STUDY OF MARKETING MIX OF BANKING INDUSTRY

WITH REFERENCE TO HDFC BANK

Submitted in partial fulfillment of the requirements
for the award of the degree of
Bachelor of Business Administration (BBA)
Semester-III (Paper Code-BBA 209)
To

Guru Gobind Singh Indraprastha University, Delhi

Guide:

Submitted by:

Name of Guide :Dr. Gopal Singh Latwal

Name of Student:

Gagandeep kalsi
Roll No.:10213701714
Batch: 2014-2017

Nurturing Excellence

Institute of Information Technology & Management,

New Delhi 110058
2015-2016

CERTIFICATE
I, Ms GAGANDEEP KALSI Roll No. 10213701714 certify that the Minor Project Report (Paper Code
BBA-209) entitled PRICING DECISION OF LPG COOKING GAS IN CURRENT INDIAN
SCENARIO is completed by me by collecting the material from the referenced sources. The matter
embodied in this has not been submitted earlier for the award of any degree or diploma to the best of my
knowledge and belief.

Signature of the Student

Date:

Certified

that

the

Minor

Project

Report

(Paper

Code

BBA-209)

entitledPRICING DECISION OF LPG COOKING GAS IN CURRENT INDIAN

SCENERIO done by Ms GAGANDEEP KALSI, Roll No. 10213701714, is
completed under my guidance.

Signature of the Guide:

Name of the Guide: Dr. Gopal Singh Latwal
Designation: Associate Professor
Date:

Countersigned
Director/Project Coordinator

ACKNOWLEDGEMENT

It gives me a great sense of pleasure to present a report of the B.B.A project undertaking during
B.B.A second year. I owe my profound gratitude to my project guide Dr. Gopal Singh Latwal,
Assistant professor, Institute of information technology and management, New Delhi for her
constant support and guidance throughout the course of my work. Her sincerity and thoroughness
have been a constant source of inspiration from me. It is her cognizant efforts that my Endeavors
have seen light of the day.
Also, I take this opportunity to acknowledge the contribution of prof. (Dr.) Sheela Bhargva,
head of the department (BBA), Institute of information technology and management, New Delhi
for her support and encouragement during the development of this project.
I would also like to acknowledge the contribution of all the faculties and staff members of the
department for their kind assistance and cooperation during project work. Last but not least
thankful to my friends and family members who have given me moral support and guidance
during this project work.

Gagandeep kalsi
10213701714

FORMAT FOR CONTENTS & LIST OF TABLES/FIGURES/ SYMBOLS

CONTENTS

S No

Topic

Page No

Certificate

Acknowledgement

Assignment Directive

List of Tables

List of Figures

List of Symbols

List of Abbreviations

Executive Summary

Body of the Report

10

References/Bibliography

11

Appendices

FORMAT FOR LIST OF TABLES/FIGURES/ SYMBOLS/ABBREVIATIONS

LIST OF TABLES
Table No

Title

Comparison of 2 years

Awards of HDFC in 2015

Awards of HDFC in 2014

Page No

LIST OF FIGURES

Figure No

Title

Pronged approaches

7ps of marketing mix

4ps of product marketing

HDFC shares

Page No

LIST OF ABBREVIATIONS

Abbreviatio
n
LPG

Full name

Page No

Executive Summary

Increasing household use of liquefied petroleum gas (LPG) is one of several pathways to meet
the goal of universal access to clean cooking and heating solutions by 2030, as stated in the
United Nations Sustainable Energy for All Initiative. This study examined factors affecting
household use of LPG, the state of LPG markets in developing countries, and measures to enable
more households to shift away from solid fuels to LPG. The study is based on three separate but
complementary analyses of factors affecting LPG use in developing countries:
(1) econometric analysis of national household expenditure surveys in 10 developing countries
that assessed the factors influencing LPG selection and consumption;
(2) examination of LPG markets in 20 developing countries, including their regulatory
frameworks, pricing and other policies, supply infrastructure, cylinder management, amount of
information available to the public, and activities designed to promote household use of LPG;
and
(3) data from households in 110 developing countries about energy choices related to cooking,
with information on energy choice by wealth quintile available in 63 of them.

CHAPTER-1
CONCEPT OF PRICING
What is price ?
Price is the exchange value of goods and services in terms of money. Price is all around us. We
pay rent for house, tuition fee for education, consultation fee for physicians advice, fare for bus,
railway, taxi or airline service, and, of course, money value for goods we consume in our daily
life.
The term price denotes money value of a product. It represents the amount of money for which
a product can be exchanged. In other words, price represents the money which the buyer pays to
the seller for a product. In actual business situations, it is very difficult to define the price of a
product. When a person is buying a product, he may buy certain services also along with the
product. The more the number of services he wants to get, the more price he will have to pay.
Thus, in pricing, we must consider more than the physical product alone. A seller prices a
combination of the physical product plus several other prices and benefits along with the product
including warranty promise, repair facilities, package, free home delivery and credit facilities.
The price a buyer has to pay will depend upon the number of services he requires along with the
product.
Some marketers quote a price that includes various services while others price these individual
services separately. This point must be taken into consideration while comparing the prices
charged by different sellers. It is obvious that there are many possible combinations of a product

and the various services which may accompany it. In the light of this discussion, we may define
price as the amount of money which is charged a seller from a buyer for combined assortment of
a product and its accompanying services.
What is pricing ?
Pricing is the process of determining what a company will receive in exchange for its product
and service. Pricing factors are manufacturing cost, market place, competition, market condition,
brand, and quality of product. Pricing is also a key variable in microeconomic price allocation
theory. Pricing is a fundamental aspect of financial modeling and is one of the four Ps of the
marketing mix. The other three aspects are product, promotion and place. Price is the only
revenue generating elements amongst the four Ps, the rest being cost centers. However, the other
four Ps of marketing will contribute to decreasing price elasticity and so enable price increases to
drive greater revenue and profits.
Pricing is the manual or automatic process of applying prices to purchase and sales orders, based
on factors such as: a fixed amount, quantity break, promotion or sales campaign, specific vendor
quote, price prevailing on entry, shipment or invoice date, combination of multiple orders or
lines, and many others. Automated systems are required more setup and maintenance but may
prevent pricing errors. The needs of the consumer can be converted into demand only if the
consumer has the willingness and capacity to buy the product. Thus, pricing is the most
important concept in the field of marketing; it is used as a tactical decision in response to
comparing market situation. Price is the attached value given to a quantity of goods and services.


Price build up of domestic lpg (subsidized) at delhi
1* FOB Price at Arab Gulf of LPG where unit is $/MT at Rs 405.82
2*Add: Ocean Freight from AG to Jamnagar where unit is $/MT at Rs 31.64
3*C&F (Cost & Freight) Price where unit is $/MT at Rs 437.46 or Rs./Cylinder is Rs 395.20
4* Import Charges (Insurance/Ocean Loss/ LC Charge/Port Dues) where Rs./Cylinder is Rs 4.28
5* Customs Duty of a Cylinder is NIL
6* Import Parity Price (Sum of 3 to 5) where Rs./Cylinder is Rs 399.49
7** Refinery Transfer Price (RTP) for Domestic LPG (Price Paid by the Oil Marketing
Companies to Refineries) where Rs./Cylinder is Rs 399.49
8* Add: Storage / Distribution Cost & Return on Investment where Rs./Cylinder is Rs 9.96
9* Add: Bottling Charges where Rs./Cylinder is Rs 20.58
10* Add: Charges for Cylinder Cost where Rs./Cylinder is Rs 18.11
11* Add: Inland Freight where Rs./Cylinder is Rs 30.68

12* Bottling Plant Cost before Stock loss and Working Capital (Sum of 7 to 11) where
Rs./Cylinder is Rs 478.81
13* Add: Cost of Working Capital where Rs./Cylinder is Rs 2.37
14* Cost Price at LPG Bottling Plant (Sum of 12 to 13) where Rs./Cylinder is Rs 481.18
15* Add: Delivery Charges where Rs./Cylinder is Rs 10.00
16* Add: State Specific Costs where Rs./Cylinder is Nil
17* Add : Uncompensated Costs (Import Costs, recovery for Non-revision, rounding-off &
delivery charges) where unit is Rs./Cylinder is Rs 49.09
18* Market Determined Price (Sum of 14 to 17)where Rs./Cylinder is Rs 540.28
19* Add : VAT(including VAT on Distributor Commission) applicable for Delhi

where

Rs./Cylinder is Rs 0.00
20* Add : Distributor Commission where Rs./Cylinder is Rs 44.88
21* Retail Selling Price (Sum of 18 to 20) where Rs./Cylinder is Rs 585.16
22 *Retail Selling Price at Delhi (Rounded) where Rs./Cylinder is Rs 585.00
23* Less: Cash Compensation to Consumer under DBTL (including impact of uncompensated
cost to OMCs) where Rs./Cylinder is Rs 167.18
24* Effective Cost to Consumer after Subsidy (22-23) where Rs./Cylinder is Rs 417.82

CHAPTER-2
OBJECTIVE OF PRICING
As an element of the marketing-mix, pricing strategy should be directed towards the
accomplishment of specific marketing objectives which lead to overall organizational objectives.
Pricing is not an end in itself, but a means to achieve certain objectives of the marketing
department of the firm. Before determining the price itself, an explicit formulation of the firms
pricing objectives is essential. In actual practice, very few firms consciously establish pricing
objectives. Non-formulation of the clear-cut pricing objectives and policies leads to
inconsistency and non-uniformity of pricing with other marketing-mix variables in the long run.
The fundamental guides to pricing are the firms overall goals. Normally, the broadest of these is
survival. But to be more specific, firms objectives relate to the rate of growth, market share,
independence of operations and earning of sufficient profits. The pricing objectives should be

aim at achieving the firms objectives. Pricing objectives vary from firm to firm. Generally, the
firm have multiple pricing objectives. The important pricing objectives followed by various
firms are-as under :
i.
ii.
iii.
iv.
v.
vi.
vii.
i.

To achieve target rate of return investment or on net sale.

To achieve price stability.
To meet or prevent competition.
To maintain or improve market share.
To maximize profit.
To survive in the market.
To build public image.
Target rate of return investment or net sale
This is an important goal of pricing policy of many firms. A firm following this goal tries
to build a price structure to provide sufficient return on capital employed. Generally, an
estimate is made of return expected over the long-run, and the prices are fixed to achieve
the expected rate on return. This leads to cost plus pricing. In other words, the price
represents the cost of production and distribution and a margin of profit.
In working towards return on investment objective, pricing decisions are made according
to cost plus pricing technique so that total sales revenues exceed total costs by enough
amount to provide the desired rate of return on the total investment. Let us take the case
of a company which anticipates the sales volume of its product to be 10,000 units in a
average year. The companys total investment amounts Rs. 10 lakhs and at 10,000 units
sales level, total unit cost is Rs. 60. If the targeted return on investment (ROI) is set at
30% before taxes, return of Rs. 3 lakhs is required on an average. The company will
calculate the price as under :
Total cost of 10,000 units @ Rs. 60 per unit

= Rs.6,00,000

30% (before tax) ROI on Rs. 10 lakhs investment

Target sales amount

= Rs.3,00,000
= Rs.9,00,000

Price per unit

= Rs. 9,00,000 / 10,000 units

Price per unit

= Rs. 90.

Target ROI pricing is commonly used by the firms which are industry leaders because
they can set the standards to be followed by the followers. This practice is also common
amongst companies selling in protected markets. Some firms attempt to achieve target
return on net sales, particularly during the short-run. They set a percentage mark-up on
sales which is sufficient to cover operating costs and a desired profit. In such cases, the
percentage of profit would remain the same, but the quantum of profit will change
according to the number of units of a product or service sold.
ii.

Price stability
Many firms have the objective of price stabilization in the long run. The objective is often
found in industries that have a price leader. In oligopolistic situation where there are only
a few sellers, each seller will try to maintain stability in his pricing. In such a situation,
one seller acts as the price leader and others follow him. Thus, a relationship exists
between the leaders price and those charged by other firms. No firm is willing to engage
itself in price wars. They may even forego maximizing profits in times of prosperity or
short supply in order to stabilize the prices. Price stability helps in planned and regular
production in the long-run. In order to stabilize prices, many manufacturers follow the
policy of resale price maintenance by their dealers. However, this goal is collateral to that

iii.

of a target return on investment.

Meet or prevent competition

some firms adopt the pricing policy to meet or prevent competition. They are ready to fix
their prices to meet competition in the market. Sometimes they are prepared to follow
below cost pricing in order to fight competition. They charge less than the cost because
they feel that it will prevent the new firms to enter the market. It may be mentioned that
this practice is not publicly admitted by the firms even though they follow it while
introducing a new product. Sometimes, this practice turns out to be unsuccessful because
new firms are attracted into the field once the new product becomes popular. It is not
iv.

possible for a firm to charge less than the cost of a product for a long-term period.
Maintain or improve market share
This pricing objective is followed by the firm operating in the expanding markets. When
the market has a potential for growth, market share is a better indicator of a firms
effectiveness than the target return on investment. A firm might be earning a reasonable
rate of return but its share of market may be decreasing. Therefore, a worthwhile pricing
objectives in times of increasing market should be maintain or to improve share of

v.

market.
Profit maximization
There are many firms which do not care for social responsibilities and follow the pricing
policy to maximize their profits. In practice, no firm states explicitly that its pricing
objective is to maximize profits because of fear of criticism. However, in economic
theory, there is nothing wrong with the objective of profit maximization because if profit
become unduly high, new entrepreneur will be attracted into the field. Thus, there will be
an automatic balance of demand and supply of the product. But in the recent years, the
business philosophy has changed. Most of the businessmen do not attempt to maximize
their profits because they realise that they operate in the society and they have certain
social obligations.

vi.

Public image
A companys image is important to its success. This is largely influenced by the
companys practice/policy of pricing strategy. A firm with an established reputation based
on existing price lines may introduce a new line at either higher or lower prices to appeal
to a different market segment. If this segment is not tried any of the companys product
but is aware of its prestige, it might desire to purchase its products because price is no
larger a deterrant factor.

CHAPTER-3
KINDS OF PRICING DECISION AND STRATEGIES

Odd pricing

Odd pricing refers to a price ending in 1, 3,5,7,9 just under a round number, such as $0.19,
$2.47, or $64.93. Prices ending in 9, 95, 97, 99 are sometimes called charm prices because
they are a charm. In fact setting a price that are a couple of pennies below an evenly numbered
price such as $10 can amazingly raise conversions up to a whopping extra 21-34% (depends on
scenario). Note this method has several different names including fractional pricing and oddeven pricing.

Real Life Example

In 1997, a study was published in the Marketing Bulletin; approximate statistics of prices in
advertising material.

60% of prices ended in the digit 9.

30% ended in the digit 5.

7% ended in the digit 0.

The other seven digits together accounted for only a little over 3% of prices used, as shown in
this chart. We, human beings, are extremely sensitive with the units of a price. For example, if a
price is $9.99 whereas another is $10, although the real difference is only by one penny, but the
fact that the number 10 has two digits, we perceive its value as a lot higher than it really is.
Therefore, the consumer thinks they are receiving great savings by going for the $9.99.

The main reason behind this is the Left-Digit Effect.

We tend to look at numbers from left to right, just like how we read (also in countries where text
is read from right to left because the numbers would also be reversed). Hence, we call it the leftdigit effect since the majority of the society reads left to right. The catch is, consumers look at
$5.49 as just above $5 and not just below $6. You might say: But I make rational
decisions!!

However, wise customers like you are rare and may not fall for the trick, although it is seen and
not totally ignored, the discount is partially still in effect, more than half of the victims fall for
it without realizing. The fact is that there are people out there who make mentally influenced
decisions rather than completely rational decisions, why? Because thoughts are partially made in
an emotional sense.

Psychological pricing

Under this policy, prices are fixed in such a way that they have a some kind of psychological
influence on the buyers. Customary pricing and price lining are the examples of psychological

pricing. Another form of psychological pricing is odd pricing i.e. , prices are set at odd amo9unts
such as Rs. 19, Rs. 49, Rs. 99, etc. For example, a customer may pay happily Rs. 299 for a pair
of shoes by bata and may not like to buy the same pair if it is at Rs. 300. For example, recently
PCL and PCs for 24990 and 32990.
Another psychological factor is the relationship between price and quality of a product. A new
manufacturer can make use of this point if he is entering into the market which consist of quality
conscious customers. He may fix a higher price of his product due to which customers may think
that the product is better than the competitive products. Some multiple product firms fix lower
prices for one or two product to increase their reputation in the market, like lower prices fixed for
baby foods.

Customary prices

A method of

determining

the price for

good

or service based

on

the

perceived expectations of customers. Customary pricing is generally used for products with a
relatively long market history of being sold for a particular amount, and is driven by intuitive
notions of value on the part of the buyers.

Pricing at prevailing prices

The strategy is followed to stay in the market because a price above the market price
would sharply bring down sales while a lower price would not significantly increasing
sales. The products offered by different producers are substitutes of each other and there
is no product differentiation. Pricing at the prevailing price is aimed at avoiding price

competition and price wars as in case of customary prices.

Prestige pricing
Marketing strategy where prices are set higher than normal because normal prices will
hurt instead of helping sales, such as for high ends perfumes, jewelry, clothing, cars etc.
Also called image pricing and premium pricing.
Premium pricing is a mix of what the traffic will bear and value for money. If a
company has a premium product, i.e., superior quality, unique features, and latest
technology, it can employ premium distribution channel and promotional programme
along with premium pricing strategy. Premium pricing can give rich dividend when
buyers are not price conscious and they are willing to pay higher price if they get a better
product and wider choice.
Prestige pricing is an aggressive pricing strategy. Upper middle-class buyers constitute
the target market for prestige pricing. In India, this approach is now adopted renowned
marketing organizations. It assures growth and higher profits through higher customer
satisfaction and service. Going prestige or premium is a latest trend in response to the
customers desire for high quality products on par with foreign goods such as fashion
clothing, wrist watches, goggles, cosmetics, etc. exposure to western lifestyles in the
mass media and an increasing trend towards perfect grooming has opened-up ample
scope for selling beauty and smartness at a premium price.
For example- silky knew that the cost of the headphones was much to much due
to prestige pricing, but she did not mind exchanging a little extra cash for the image boost
the headphones gave her.

CHAPTER-4
IMPORTANCE OF PRICING
In simple terms, pricing is the process of determining what a business will receive in exchange
for its goods and/or services. Pricing decisions should be based, not only on what is necessary to
recover business costs or match competitors, but also on the customers perception of what the
good or service is really worth!
So how can you make appropriate first-time pricing decisions?
Establish a strategic pricing objective, that reflects what you hope to accomplish with the product
in its target market, and which is congruent with your business and marketing strategies.
Estimate demand by carefully examining the factors affecting customers price sensitivity:
perceptions and preferences, awareness of and attitude towards alternative brands and substitute
products, as well as ability to pay for a good or service.

Pinpoint the perceived value a potential customer will associate with a given product-market
entry, and the price he/she is willing to pay!
Determine costs and their relationship to volume, while taking the following volume-cost
relationships into consideration: economies of scale and the experience curve.
Track and analyze your competitors prices, costs, and relative quality of offers. Pick the most
appropriate pricing method(s): cost-oriented, competition-oriented, and demand/customeroriented. Then, adapt price structure to meet variations in demand and cost across geographic
territories, market segments, and sales channels.
The pricing of your product is a key element in determining the profitability of your business!
When marketers talk about what they do as part of their responsibilities for marketing products,
the tasks associated with setting price are often not at the top of the list. Marketers are much
more likely to discuss their activities related to promotion, product development, market research
and other tasks that are viewed as the more interesting and exciting parts of the job.
Yet pricing decisions can have important consequences for the marketing organization and the
attention given by the marketer to pricing is just as important as the attention given to more
recognizable marketing activities. Some reasons pricing is important include:

Most Flexible Marketing Mix Variable

For marketers price is the most adjustable of all marketing decisions. Unlike product and
distribution decisions, which can take months or years to change, or some forms of promotion
which can be time consuming to alter (e.g., television advertisement), price can be changed very
rapidly. The flexibility of pricing decisions is particularly important in times when the marketer

seeks to quickly stimulate demand or respond to competitor price actions. For instance, a
marketer can agree to a field salespersons request to lower price for a potential prospect during a
phone conversation. Likewise a marketer in charge of online operations can raise prices on hot
selling products with the click of a few website buttons.

Setting the Right Price

Pricing decisions made hastily without sufficient research, analysis, and strategic evaluation can
lead to the marketing organization losing revenue. Prices set too low may mean the company is
missing out on additional profits that could be earned if the target market is willing to spend
more to acquire the product. Additionally, attempts to raise an initially low priced product to a
higher price may be met by customer resistance as they may feel the marketer is attempting to
take advantage of their customers. Prices set too high can also impact revenue as it prevents
interested customers from purchasing the product. Setting the right price level often takes
considerable market knowledge and, especially with new products, testing of different pricing
options.

Trigger of First Impressions

Often times customers perception of a product is formed as soon as they learn the price, such as
when a product is first seen when walking down the aisle of a store. While the final decision to
make a purchase may be based on the value offered by the entire marketing offering (i.e., entire
product), it is possible the customer will not evaluate a marketers product at all based on price
alone. It is important for marketers to know if customers are more likely to dismiss a product
when all they know is its price. If so, pricing may become the most important of all marketing

decisions if it can be shown that customers are avoiding learning more about the product because
of the price.

Important Part of Sales Promotion

Many times price adjustments are part of sales promotions that lower price for a short term to
stimulate interest in the product. However, as we noted in our discussion of promotional pricing
in the sales promotion tutorial, marketers must guard against the temptation to adjust prices too
frequently since continually increasing and decreasing price can lead customers to be
conditioned to anticipate price reductions and, consequently, withhold purchase until the price
reduction occurs again.

CHAPTER-5
FACTORS AFFECTING PRICING DECISION
For the remainder of this tutorial we look at factors that affect how marketers set price. The final
price for a product may be influenced by many factors which can be categorized into two main
groups:

Internal Factors - When setting price, marketers must take into consideration several
factors which are the result of company decisions and actions. To a large extent these
factors are controllable by the company and, if necessary, can be altered. However, while
the organization may have control over these factors making a quick change is not always
realistic. For instance, product pricing may depend heavily on the productivity of a
manufacturing facility (e.g., how much can be produced within a certain period of time).
The marketer knows that increasing productivity can reduce the cost of producing each
product and thus allow the marketer to potentially lower the products price. But increasing
productivity may require major changes at the manufacturing facility that will take time
(not to mention be costly) and will not translate into lower price products for a considerable
period of time.

External Factors - There are a number of influencing factors which are not controlled by
the company but will impact pricing decisions. Understanding these factors requires the
marketer conduct research to monitor what is happening in each market the company
serves since the effect of these factors can vary by market.

Internal factors: marketing management

Marketing decisions are guided by the overall objectives of the company. While we will discuss
this in more detail when we cover marketing strategy in a later tutorial, for now it is important to
understand that all marketing decisions, including price, work to help achieve company
objectives.
Corporate objectives can be wide-ranging and include different objectives for different functional
areas (e.g., objectives for production, human resources, etc). While pricing decisions are
influenced by many types of objectives set up for the marketing functional area, there are four
key objectives in which price plays a central role. In most situations only one of these objectives
will be followed, though the marketer may have different objectives for different products. The
four main marketing objectives affecting price include:

Return on Investment (ROI) A firm may set as a marketing objective the requirement
that all products attain a certain percentage return on the organizations spending on
marketing the product. This level of return along with an estimate of sales will help
determine appropriate pricing levels needed to meet the ROI objective.

Cash Flow Firms may seek to set prices at a level that will insure that sales revenue
will at least cover product production and marketing costs. This is most likely to occur with
new products where the organizational objectives allow a new product to simply meet its
expenses while efforts are made to establish the product in the market. This objective
allows the marketer to worry less about product profitability and instead directs energies to
building a market for the product.

Market Share The pricing decision may be important when the firm has an objective
of gaining a hold in a new market or retaining a certain percent of an existing market. For
new products under this objective the price is set artificially low in order to capture a
sizeable portion of the market and will be increased as the product becomes more accepted
by the target market (we will discuss this marketing strategy in further detail in our next
tutorial). For existing products, firms may use price decisions to insure they retain market
share in instances where there is a high level of market competition and competitors who
are willing to compete on price.

Maximize Profits Older products that appeal to a market that is no longer growing may
have a company objective requiring the price be set at a level that optimizes profits. This is
often the case when the marketer has little incentive to introduce improvements to the
product (e.g., demand for product is declining) and will continue to sell the same product at
a price premium for as long as some in the market is willing to buy.
Internal factor management strategy

Marketing strategy concerns the decisions marketers make to help the company satisfy its target
market and attain its business and marketing objectives. Price, of course, is one of the key
marketing mix decisions and since all marketing mix decisions must work together, the final
price will be impacted by how other marketing decisions are made. For instance, marketers
selling high quality products would be expected to price their products in a range that will add to
the perception of the product being at a high-level.
It should be noted that not all companies view price as a key selling feature. Some firms, for
example those seeking to be viewed as market leaders in product quality, will deemphasize price
and concentrate on a strategy that highlights non-price benefits (e.g., quality, durability, service,
etc.). Such non-price competition can help the company avoid potential price wars that often
break out between competitive firms that follow a market share objective and use price as a key
selling feature.
Internal factor- costs
For many for-profit companies, the starting point for setting a products price is to first determine
how much it will cost to get the product to their customers. Obviously, whatever price customers
pay must exceed the cost of producing a good or delivering a service otherwise the company will
lose money.
When analyzing cost, the marketer will consider all costs needed to get the product to market
including those associated with production, marketing, distribution and company administration
(e.g., office expense). These costs can be divided into two main categories:

Fixed Costs - Also referred to as overhead costs, these represent costs the marketing
organization incurs that are not affected by level of production or sales. For example, for a
manufacturer of writing instruments that has just built a new production facility, whether
they produce one pen or one million they will still need to pay the monthly mortgage for the
building. From the marketing side, fixed costs may also exist in the form of expenditure for
fielding a sales force, carrying out an advertising campaign and paying a service to host the
companys website. These costs are fixed because there is a level of commitment to
spending that is largely not affected by production or sales levels.

Variable Costs These costs are directly associated with the production and sales of
products and, consequently, may change as the level of production or sales changes.
Typically variable costs are evaluated on a per-unit basis since the cost is directly associated
with individual items. Most variable costs involve costs of items that are either components
of the product (e.g., parts, packaging) or are directly associated with creating the product
(e.g., electricity to run an assembly line). However, there are also marketing variable costs
such as coupons, which are likely to cost the company more as sales increase (i.e.,
customers using the coupon). Variable costs, especially for tangible products, tend to
decline as more units are produced. This is due to the producing companys ability to
purchase product components for lower prices since component suppliers often provide
discounted pricing for large quantity purchases.

Determining individual unit cost can be a complicated process. While variable costs are often
determined on a per-unit basis, applying fixed costs to individual products is less straightforward.
For example, if a company manufactures five different products in one manufacturing plant how

would it distribute the plants fixed costs (e.g., mortgage, production workers cost) over the five
products? In general, a company will assign fixed cost to individual products if the company can
clearly associate the cost with the product, such as assigning the cost of operating production
machines based on how much time it takes to produce each item. Alternatively, if it is too
difficult to associate to specific products the company may simply divide the total fixed cost by
production of each item and assign it on percentage basis.
External Factors: Elasticity of Demand
Marketers should never rest on their marketing decisions. They must continually use market
research and their own judgment to determine whether marketing decisions need to be adjusted.
When it comes to adjusting price, the marketer must understand what effect a change in price is
likely to have on target market demand for a product.
Understanding how price changes impact the market requires the marketer have a firm
understanding of the concept economists call elasticity of demand, which relates to how purchase
quantity changes as prices change. Elasticity is evaluated under the assumption that no other
changes are being made (i.e., all things being equal) and only price is adjusted. The logic is to
see how price by itself will affect overall demand. Obviously, the chance of nothing else
changing in the market but the price of one product is often unrealistic. For example, competitors
may react to the marketers price change by changing the price on their product. Despite this,
elasticity analysis does serve as a useful tool for estimating market reaction.
Elasticity deals with three types of demand scenarios:.

Elastic Demand Products are considered to exist in a market that exhibits elastic
demand when a certain percentage change in price results in a larger and opposite
percentage change in demand. For example, if the price of a product increases (decreases)
by 10%, the demand for the product is likely to decline (rise) by greater than 10%.

Inelastic Demand Products are considered to exist in an inelastic market when a

certain percentage change in price results in a smaller and opposite percentage change in
demand. For example, if the price of a product increases (decreases) by 10%, the demand
for the product is likely to decline (rise) by less than 10%.

Unitary Demand This demand occurs when a percentage change in price results in an
equal and opposite percentage change in demand. For example, if the price of a product
increases (decreases) by 10%, the demand for the product is likely to decline (rise) by 10%.

For marketers the important issue with elasticity of demand is to understand how it impacts
company revenue. In general the following scenarios apply to making price changes for a given
type of market demand:

For Elastic Markets increasing price lowers total revenue while decreasing price
increases total revenue.

For Inelastic Markets increasing price raises total revenue while decreasing price
lowers total revenue.

For Unitary Markets there is no change in revenue when price is changed.

External Factors: Customer Expectations

Possibly the most obvious external factors that influence price setting are the expectations of
customers and channel partners. As we discussed, when it comes to making a purchase decision
customers assess the overall value of a product much more than they assess the price. When
deciding on a price marketers need to conduct customer research to determine what price
points are acceptable. Pricing beyond these price points could discourage customers from
purchasing.
Firms within the marketers channels of distribution also must be considered when determining
price. Distribution partners expect to receive financial compensation for their efforts, which
usually means they will receive a percentage of the final selling price. This percentage or margin
between what they pay the marketer to acquire the product and the price they charge their
customers must be sufficient for the distributor to cover their costs and also earn a desired profit.
External Factors: Competitive and Other Products
Marketers will undoubtedly look to market competitors for indications of how price should be
set. For many marketers of consumer products researching competitive pricing is relatively easy,
particularly when Internet search tools are used. Price analysis can be somewhat more
complicated for products sold to the business market since final price may be affected by a
number of factors including if competitors allow customers to negotiate their final price.
Analysis of competition will include pricing by direct competitors, related products and primary
products.

Direct Competitor Pricing Almost all marketing decisions, including pricing, will
include an evaluation of competitors offerings. The impact of this information on the actual
setting of price will depend on the competitive nature of the market. For instance, products
that dominate markets and are viewed as market leaders may not be heavily influenced by
competitor pricing since they are in a commanding position to set prices as they see fit. On
the other hand in markets where a clear leader does not exist, the pricing of competitive
products will be carefully considered. Marketers must not only research competitive prices
but must also pay close attention to how these companies will respond to the marketers
pricing decisions. For instance, in highly competitive industries, such as gasoline or airline
travel, competitors may respond quickly to competitors price adjustments thus reducing the
effect of such changes.

Related Product Pricing - Products that offer new ways for solving customer needs may
look to pricing of products that customers are currently using even though these other
products may not appear to be direct competitors. For example, a marketer of a new online
golf instruction service that allows customers to access golf instruction via their computer
may look at prices charged by local golf professionals for in-person instruction to gauge
where to set their price. While on the surface online golf instruction may not be a direct
competitor to a golf instructor, marketers for the online service can use the cost of in-person
instruction as a reference point for setting price.

Primary Product Pricing - As we discussed in the Product Decisions tutorial, marketers

may sell products viewed as complementary to a primary product. For example, Bluetooth
headsets are considered complementary to the primary product cell phones. The pricing of

complementary products may be affected by pricing changes made to the primary product
since customers may compare the price for complementary products based on the primary
product price. For example, companies that sell accessory products for the Apple iPod may
do so at a cost that is only 10% of the purchase price of the iPod. However, if Apple were to
dramatically drop the price, for instance by 50%, the accessory at its present price would
now be 20% of the of iPod price. This may be perceived by the market as a doubling of the
accessorys price. To maintain its perceived value the accessory marketer may need to
respond to the iPod price drop by also lowering the price of the accessory.
External Factors: Government Regulation
Marketers must be aware of regulations that impact how price is set in the markets in which
their products are sold. These regulations are primarily government enacted meaning that there
may be legal ramifications if the rules are not followed. Price regulations can come from any
level of government and vary widely in their requirements. For instance, in some industries,
government regulation may set price ceilings (how high price may be set) while in other
industries there may be price floors (how low price may be set). Additional areas of potential
regulation include: deceptive pricing, price discrimination, predatory pricing and price fixing.
Finally, when selling beyond their home market, marketers must recognize that local regulations
may make pricing decisions different for each market. This is particularly a concern when selling
to international markets where failure to consider regulations can lead to severe penalties.
Consequently marketers must have a clear understanding of regulations in each market they
serve.

There are also additional legal concerns when it comes to price which we will discuss in a future
tutorial.

what is LPG ?
LPG is an exceptional energy source due to its origin, uses, marketing and its industry. With an
immediate and global availability, environmental benefits, its natural by-product origin,
transportation flexibility and diverse application, LPG plays a pivotal role in the transition
towards a more secure, sustainable and competitive energy model.
The WLPGA has created the global LPG exceptional energy brand raise awareness of the
exceptional features of LPG among policy makers, industry and consumers. An increased
understanding of LPGs environmental benefits, versatile applications and its immediate global
availability is of the essence to allow conscious and responsible decisions on the type of energy
sources used.

LPG is prepared by refining petroleum or "wet" natural gas, and is almost entirely derived
from fossil fuel sources, being manufactured during the refining of petroleum (crude oil), or
extracted from petroleum or natural gas streams as they emerge from the ground. It was first
produced in 1910 by Dr. Walter Snelling, and the first commercial products appeared in 1912. It
currently provides about 3% of all energy consumed, and burns relatively cleanly with
no soot and very few sulfur emissions. As it is a gas, it does not pose ground or water
pollution hazards, but it can cause air pollution. LPG has a typical specific calorific value of
46.1 MJ/kg compared with 42.5 MJ/kg for fuel oil and 43.5 MJ/kg for premium grade petrol
(gasoline). However, its energy density per volume unit of 26 MJ/L is lower than either that of
petrol or fuel oil, as its relative density is lower (about 0.50.58 kg/L, compared to 0.710.77
kg/L for gasoline.

Uses of LPG
LPG has a very wide variety of uses, mainly used for cylinders across many different markets as
an efficient fuel container in the agricultural, recreation, hospitality, calefaction, construction,
sailing and fishing sectors. It can serve as fuel for cooking, central heating and to water heating
and is a particularly cost-effective and efficient way to heat off-grid homes. In the safety font
LPG cylinders must be updated to new standards in safety and user experience, giving a huge
contribution for domestic usage.
Cooking

LPG is used for cooking in many countries for economic reasons, for convenience or because it
is the preferred fuel source.

According to the 2011 census of India, 33.6 million (28.5%) Indian households used LPG as
cooking fuel in 2011, which is supplied to their homes in pressurized cylinders. LPG is
subsidised by the government in India. Increase in LPG prices has been a politically sensitive
matter in India as it potentially affects the urban middle class voting pattern.
LPG was once a popular cooking fuel in Hong Kong; however, the continued expansion of town
gas to buildings has reduced LPG usage to less than 24% of residential units.
LPG is the most common cooking fuel in Brazilian urban areas, being used in virtually all
households, with the exception of the cities of Rio de Janeiro and So Paulo, which have a
natural gas pipeline infrastructure. Poor families receive a government grant used exclusively for
the acquisition of LPG.
LPG is commonly used in North America for domestic cooking and outdoor grilling.

Rural heating

Fig 1: Cylinders with LP gas in India

Predominantly in Europe and rural parts of many countries, LPG can provide an alternative to
electricity and heating oil (kerosene). LPG is most often used in areas that do not have direct
access to piped natural gas.
LPG can be used as a power source for combined heat and power technologies (CHP). CHP is
the process of generating both electrical power and useful heat from a single fuel source. This
technology has allowed LPG to be used not just as fuel for heating and cooking, but also for
decentralized generation of electricity.
LPG can be stored in a variety of manners. LPG, as with other fossil fuels, can be combined with
renewable power sources to provide greater reliability while still achieving some reduction in
CO2 emissions.

Motor fuel

Fig 2: LPG filling connector on a car

Autogas

Fig 3: Symbol for LPG-powered vehicles

When LPG is used to fuel internal combustion engines, it is often referred to as autogas or auto
propane. In some countries, it has been used since the 1940s as a petrol alternative for spark
ignition engines. In some countries, there are additives in the liquid that extend engine life and
the ratio of butane to propane is kept quite precise in fuel LPG. Two recent studies have
examined LPG-fuel-oil fuel mixes and found that smoke emissions and fuel consumption are
reduced but hydrocarbon emissions are increased. The studies were split on CO emissions, with
one finding significant increases, and the other finding slight increases at low engine load but a

considerable decrease at high engine load. Its advantage is that it is non-toxic, non-corrosive and
free or any additives, and has a high octane rating (102108 RON depending on local
specifications). It burns more cleanly than petrol or fuel-oil and is especially free of
the particulates present in the latter.
LPG has a lower energy density than either petrol or fuel-oil, so the equivalent fuel
consumption is higher. Many governments impose less tax on LPG than on petrol or fuel-oil,
which helps offset the greater consumption of LPG than of petrol or fuel-oil. However, in many
European countries this tax break is often compensated by a much higher annual road tax on cars
using LPG than on cars using petrol or fuel-oil. Propane is the third most widely used motor fuel
in the world. 2013 estimates are that over 24.9 million vehicles are fueled by propane gas
worldwide. Over 25 million tonnes (over 9 billion US gallons) are used annually as a vehicle
fuel.
Not all automobile engines are suitable for use with LPG as a fuel. LPG provides less upper
cylinder lubrication than petrol or diesel, so LPG-fueled engines are more prone to valve wear if
they are not suitably modified. Many modern common rail diesel engines respond well to LPG
use as a supplementary fuel. This is where LPG is used as fuel as well as diesel. Systems are now
available that integrate with OEM engine management systems.

Refrigeration

LPG is instrumental in providing off-the-grid refrigeration, usually by means of a gas absorption

refrigerator.
Blended of pure, dry propane (refrigerant designator R-290) and iso butane (R-600a) the blend
"R-290a" has negligible ozone depletion potential and very low global warming potential and
can serve as a functional replacement for R-12, R-22, R-134a and other chlorofluorocarbon
or hydro fluorocarbon refrigerants in conventional stationary refrigeration and air conditioning
systems.
Such substitution is widely prohibited or discouraged in motor vehicle air conditioning systems,
on the grounds that using flammable hydrocarbons in systems originally designed to carry nonflammable refrigerant presents a significant risk of fire or explosion.
Vendors and advocates of hydrocarbon refrigerants argue against such bans on the grounds that
there have been very few such incidents relative to the number of vehicle air conditioning
systems filled with hydrocarbons. One particular test, conducted by a professor at the University
of New South Wales, unintentionally tested the worst-case scenario of a sudden and complete
refrigerant expulsion into the passenger compartment followed by subsequent ignition. He and
several others in the car sustained minor burns to their face, ears, and hands, and several
observers received lacerations from the burst glass of the front passenger window. No one was
seriously injured.

Origin of LPG
LPG has two origin : 60% is recovered during the extraction of natural gas and oil from the
earth, and the remaining 40% is produced during the refining of crude oil. LPG is thus a
naturally occurring by-product. In the past, LPG was destroyed through venting or flaring (i.e.
the burning off of unwanted gas), wasting the full potential of this exceptional energy source.
Although tied to the production of natural gas and crude oil, LPG has its own distinct advantages
and can perform nearly every fuel function of the primary fuels from which it is derived.
NATURAL GAS AND OIL EXTRACTION
When natural gas and crude oil are drawn from the earth, a mixture of several different gases and
liquids are extracted, with LPG typically accounting for roughly a total of 5%. Before natural gas
and oil can be transported or used, the gases that make up LPG - which are slightly heavier and
are separated out.
CRUDE OIL REFINING
The process of refining oil is complex and involves many stages. LPG is produced from oil at
several of these stages including atmospheric distillation, reforming, cracking and others. It is
produced because the gases of which it is composed (butane and propane) are trapped inside the
crude oil. In order to stabilise the crude oil before pipeline or tanker distribution, these
'associated' or natural gases are further processed into LPG.
In crude oil refining, the gases that make up LPG are the first products produced on the way to
making the heavier fuels such as diesel, jet fuel, fuel oil and gasoline. Roughly 3% of a typical

barrel of crude oil is refined into LPG, although as much as 40% of a barrel could be converted
into LPG.

Marketing of LPG cooking gas

Bharat gas

LPG as a household cooking fuel was introduced by erstwhile Burmah Shell under the
brand name Burshane in mid 1955. The journey of LPG as a domestic fuel continued
with Burmah Shell until the Government nationalized the Company Burmah Shell to
become Bharat Petroleum.
Bharatgas from Bharat Petroleum has dominated the LP Gas market in India for over
three decades. It was indeed a great challenge for Bharatgas to replace Burshane as a
brand name since Burshane had become a generic name in the country for LPG.
Bharat Petroleum's inspiration to meet every challenge drove them to work towards
establishing Bharatgas as a dominant brand.
Indian oil

Indane is today one of the largest packed-LPG brands in the world. Indian Oil pioneered
the launch of LPG in India in the 1970s and transformed the lives of millions of people
with the introduction of the clean, efficient and safe cooking fuel. LPG also led to a

substantial improvement in the health of women in rural areas by replacing smoky and
unhealthy chullahs with Indane. It is today a fuel synonymous with safety, reliability and
convenience.
LPG is a blend of Butane and Propane readily liquefied under moderate pressure. LPG
vapour is heavier than air; thus it normally settles down in low-lying places. Since LPG
has only a faint scent, a mercaptan odorant is added to help in its detection. In the event
of an LPG leak, the vapourisation of liquid cools the atmosphere and condenses the water
vapour contained in it to form a whitish fog, which is easy to observe. LPG in fairly large
concentrations displaces oxygen leading to a nauseous or suffocating feeling.
Suraksha LPG hose, flame retardant aprons and energy efficient Green Label stoves are
recommended to enhance safety measures while using LPG as fuel.
Hindustan petroleum gas

HPCL is a Government of India Enterprise with a Navratna Status, and a Forbes 2000
and Global Fortune 500 company. It had originally been incorporated as a company
under the Indian Companies Act 1913. It is listed on the Bombay Stock exchange (BSE)
and National Stock Exchange (NSE), India.
HPCL owns & operates 2 major refineries producing a wide variety of petroleum fuels &
specialties, one in Mumbai (West Coast) of 6.5 Million Metric Tonnes Per Annum
(MMTPA) capacity and the other in Visakhapatnam, (East Coast) with a capacity
of 8.3 MMTPA. HPCL also owns and operates the largest Lube Refinery in the country
producing Lube Base Oils of international standards, with a capacity of 428 TMT. This

Lube Refinery accounts for over 40% of the India's total Lube Base Oil production.
Presently HPCL produces over 300+ grades of Lubes, Specialities and Greases. HPCL in
collaboration with M/s Mittal Energy Investments Pte. Ltd.. is operating a 9 MMTPA
capacity Refinery at Bathinda in Punjab and also holds an equity of about 16.95% in the
15 MMTPA Mangalore Refinery and Petrochemicals Ltd. (MRPL).

Chapter -6
Factors affectinng LPG cooking gas in India
There has been considerable growth in domestic consumption of liquefied petroleum gas
(LPG).
Connections have increased by nearly 45 million between 2010 and 2013, and now stand
at 160 million.
Yet, the latest Census revealed that only 28.5 per cent of households reported LPG as
their primary fuel for cooking.
So the demand for cleaner cooking fuel is still largely unmet, while the subsidy burden

keeps rising.
The government will have to find a solution, which meets both objectives.
Much of the growth in LPG has been due to massive subsidies associated with its
domestic consumption.
Currently, every household with an LPG connection in India, irrespective of its economic
or social status, is entitled to 12 subsidised cylinders (of 14.2 kg each) annually.
The subsidy amounts to more than half the cost.
With rising LPG consumption, the fiscal impact and import dependence are both
significant: the subsidy bill for FY14 stood at Rs 48,362 crore or Rs 483.62 billion, about
four per cent of the non-Plan expenditure of the recent budget, while import dependency
for LPG has risen to a staggering 89 per cent.
The ostensible reason for the large subsidy is to insulate the common man from any rise
in international oil prices and from domestic inflationary conditions.
Fair enough, but does it work?
Analysts at the Council on Energy, Environment and Water (CEEW) have a simple
answer: not very well.
First, access does not seem to be increasing in proportion to subsidy spending.
Despite more than 110 million connections in 2011, only 70 million households indicated

LPG as their primary cooking fuel.

Secondly, much of the distribution is restricted to urban areas, which have more than 70
per cent of distributors, as well as LPG connections.
Even the richest rural households get only about half their total cooking energy from
LPG. In short, 80 per cent Indian households continue to use traditional fuels for
cooking.
Thirdly, as a result, subsidies are misdirected. The richest 30 per cent of Indians benefit
from more than half of the LPG subsidy.
The poorest 30 per cent, by contrast, receive a meagre 15 per cent of the total subsidy
disbursed.
Fourthly, since the rich benefit far more from LPG subsidies, the poor spend a
disproportionately high share of their income on cooking fuel.
The poorest 10 per cent of households spend as much as eight per cent of their monthly
expenditure on cooking energy as against a mere two per cent and 3.3 per cent by the
highest income groups in urban and rural areas, respectively.