Pricing: Determinants of price

GOOD DAY, everyone. We are still on marketing. This week we will consider how price is determined once goods are produced and are ready for sale.

There are a number of ways in which a seller can determine the price at which the goods or services can be sold. One way is through the use of the equilibrium price. This price is found by using the forces of demand and supply.

DEMAND AND SUPPLY

Demand refers to the quantity required by the consumer at a particular price and at a particular time. Consumers tend to demand more the lower the price, therefore, the demand curve slopes downwards from left to right, showing an inverse relationship between price and quantity demanded.

Supply refers to the quantity put on the market at a particular price and at a particular time. Producers tend to supply more the higher the price, therefore, the supply curve slopes upwards from left to right, showing a direct relationship between price and quantity supplied.

Where quantity demanded and quantity supplied are equal, this is referred to as the equilibrium point. The price at which they are equal is known as the equilibrium price. At that price, demanders are satisfied and suppliers are satisfied. There is neither surplus nor shortage and so the market clears. This price at which quantity demanded and quantity supplied is equal is also known as the market clearing price.

If price is set above the equilibrium price, there will be a surplus which will cause price to fall back to the equilibrium. If price is set below the equilibrium, there will be a shortage which will cause price to rise back to the equilibrium. There is, therefore, a tendency for price to be always at the equilibrium.

Reference can be made to an economics textbook for a graph showing demand curves and supply curves. See if you can identify the equilibrium price and the equilibrium quantities demanded and supplied. This information can also be found by looking at a combined demand and supply schedule such as the one below: Price Quantity Demanded Quantity Supplied 10 1000 400 15 800 500 20 600 600 25 400 1000 30 200 1500

From the schedule above we can see that $20 is the equilibrium price since at that price the quantity demanded is 600 units and the quantity supplied is 600 units. Therefore, both demanders and suppliers are satisfied and there is neither surplus nor shortage. The market clears and so $20 is the market clearing price. At price $15, there is a shortage of 300 units since 800 is demanded, while only 500 is supplied. At price $25, there is a surplus, since only 400 is demanded, but 1,000 is supplied. The surplus is 600 units. Let us now move on to another aspect of marketing – packaging and branding.

PACKAGING

The package is the outer wrapper or container for goods. Packaging takes place after the goods have been produced. Packaging is done by the production department, even though the marketing department creates the package and the label and does the branding.

There are a number of purposes of the package, including: Improving the presentation of the good. Helping to prevent spoilage, thus preserving the life of the product. Packaged goods cannot be easily tampered with. Handling becomes easier to the seller and the customer. Packaged goods can be easily branded. Time is saved because it facilitates distribution. More goods are sold and more profits are likely. Packaged goods are more attractive. packaging protects goods from dust and dirt. Packaged goods can be kept in a more stable condition for longer periods than those not packaged.

Packaging prevents health hazards that could result from use of the product.

PRESENTATION OF PACKAGES

Attractive packaging is an important marketing tool. An old established product in a new and improved package usually enhances the marketing potential of the product.

Packaging decisions must be made on the form, size, shape and colour of the package. The package must appeal to the consumer.

The label is a part of the package. Labels have certain functions. It contains information such as: It identifies the product and/or the brand. It sometimes grades the product e.g. chickens and eggs.

It describes the product in terms of size, expiry date, ingredients, nutritional values, directions for use, warnings about use and misuse and the registered office of the manufactures.

BRANDING

The term branding refers to giving a product a distinctive name, term, symbol, sign, design or combination of these to enable it to be recognized easily. Branding is done on the outside package, i.e. on the bottle, box, wrapper, etc. Nowadays, hardly anything goes unbranded. A mark or symbol can be registered with the Registrar of Trade Practices so that other producers cannot use that particular name or symbol and the branding would differentiate one producer’s product from others which are similar and others which are dissimilar.

A product may have a brand name which is that part of the brand that can be spoken, e.g. Avon, or it may have a brand mark or a trade mark or a combination of types of branding.

THE USE OF BRANDING

It gives identity to commodities. It allows products to be identified from a distance. It aids production, distribution. It creates the need for advertising. It results in increased rate of turnover and, hence, increased profits. It adds value to a product. Trade marks provide the producers with legal protection of the unique features of the product so that competitors cannot imitate the products.

Different products can be grouped under different family brand names.

DISADVANTAGES

It creates the need for excessive, persuasive and competitive advertising. It raises production costs. In order to get sales, retailers are forced to tie up a lot of capital in branded goods.

The branding process may lead to monopoly by a product and thus increases the price to the consumer.

QUESTIONS

1. (a) What is meant by the term ‘packaging’? (2 marks)

(b) State a suitable form of packaging for the following items: (i) Fresh vegetables (ii) Shoes (iii) A computer (iv) Meat (4 marks) (c) Discuss THREE reasons why goods are packaged. (6 marks)

(d) Discuss THREE points that should be considered when selecting a package for the good. (6 marks) (e) Which department is responsible for designing the package and which department is responsible for placing the package over the good? (2 marks) Total marks: 20 2. (a) What are branded goods? (2 marks) (b) Differentiate between a brand name and a brand mark. (4 marks)

(c) Discuss TWO advantages and TWO disadvantages of branded goods. (8 marks) (d) Discuss THREE functions of the label. (6 marks) Total marks: 20 This is it for this week. See you all next week.