Price

Marketing
Management S5:

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 Learning Objectives

○ Define price and identify different pricing strategies

Calculate the various different pricing methods

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○
○ Understand the various factors affecting price development and price adjustment
○ Evaluate and apply the pricing decision making process for your offering

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 Wooclap!

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 Session Plan - Content
Introduction to Segmentation,
01 marketing 02 Market Analysis 03 Targeting and
Positioning

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Product &
04 Branding 05 Price 06 Distribution 07 Communication

Student Application of theory from all sessions

08 and 09 Presentations In groups for your capstone project

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 Marketing Mix

Product

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Promotion Marketing Place

Price

5
Business Challenge:
You have been the marketing director of your
hoodie shop for over a year now and it is no
longer making a loss but profits are steady

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(break-even). You have decided that now is a
good time to grow your business. The brand is
starting to become well-known.

You need to make more money to fund its

growth and have two ideas; to make simple
garments for fashion shows or to get celebrity
influencers to model them. Could changing
prices help at all? Should you put them down
or up? 6
 Student Challenge
Complete the following:

1 What is a price? And discuss the importance of pricing in

today’s fast-changing world

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2 Identify the three main different pricing methods (p. 297 –
304). What are they? and what are the
benefits/disadvantages?

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 What is price?

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Price is what a company charges for a
product or service. Price is the sum of the
values that customers perceive verses
the costs of purchasing a product or
service.

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Source: Kotler and Armstrong (2021) Principles of Marketing, p.296
 Different Viewpoints on Pricing
Customers view Marketers view
Marketers see pricing as an
Customers usually want opportunity to gain
the best quality at the competitive advantage.
lowest price.
However, marketers may
want to set a price that does
perceived value = not cover the costs of
perceived benefits - making a product. Clearly,
price this can only be sustained in
the short term and is usually
negotiated internally.
Source: Masterson et al (2017) Marketing; An Introduction. p.384
Economists view
Economists believe that in a
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free market, a product’s price
would be set by the forces of
demand and supply. If there
are more buyers than
products, the price goes up, if
there are more products than
customers, the price falls.
Accountants view
Accountants want to make sure
that the price of a product or
service covers all its costs, so
that a profit can be shown.
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 Pricing Decision Making Process
Who is usually involved at each stage?
Economist Accountant Marketer Consumer

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1 Setting 4 Analysing
1 Selectthe
the 2 5 Selecting a
3 Estimating competitors 6 Set the 7 Adapt the
pricing
Pricing Determining pricing
costs costs and price price
objective
Objective demand method
prices

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Source: Kotler (2000) Marketing Management
 Setting the Pricing Objective
Market Penetration Pricing Objective
Set a low initial price to penetrate the
market quickly. A firm might do this to win a
large market share or to obtain customers
and then turn them into loyal customers.

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https://www.youtube.com/watch?v=kLymCjKN2IA

Market Skimming Pricing Objective

Skim revenues layer by layer from the
market by setting a high price to begin
to obtain maximum revenue. Later, the
price is reduced over time to attract
more customers and maximise
revenues.
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Source: Kotler and Armstrong (2021) Principles of Marketing, p.318
 Product Mix Prices
When the product is part of a product mix, the firm looks for a set of prices that maximises the profits
from the total product mix. Eg. Gilette razors are priced low but the recharge prices are at a higher
margin.

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Source: Kotler and Armstrong (2021) Principles of Marketing, p. 320
 Pricing Decision Making Process

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4 Analysing
1 Select the 22 5 Selecting a
3 Estimating competitors 6 Set the 7 Adapt the
pricing Determining
Determining pricing
costs costs and price price
objective demand
Demand method
prices

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Source: Kotler (2000) Marketing Management
 2 Determining the Demand
Demand Curve:
A curve that shows the
number of units the

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market will buy in a
given time period at
different prices that
might be charged

Price Elasticity:
A measure of the
sensitivity of demand
to changes in price

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Source: Kotler and Armstrong (2021) Principles of Marketing, p. 309
 Price Elasticity
Price Elasticity of demand: Price Inelasticity of demand:

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Eg. clothing, soft drinks Eg. cigarettes, alcohol

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 How Companies Determine Demand

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Surveys
• Survey customers to explore
how many units they would by
at different proposed prices
Price Experiments
• Vary prices of different products
in a shop OR
• Charge different prices for the
same product in similar territory
Statistical Analysis
• Analyse data of past prices,
quantities sold and other factors

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Source: Kotler et al., (2019) Marketing Management, p.521
 Pricing Decision Making Process

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4 Analysing
1 Select the 2 5 Selecting a
33Estimating
Estimating competitors 6 Set the 7 Adapt the
pricing Determining pricing
costs
costs costs and price price
objective demand method
prices

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Source: Kotler (2000) Marketing Management
 3 Estimating Costs
Indirect costs – costs
that cannot be attributed
Fixed Costs: to one particular product
costs that do not vary as they are not directly
with production or sales associated with any one

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revenues, e.g. rent, product’s production or
interest, insurance. sale, e.g. the running
costs of the chief
executive’s car
Variable Costs:
costs that go up as
production increases, Direct costs: costs that
e.g. costs of raw are clearly due to the
materials, product making of a particular
parts. product, e.g. cocoa and
sugar are direct costs of
Cadbury’s Dairy Milk.
Total costs = sum of all costs
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Source: Kotler and Armstrong (2021) Principles of Marketing, p. 301
 Pricing Decision Making Process

©Helen Cocco, h.cocco@ieseg.fr

44Analysing
Analysing
1 Select the 2 5 Selecting a
3 Estimating competitors
competitors 6 Set the 7 Adapt the
pricing Determining pricing
costs costs and
costs and price price
objective demand method
prices
prices

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Source: Kotler (2000) Marketing Management
4 Analysing Competitors Costs and
Prices
1 Track the prices, quality and features of each competitor’s offer

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2 Check prices in-store

3 Use price comparison websites

4 Decide whether to charge more, the same as, or less than competitors

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 Pricing Decision Making Process

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4 Analysing 55Selecting
1 Select the 2 Selecting aa
3 Estimating competitors 6 Set the 7 Adapt the
pricing Determining
costs costs and pricing
pricing
price price
objective demand method
method
prices

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Source: Kotler (2000) Marketing Management
 5 Selecting a Pricing Method
Target Return Pricing
Determining the price
that would yield its

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target rate of return.

Perceived Value Pricing

Mark-up Pricing
Basing prices on the
customer’s perceived
Adding a standard mark-up to the
value
products cost

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Source: Kotler and Armstrong (2021) Principles of Marketing, p. 302
 Mark-up Pricing Method

Applying a standard mark-up based on the costs of the product

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Unit cost = variable cost + fixed cost
unit sales

Mark-up price = unit cost

(1-desired return on sales)

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Source: Kotler and Armstrong (2021) Principles of Marketing, p. 302
 Mark-up Pricing Method
Student Challenge
Suppose that a furniture manufacturer has the following costs
and expected sales:

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Variable costs per unit 90€
Fixed costs 30,000€
Expected unit sales 1,000

Unit cost = variable cost + (fixed cost/unit sales)

Mark-up price = unit cost/(1-desired return on sales)

Questions:
1 What is the selling price if the manufacturer wants to earn a 40%
mark up on sales?
2 Retailers want to earn 20% mark-up on sales. What is their selling
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price?
 Target Return Pricing Method
Firm sets a price at which it will break even or make the target return on the costs or making and
marketing the product

Break even volume = fixed cost

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price – variable cost

Example: The furniture manufacturer prices its products to achieve a 15 – 20% ROI. Suppose
that the furniture manufacturer had the same costs as in the previous slide (variable costs per unit of
90€ and fixed costs of 30,000€, price = 120€.

Break even volume = 30,000/(120-90) = 1,000

If the company wants to make a profit, it must sell more than 1000 units at 120€ each.

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Source: Kotler and Armstrong (2021) Principles of Marketing, p. 302
 Determining the Break-Even Point

(£)
Total cost

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Money(£)
Total cost
Profits
Money

Profits

Total variable costs

Total variable costs
Losses Fixed costs
Losses Fixed costs

Units of Production
Units of Production
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Source: Kotler and Armstrong (2021) Principles of Marketing, p. 303
Perceived Value Pricing
Perceived value is made up of many
elements:
● Buyer’s image of the product
performance

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● The ability to deliver on time
● The warranty quality
● Customer support

For Louis Vuitton customers, the value of

their product might be based on:
● An almost default image of style and
exclusivity
● The social versatility of their accessories
(all occasions)
● A gender-neutral product design
● Performance and durability 28
● Craftsmanship
 Pricing Decision Making Process

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4 Analysing
1 Select the 2 5 Selecting a
pricing Determining
3 Estimating competitors
pricing
6 Set
Setthe
the 7 Adapt the
costs costs and price
price price
objective demand method
prices

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Source: Kotler (2000) Marketing Management
 7 Set the Price
Further price considerations:

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Market Demand
Overall Marketing Strategy

Organisational Considerations
• Before setting the price • Different sizes of • Pricing freedom varies
the company must align organization can have by market
the price to its marketing an effect on how the • Each price the
strategy. price is set. company sets will
• In small organizations, lead to a different
• Eg. Tesla targets high usually top level of demand
end, technology driven management sets the
customers with • Price elacticity is the
price. In large measure of sensitivity
sophisticated electric
cars. The elevated organizations, they in demand to changes
targeting and positioning have a pricing dept. in prices.
dictates charging high
prices.

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Source: Kotler and Armstrong (2021) Principles of Marketing, p. 306
30

Consumer Psychology and Pricing

How do consumers actively process price information?

● recollecting knowledge from previous purchasing experience

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● Online research

● Formal communications (eg. advertising, sales calls, catalogues)

● Informal communications (friends, colleagues or family members)

Peugeot 206.
Psychological Pricing:
19,950€ 31
Reference Prices
Reference Pricing: Comparing an observed price to an internal reference price OR to an
external frame of reference such as a posted ‘regular retail price’

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Source: Kotler et al (2019) Marketing Management, p.515
32

Price – Quality Perception

Higher price = higher quality
Lower price = lower quality
Zara offer products at 31% increased price to
H & M but how different is the quality?

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33
Source: Kotler et al (2019) Marketing Management, p.516
 Pricing Decision Making Process

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4 Analysing
1 Select the 2 5 Selecting a
3 Estimating competitors 6 Set the 7 Adapt
Adaptthe
the
pricing Determining pricing
costs costs and price price
price
objective demand method
prices

34
Source: Kotler (2000) Marketing Management
 7 Adapt the Price
Companies usually do not set a single price but develop a pricing structure that reflects variations
in geographical demand and costs, and market segment differences.

Differentiated pricing:

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• Company adjusts products to
accommodate differences in:
• Target segment for same product (eg,
student/senior prices at museums and
cinemas)
• Products (eg. Evian spray bottle v drinking
bottle)
• Locations (eg. purchase McDs in Paris v
countryside)
• Channel (eg. Coca cola purchased in fine
restaurant in comparison to vending
machine)
• Geography due to increased costs, lower
prices to win initial business, exchange
rates and strength of different currencies
https://www.globalproductprices.com/rankings/heineken_price/ 35
Source: Kotler et al (2019) Marketing Management, p. 535
 Capstone Application
in preparation for S8/S9
Define the price/s
Task 5.1
Make decisions following the 7-step decision making process.

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Justify each decision.

N.B All should be aligned to the identified STP.

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 Reading for Next Session
Session 1 Chapter 1: Marketing: Creating Customer Value and
Engagement
Session 2 Chapter 3: Analysing the marketing Environment
Session 3 Chapter 7: Customer Value-Driven Marketing Strategy

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Session 4 Chapter 8: Products, Services and Brands
Chapter 9: Developing new Products and managing the
Product Life Cycle
Session 5 Chapter 10: Pricing: Understanding and Capturing
Customer Value
Session 6 Chapter 12: Marketing Channels: Delivering Customer
Value .
Session 7 Chapter 14: Engaging Customers and Communicating
Kotler and Armstrong (2021) Customer Value
Principles of Marketing. Global
Edition Session 8
No reading: Preparation for Student Presentations
Session 9
8