PRICE

Bünyamin Güler BUSe 07 1

 OUTLINE

Price

Price policy and price desisions
-Pricing strategies matrix
-Other pricing strategies(including
competition based strategies)

Price for new product
-Internal factors
-External factors 2

Sources
 Price

What is the definition of price ?
-The amount as of money or goods, asked for
or given in exchange for something else.
-Market value, or agreed exchange value, that
will purchase a definite quantity, weight, or
other measure of a good or service.

What is value ?
-As an example football transfers...
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Price policy and price
desisions

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Pricing strategies
matrix

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 Pricing strategies
matrix

Premium Pricing.(value pricing )
-Use a high price where there is a
uniqueness about the product
or service. This approach is
used where a a substantial
competitive advantage exists.
-Price set in accordance with
customer perceptions about the
value of the product/service.(Why
customer perceptions ?)
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 Pricing strategies
matrix

Penetration pricing

Why would you offer your high quality product
for low price ?
-Offers low price to gain market share - then
increases price

As an example ;
-Mass market products.(chocolate bars, food
stuffs, household goods, etc.)
-May be useful if launching into a new 7
market.(Internet or Telecom companies...)
 Pricing strategies
matrix

Economy pricing.
-This is a no frills low price. The cost of marketing
and manufacture are kept at a minimum.

As an example;
-Soups, spaghetti, beans - ‘economy’ brands ( At
Penny ,Aldi...)

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 Pricing strategies
matrix
Market Skimming
-High price, Low volumes
-Suitable for products that
have short life cycles or which
will face competition at some
point in the future
Examples ;
-Playstation, jewellery, digital
technology, new DVDs,new
albums or films on release.
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 Other strategies

Loss Leader
-Goods/services deliberately sold below cost to
encourage sales elsewhere

Typical in supermarkets, e.g. at Christmas,
selling bottles of gin at £3 in the hope that
people will be attracted to the store and buy
other things

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 Other strategies

Psychological Pricing
-Used to play on consumer perceptions

What could be the best example ?
-Classic example - £9.99 instead of £10.99!

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 Other strategies

Going Rate (Price Leadership)
-In case of price leader, rivals have difficulty in
competing on price too high and they lose
market share, too low and the price leader
would match price and force smaller rival out of
market

Where competition is limited, ‘going rate’ pricing
may be applicable banks, petrol, supermarkets,
electrical goods find very similar prices in all
outlets 12
 Other strategies


Tender Pricing
-Many contracts awarded on a tender basis
-Firm (or firms) submit their price for carrying out the
work
-Purchaser then chooses which represents best value
-Mostly done in secret

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 Other strategies

Price Discrimination
-Charging a different price for the same
good/service in different markets
-Requires different price elasticity of demand in each
market

Destroyer Pricing(Predatory)
-Deliberate price cutting or offer of ‘free
gifts/products’ to force rivals (normally smaller
and weaker) out of business or prevent new
entrants
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-Anti-competitive and illegal if it can be proved

 Other strategies

Absorption/Full Cost Pricing

Full Cost Pricing Absorption Cost

-Attempting to set price Pricing
to cover both fixed and -Price set to ‘absorb’
variable costs some of the fixed costs
of production
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 Other strategies

Marginal Cost Pricing

What is Marginal Cost ?
-The cost of producing ONE extra or ONE fewer
item of production
-MC pricing – allows flexibility
-Particularly relevant in transport where fixed
costs may be relatively high
-See the example #7

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 Example #7

Aircraft flying from Berlin to
Paris
-Total Cost = £15,000 of which
£13,000 is fixed cost*
-so 2000 is variable cost...
-Number of seats = 160,
average price = £93.75

-MC of each passenger = 2000/160 = £12.50

-If flight not full, better to offer passengers chance of
flying at £12.50 and fill the seat than not fill it at all! 17
 Other strategies

Contribution Pricing

Contribution = Selling Price – Variable
-Prices set to ensure coverage of variable costs
and a ‘contribution’ to the fixed costs
-Similar in principle to marginal cost pricing
-Break-even analysis might be useful in such
circumstances

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 Other strategies


Target Pricing
-Setting price to ‘target’ a specified profit level
-Estimates of the cost and potential revenue at
different prices, and the break-even have to be
made, to determine the mark-up
-Mark-up = Profit/Cost x 100

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 Other strategies


Cost-Plus Pricing
-Calculation of the average cost (AC) plus a mark
up
-AC = Total Cost/Output

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 Price for new product

Internal Factors
• Market positioning influences
• Marketing objectives pricing strategy
• Marketing mix • Other pricing objectives:
 Survival
strategies
 Current profit maximization
• Costs  Market share leadership
• Organizational  Product quality leadership
considerations 21
 Price for new product

Internal Factors
• Pricing must be carefully
coordinated with the other
• Marketing objectives marketing mix elements
• Marketing mix • Target costing is often used
strategies to support product
positioning strategies
• Costs based on price
• Organizational • Nonprice positioning can
considerations also be used 22
 Price for new product

Internal Factors
• Types of costs:
 Variable
• Marketing objectives  Fixed
• Marketing mix  Total costs
strategies • How costs vary at different
production levels will influence
• Costs price setting
• Organizational • Experience (learning) curve
affects price
considerations 23
 Price for new product

Internal Factors • Who sets the price?

 Small companies: CEO or
• Marketing objectives top management
 Large companies:
• Marketing mix Divisional or product line
strategies managers
• Costs • Price negotiation is common
in industrial settings where
• Organizational pricing departments may be
considerations created
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 Price for new product

External Factors
• Types of markets
• Nature of market and  Pure competition
demand  Monopolistic competition
 Oligopolistic competition
• Competitors’ costs,
 Pure monopoly
prices, and offers
• Consumer perceptions of price
• Other environmental and value
elements • Price-demand relationship
 Demand curve
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 Price elasticity of demand
 Price for new product

External Factors
• Consider competitors’ costs,
prices, and possible reactions
• Nature of market and
demand • Pricing strategy influences the
nature of competition
• Competitors’ costs,  Low-price low-margin
prices, and offers strategies inhibit competition
• Other environmental  High-price high-margin
strategies attract competition
elements
• Benchmarking costs against the
competition is recommended 26
 Price for new product

External Factors
• Economic conditions
 Affect production costs
• Nature of market and  Affect buyer perceptions of
demand price and value
• Competitors’ costs, • Reseller reactions to prices
prices, and offers must be considered
• Government may restrict or
• Other environmental
limit pricing options
elements
• Social considerations may be
taken into account 27
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 Sources


http://entrepreneurs.about.com/od/salesmarketing/a/pric

http://www.marketingteacher.com/Lessons/lesson_pricin

http://www.slideshare.net/mehmetcihangir/pricing-produc

http://www.amazon.co.uk/gp/reader/0131856774/ref=sib

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