petitors but it has "uch less a((ect on the pricin! decision% In case o( "onopoly) the co"pany has little co"petition and it can ta:e drastic "easures in pricin! decisions to +ard o(( co"petitors% Ou! fo us: S:%A6- 9anglades1 &he toiletries section o( the co"pany operates in the "onopolistically co"petiti e situation% 6ne o( the products o( the SQUARE &oiletries 2td% is <eril $eauty Soap% It has di((erent ersions o( the product% ,e (ocus on the product na"ed 5in: <eril $eauty Soap% At present each 100 !" pac: cost 1C ta:a in retail stores% 0e+ "onths bac: Unile er $an!ladesh) the co"petitor o( the SQUARE &oiletries 2td%) chan!ed the price o( their si"ilar product (ro" ta:a 1C to ta:a 13% In response SQUARE chan!ed their product price to ta:a 13 and at the sa"e ti"e they launched a ne+ pro"otional ca"pai!n +hich re#uested the consu"ers to return three used pac: o( the product to !et a sin!le product (or (ree% As the price o( the ra+ "aterial increased Unile er chan!ed their price o( the product to 1C a!ain% In the sa"e +ay SQUARE responded to the price chan!e and put bac: their product 24

price to ta:a 1C and as the subse#uent ca"pai!n o( the price decline +as not pro(itable) it +as stopped% Ot1e! e7te!nal fa to!s 1. - onomi $onditions: 5ricin! decision o( the co"pany is also a((ected by the econo"ic condition in +hich the co"pany is sub'ected to% In $an!ladesh) there is hi!her rater o( interest and in(lation pre ailin! and these chan!e #uite o(ten% So) SQUARE has to consider these (actors +hile settin! prices and it has to chan!e their product price accordin!ly% 2. 6eselle!s: Any chan!e in the pricin! o( the products "ay a((ect the reactions o( the resellers% Specially) the products +hich ha e relati ely s"aller "anu(acturer to ulti"ate consu"er "ar:etin! channel) resellers o( these products respond #uic:ly to these price chan!es% 3. >o&e!nment: 5olicies o( the !o ern"ent also a((ect the pricin! decisions% 0or e-a"ple) +hen ;o ern"ent decreased e-port duties on <edicine) SQUARE had increased their production o( "edicine% ,ithin last (i e years SQUARE has increased their production by 1B%J3 percent as +ell as decreased the price o( their product in (orei!n "ar:ets because o( (a orable !o ern"ent policies% 4ondition o( the ;o ern"ent is also an i"portant aspect o( the co"pany% In est"ent in te-tile sector has decreased in the last year because in estors are a(raid to "a:e any contribution +hile the 4areta:er ;o ern"ent is still in po+er% 4. So ial on e!ns: Social !roups can also "a:e i""ense i"pact in the pricin! policy% A!ain any psycholo!ical chan!e in the society +ill ha e i"pact on production and price% SQUARE has to consider this (actor as +ell% 0or e-a"ple) they can not increase the price o( "edicine too "uch because it +ill create ne!ati e i"pact on the society% /!i ing /oli y and St!ategy <ana!ers should start settin! prices durin! the de elop"ent sta!e as part o( strate!ic pricin! to a oid launchin! products or ser ices that cannot sustain pro(itable prices in the "ar:et% &his approach to pricin! enables co"panies to either (it costs to prices or scrap products or ser ices that cannot be !enerated cost3e((ecti ely% &hrou!h syste"atic pricin! policies and strate!ies) co"panies can reap !reater pro(its and increase or de(end their "ar:et shares% ;enerally) pricin! policy re(ers ho+ a co"pany sets the prices o( its products and ser ices based on costs) alue) de"and) and co"petition% 5ricin! strate!y) on the other hand) re(ers to ho+ a co"pany uses pricin! to achie e its strate!ic !oals) such as o((erin! lo+er prices to increase sales olu"e or hi!her prices to decrease bac:lo!%

2C

Ou! fo us: S:%A6- 9anglades1 In SQUARE Bangladesh settin! prices is one o( the principal tas:s o( "ar:etin! and (inance "ana!ers in that the price o( a product or ser ice o(ten plays a si!ni(icant role in that product8s or ser ice8s success) not to "ention in a co"pany8s pro(itability% A(ter establishin! the bases (or their prices) "ana!ers be!in de elopin! pricin! strate!ies by deter"inin! co"pany pricin! !oals) such as increasin! short3ter" and lon!3ter" pro(its) stabiliEin! prices) increasin! cash (lo+) and +ardin! o(( co"petition% <ana!ers also "ust ta:e into account current "ar:et conditions +hen de elopin! pricin! strate!ies to ensure that the prices they choose (it "ar:et conditions% In addition) e((ecti e pricin! strate!y in ol es considerin! custo"ers) costs) co"petition) and di((erent "ar:et se!"ents% 5ricin! strate!y entails in SQUARE Bangladesh "ore than reactin! to "ar:et conditions) such as reducin! pricin! because co"petitors ha e reduced their prices% Instead) it enco"passes "ore thorou!h plannin! and consideration o( custo"ers) co"petitors) and co"pany !oals% 0urther"ore) pricin! strate!ies tend to ary dependin! on +hether a co"pany is a ne+ entrant into a "ar:et or an established (ir"% Fe+ entrants so"eti"es o((er products at lo+ cost to attract "ar:et share) +hile incu"bents8 reactions ary% Incu"bents that (ear the ne+ entrant +ill challen!e the incu"bents8 custo"er base "ay "atch prices or !o e en lo+er than the ne+ entrant to protect its "ar:et share% I( incu"bents do not ie+ the ne+ entrant as a serious threat) incu"bents "ay si"ply resort to increased ad ertisin! ai"ed at enhancin! custo"er loyalty) but ha e no chan!e in price in e((orts to :eep the ne+ entrant (ro" stealin! a+ay custo"ers% &he (ollo+in! sections e-plain ho+ SQUARE Bangladesh de elops pricin! policy and strate!y% 0irst) cost3based pricin! is considered% &his is (ollo+ed by the second topic o( alue3based pricin!% &hird) de"and3based pricin! is addressed (ollo+ed by co"petition3 based pricin!% A(ter this) se eral strate!ies (or ne+ and established pricin! strate!ies are e-plained% 1. $ost=9ased /!i ing (n S:%A6- 9anglades1 &he traditional pricin! policy can be su""ariEed by the (or"ula: Cost + Fixed profit percentage = Selling price. 4ost3based pricin! in ol es the deter"ination o( all (i-ed and ariable costs associated +ith a product or ser ice% A(ter the total costs attributable to the product or ser ice ha e been deter"ined) "ana!ers add a desired pro(it "ar!in to each unit such as a C or 10 percent "ar:up% &he !oal o( the cost3oriented approach is to co er all costs incurred in producin! or deli erin! products or ser ices and to achie e a tar!eted le el o( pro(it% $y itsel() this "ethod is si"ple and strai!ht(or+ard) re#uirin! only that "ana!ers study (inancial and accountin! records to deter"ine prices% &his pricin! approach does not in ol e e-a"inin! the "ar:et or considerin! the co"petition and other (actors that "i!ht ha e an i"pact on pricin!% 4ost3oriented pricin! also is popular because it is an a!e3old practice that uses internal in(or"ation that "ana!ers can obtain easily% In addition) a co"pany can de(end its prices based on costs) and de"onstrate that its prices co er costs plus a "ar:up (or pro(it% 2/

1o+e er) critics contend that the cost3oriented strate!y (ails to pro ide a co"pany +ith an e((ecti e pricin! policy% 6ne proble" +ith the cost3plus strate!y is that deter"inin! a unit8s cost be(ore its price is di((icult in "any industries because unit costs "ay ary dependin! on olu"e% As a result) "any business analysts ha e criticiEed this "ethod) ar!uin! that it is no lon!er appropriate (or "odern "ar:et conditions% Ou! fo us: S:%A6- 9anglades1 &o illustrate "ar:up pricin! +e consider the (ollo+in! cost and e-pected sales o( soap produced by SQUARE Toiletries Ltd.:

,hile "ana!ers "ust consider costs +hen de elopin! a pricin! policy and strate!y) costs alone should not deter"ine prices% <any "ana!ers o( industrial !oods and ser ice co"panies sell their products and ser ices at incre"ental cost) and "a:e their substantial pro(its (ro" their best custo"ers and (ro" short3notice deli eries% ,hen considerin! costs) "ana!ers should as: +hat costs they can a((ord to pay) ta:in! into account the prices the "ar:et allo+s) and still allo+ (or a pro(it on the sale% In addition) "ana!ers "ust consider production costs in order to deter"ine +hat !oods to produce and in +hat a"ounts% Fe ertheless) pricin! !enerally in ol es deter"inin! +hat prices custo"ers can a((ord be(ore deter"inin! +hat a"ount o( products to produce% $y bearin! in "ind the prices they can char!e and the costs they can a((ord to pay) "ana!ers can deter"ine +hether their costs enable the" to co"pete in the lo+3cost "ar:et) +here custo"ers are concerned pri"arily +ith price) or +hether they "ust co"pete in the pre"iu"3price "ar:et) in +hich custo"ers are pri"arily concerned +ith #uality and (eatures% 2. 9!ea#=-&en Analysis and 0a!get /!i ing &he brea:3e en point is the sales le el at +hich re enue e#uals total costs% &his "eans that at the brea:3e en le el o( sales) there is neither a pro(it nor a loss% Understandin! ho+ pro(it aries re#uires an analysis o( costs to identi(y those that chan!e +ith a chan!in! olu"e o( sales and those that do not% ,ith :no+led!e o( the le el o( sales at +hich brea:3e en is achie ed and :no+led!e o( the rate o( chan!e o( pro(it) it is possible to esti"ate the pro(it (or 2B

any le el o( sales +ithin a lar!e ran!e% $y usin! brea:3e en concept a co"pany can set their tar!et pricin!% Ou! fo us: S:%A6- 9anglades1 &he (i!ure sho+s brea:3e en chart o( SQUARE Toiletries Ltd (or producin! soap. 0i-ed costs are &:% 1000)000 re!ardless o( sales olu"e% Kariable costs are added to (i-ed cost to (or" total costs) +hich rise +ith olu"n% &he total re enue cur e starts at Eero and rises +ith each unit sold% &he slope o( the total re enue cur e re(lects the price o( &:% 14 per soap%

&he total re enue and total cost cur es cross at 3CB)143 units% &his brea:3e en olu"e "eans at &:% 14 SQUARE "ust sell at least 209)333 units o( soap to reach brea:3e en%

I( the SQUARE +ants to "a:e a tar!et pro(it) it "ust sell "ore than 209)333 units o( soap at &:% 14 each% I( SQUARE in ested &:% 40)00)000 and +ants to set price to earn a 20 percent return or &:% 9)00)000 then SQUARE "ust sell at least 3)42)9CB units at &:% 14 each%

29

3. 8alue=9ased /!i ing Kalue pricers adhere to the thin:in! that the opti"al sellin! price is a re(lection o( a product or ser ice8s percei ed alue by custo"ers) not 'ust the co"pany8s costs to produce or pro ide a product or ser ice% &he alue o( a product or ser ice is deri ed (ro" custo"er needs) pre(erences) e-pectations) and (inancial resources as +ell as (ro" co"petitors8 o((erin!s% Ou! fo us: S:%A6- 9anglades1 &he "ana!ers o( SQUARE Bangladesh ha e to #uery custo"ers and research the "ar:et to deter"ine ho+ "uch they alue a product or ser ice% In addition) they co"pare their products or ser ices +ith those o( their co"petitors to identi(y their alue ad anta!es and disad anta!es% 0or e-a"ple SQUARE Toiletries Ltd. "anu(actures eril lip !el and petroleu" 'elly (or all :inds o( consu"ers accordin! to their percei ed alue% [et) alue3based pricin! is not 'ust creatin! custo"er satis(action or "a:in! sales because custo"er satis(action "ay be achie ed throu!h discountin! alone) a pricin! strate!y that could also lead to !reater sales% 1o+e er) discountin! "ay not necessarily lead to pro(itability% Kalue pricin! in ol es settin! prices to increase pro(itability by tappin! into "ore o( a product or ser ice8s alue attributes% SQUARE Toiletries Ltd. &his approach to pricin! also depends hea ily on stron! ad ertisin!) especially (or ne+ products or ser ices) in order to co""unicate the alue o( products or ser ices to custo"ers and to "oti ate custo"ers to pay "ore i( necessary (or the alue pro ided by these products or ser ices% 4. Demand=9ased /!i ing <ana!ers adoptin! de"and3based pricin! policies are) li:e alue pricers) not (ully concerned +ith costs% Instead) they concentrate on the beha ior and characteristics o( custo"ers and the #uality and characteristics o( their products or ser ices% 7e"and3oriented pricin! (ocuses on the le el o( de"and (or a product or ser ice) not on the cost o( "aterials) labor) and so (orth% Accordin! to this pricin! policy) "ana!ers try to deter"ine the a"ount o( products or ser ices they can sell at di((erent prices% <ana!ers need de"and schedules in order to deter"ine prices based on de"and% Usin! de"and schedules) "ana!ers can (i!ure out +hich production and sales le els +ould be the "ost pro(itable% &o deter"ine the "ost pro(itable production and sales le els) "ana!ers e-a"ine production and "ar:etin! costs esti"ates at di((erent sales le els% &he prices are deter"ined by considerin! the cost esti"ates at di((erent sales le els and e-pected re enues (ro" sales olu"es associated +ith pro'ected prices% &he success o( this strate!y depends on the reliability o( de"and esti"ates% 1ence) the crucial obstacle "ana!ers (ace +ith this approach is accurately !au!in! de"and) +hich re#uires e-tensi e :no+led!e o( the "ani(old "ar:et (actors that "ay ha e an i"pact on the nu"ber o( products sold% &+o co""on options "ana!ers ha e (or obtainin! accurate esti"ates are enlistin! the help (ro" either sales representati es or "ar:et e-perts% <ana!ers (re#uently as: sales representati es to esti"ate increases or decreases in de"and ste""in! (ro" 2J

speci(ic increases or decreases in a product or ser ice8s price) since sales representati es !enerally are attuned to "ar:et trends and custo"er de"ands% Alternati ely) "ana!ers can see: the assistance o( e-perts such as "ar:et researchers or consultants to pro ide esti"ates o( sales le els at arious unit prices% ?. $om"etition=9ased /!i ing ,ith a co"petition3based pricin! policy) a co"pany sets its prices by deter"inin! +hat other co"panies co"petin! in the "ar:et char!e% &his is an opportunity to !ro+ the business personally and pro(essionally% 5eople +ill buy (ro" the co"pany because o( its honesty and co"petiti e prices% 6nce the co"pany captured its custo"ers) it should in ite the" to 'oin its "ailin! list +hich +ill "a:e it easier (or the" to (ind !reat prices since it +ill update the" +hen it has specials or ne+ products to o((er% &he co"pany "ay also +ant to use this list to hold a contest or to announce other bene(its such as a (re#uent buyer pro!ra"% Ou! fo us: S:%A6- 9anglades1 &he SQUARE Bangladesh (ollo+s co"petition3based pricin! (or su" o( theirs product% &hey use the (ollo+in! steps: 1% 2% 3% 4% Identi(y its present co"petitors in the "ar:et Assesses its o+n product or ser ice Identi(y the ad anta!es and disad anta!es o( their products Settin! prices hi!her/ lo+er/ e#ual +ith the co"petitors%

&his pricin! policy allo+s SQUARE to set prices #uic:ly +ith relati ely little e((ort) since it does not re#uire as accurate "ar:et data as the de"and pricin!% 4o"petiti e pricin! also "a:es distributors "ore recepti e to their products because they are priced +ithin the ran!e the distributor already handles% 0urther"ore) this pricin! policy enables SQUARE to select (ro" a ariety o( di((erent pricin! strate!ies to achie e their strate!ic !oals% 4o"petition based pricin! o( eril Baby lotion "anu(actured by SQUARE Toiletries Ltd.

/!odu t 1% <eril $aby lotion 2% \ohnson8s $aby lotion 3% 5onds $ody lotion

Manufa tu!e! SQUARE Toiletries Ltd. \ohnson * \ohnson

:uantity 100 "l 100 "l

/!i e C0 B0 4C

Unili er 100 "l

SQUARE is (acin! a stron! co"petition in the "ar:et% $ut it has set its product8s price by analyEin! the "ar:et co"petition% It has been also success(ul in creatin! a loyal consu"er se!"ent that +ill purchase their product% 30

$on lusion
SQUARE $an!ladesh is one o( the leadin! business or!aniEations% &here is no doubt e((ecti e use o( pricin! consideration and approaches play a ital role in their success% &he !ro+th o( the co"pany is re"ar:able ?19%3L@ in 200B considerin! the "ar:et situation and the threshold is the i"ple"entation o( ne+ "ar:etin! strate!ies as +ell as other re(or"s% In our report +e ha e co ered al"ost all o( the business se!"ents o( SQUARE% ,e ha e (ound that all o( those business se!"ents sets price accordin! to "ar:et de"and) co"petition) cost and custo"ers8 percei ed alue% So +e can easily conclude that their pricin! considerations and approaches are success(ul% $ut in so"e sectors pricin! should be a bit "ore realistic) such as their internet ser ice pro idin! sector% &hey should also ha e "ore interest in launchin! ne+ products% $ecause ne+ product pricin! is "uch "ore challen!in!% And +e thin: SQUARE should be "ore attenti e to the pricin! considerations and approaches o( ne+ products% A!ain they should ary their products and prices accordin! to the tar!et !roups as they "ostly char!e sa"e price (or all%

31