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Marketing Basics - Kotler Philip

Pricing in different types of markets

Before you begin to consider the pricing methods, you must realize that the seller’s pricing policy depends on the type of market. Economists distinguish four types of markets, each of which poses its own pricing problems. A description of the markets is given below.

Pure competition

The market of pure competition consists of many sellers and buyers of any similar commodity product, for example wheat, copper, securities. No single buyer or seller has a great influence on the level of current market prices of goods. The seller is not able to ask for a price higher than the market price, since buyers are free to purchase any quantity of goods they need at this market price. Sellers will not ask for a price lower than the market, as they can sell everything they need at the existing market price. Sellers in these markets do not spend much time developing a marketing strategy, because as long as the market remains a market of pure competition, the role of marketing research, product development activities, price policies, advertising, sales promotion and other activities is minimal.

Monopolistic competition

The market of monopolistic competition consists of many buyers and sellers who make transactions not at a single market price, but in a wide range of prices. The presence of a price range is explained by the ability of sellers to offer customers different options for goods. Real products may differ from each other in quality, properties, appearance. Differences may lie in related services. Buyers see the difference in offers and are willing to pay for goods differently. In order to stand out with something other than price, sellers strive to develop different offers for different consumer segments and widely use the practice of assigning brand names to goods, advertising and personal selling methods. Due to the presence of a large number of competitors, their marketing strategies have less impact on each individual company than in the oligopolistic market.

Oligopolistic competition

The oligopolistic market consists of a small number of sellers who are very sensitive to each other's pricing policies and marketing strategies. Goods may be similar (steel, aluminum), and may be dissimilar (cars, computers). The small number of sellers is explained by the fact that it is difficult for new applicants to penetrate this market. Each seller is sensitive to the strategy and actions of competitors. If a steel company lowers its prices by 10%, buyers will quickly switch to this supplier. Other manufacturers will have to respond either by lowering prices, or by offering more or more services. An oligopolist never feels confident that he can achieve any long-term result by lowering prices. On the other hand, if an oligopolist raises prices, competitors may not follow his example. And then he will have to either return to previous prices or risk losing his clientele in favor of competitors.

Pure monopoly

With a pure monopoly in the market, there is only one seller. This can be a government organization (for example, the US Post Office), a private regulated monopoly (for example, Cohn-Edison) or a private unregulated monopoly (for example, DuPont during the period of entering the market with nylon). In each case, pricing is different. A state monopoly can pursue a variety of goals with the help of price policies. She can set the price below cost if the product is important for buyers who are not able to purchase it at full cost. Price can be set with the expectation of covering costs or generating good income. Or it may be that the price is set very high for a comprehensive reduction in consumption. In the case of a regulated monopoly, the state allows the company to set prices that ensure a “fair rate of return”, which will enable the organization to support production, and if necessary expand it. Conversely, in the case of an unregulated monopoly, the firm itself is free to set any price that the market can sustain. Nevertheless, for a number of reasons, firms do not always ask for the highest possible price. Here is the fear of introducing state regulation, and the reluctance to attract competitors, and the desire to penetrate faster - thanks to low prices - to the entire depth of the market. Thus, the possibilities and challenges of price policy vary depending on the type of market. Except in cases of pure competition, firms need to have an orderly methodology for setting the starting price for their goods. In fig. Figure 58 presents a pricing methodology consisting of six steps, which will be discussed in the remaining sections of this chapter.

The method of calculating the initial yen

Fig. 58. Methodology for calculating the initial yen