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Basics of Marketing - Kotler Philip

Pricing on different types of markets

Before proceeding to the consideration of pricing techniques, it is necessary to 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 problems in the field of pricing. The description of the markets is given below.

Pure competition

The pure competition market consists of many sellers and buyers of a similar commodity product, for example wheat, copper, securities. No single buyer or seller has much influence on the level of current market commodity prices. The seller is not in a position to ask for a price higher than the market price, since buyers can freely purchase any quantity of goods necessary for them at this market price. There will be no sellers asking for a price below the market price, since they can sell everything they need at the current market price. Vendors in these markets do not spend a lot of time developing marketing strategies, because as long as the market remains a pure competition market, the role of marketing research, product development, price policy, advertising, 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 availability of a price range is explained by the ability of sellers to offer customers different options for goods. Real products can differ from each other in quality, properties, appearance. Differences can also occur in products that are associated with goods. Buyers see the difference in offers and are willing to pay for goods in different ways. To stand out for something other than price, sellers tend to develop different offers for different consumer segments and widely use the practice of assigning brand names, advertising and personal selling methods. Due to the large number of competitors, their marketing strategies have less influence on each individual firm than in the oligopolistic market.

Oligopolistic competition

The oligopolistic market consists of a small number of sellers, highly sensitive to each other's pricing policies and marketing strategies. Goods can be similar (steel, aluminum), and may be dissimilar (cars, computers). A small number of sellers is explained by the fact that it is difficult for new applicants to enter this market. Each seller is responsive to the strategy and actions of competitors. If a steel company cuts its prices by 10%, buyers will quickly switch to this supplier. Other steel producers will have to react either by lowering prices or by offering more or more services. The oligopolist never feels confident that he can achieve some lasting result at the expense of lower prices. On the other hand, if the oligopolist raises prices, competitors may not follow suit. And then he will either have to return to the previous prices, or risk losing clients in favor of competitors.

Pure monopoly

With a pure monopoly on the market, there is only one seller. This can be a state organization (for example, the US Postal Service), a private regulated monopoly (for example, Kon-Edison) or a private unregulated monopoly (for example, DuPont when entering the market with nylon). In each individual case, pricing develops in different ways. State monopoly can pursue the pursuit of a variety of goals through price policy. It can set a price below cost if the product is important for customers who are not able to purchase it at full cost. The price can be fixed with the expectation of covering costs or obtaining good incomes. 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 ensuring a "fair rate of return" that will enable the organization to support production and, if necessary, expand it. Conversely, in the case of an unregulated monopoly, the firm is free to set any price that the market will sustain. And nevertheless, for a number of reasons, firms do not always request the highest possible price. There is also a fear of introducing state regulation, and unwillingness to attract competitors, and a desire to penetrate faster - thanks to low prices - to the full depth of the market. Thus, the opportunities and problems of price policy vary depending on the type of market. Except in cases of work in the pure competition markets, firms need to have an orderly methodology for establishing the initial price for their goods. In Fig. 58 presents a methodology for calculating prices, consisting of six stages, which will be considered in the remaining sections of this chapter.

Fig. 58. The procedure for calculating the initial yen