PRICING

Elements of price: the stated monetary price taxes time required for searching, shopping and delivery delivery cost installation and maintenance depreciation and Incoterm quoted
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PRICING 2
Price in general, is probably the most important element in the marketing mix It is the only element of the marketing mix that produces income. The other elements represent cost for the firm.

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PRICING OBJECTIVES
Typical pricing objectives: profit oriented: to achieve a desired return or to maximise profit sales oriented: to increase sales volume or to maintain or increase market share status quo oriented: to stabilise prices or to meet competition
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PROFIT ORIENTED
A company may price its goods to gain a certain percentage return on its sales. This policy is aimed at achieving a target return. This approach is usually used by market leaders who have more scope for price making rather than price taking. Profit maximisation focuses on the long term and on the product range and may involve loss leader pricing.
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SALES ORIENTED
Managements attention is concentrated on sales volume. This may involve aggressive price cutting in the short run. In increasing market share the company may use price as a sales promotion technique to establish itself e.g. Toyota in the US market when the yen rose against the dollar, they absorbed the rise.
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STATUS QUO ORIENTED

Price stabilisation is often a goal of companies operating in industries where the product is highly standardised such a steel, copper or bulk chemicals. One reason for price stability is to avoid price wars especially in oligopolistic industries.

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FACTORS INFLUENCING PRICING OBJECTIVES

Corporate and marketing objectives: before setting a price the company must decide on its target market and its positioning strategy for the product. Marketers must set prices that are consistent with the firms goals and mission.

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FACTORS INFLUENCING PRICE 2

Pricing objectives: the pricing objectives are derived from the companys general objectives, e.g. does the firm aim to maximise profit or maximise market share. Costs: the price must cover all costs of production. It is important to distinguish between fixed and variable costs.
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FACTORS INFLUENCING PRICE 3

Other marketing mix variables: the marketer must consider the total marketing mix when setting prices. Pricing decisions can influence decisions and activities associated with product, distribution and promotion.

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FACTORS INFLUENCING PRICE 4

Expectations of channel members: channel members costs, such as those of wholesalers and retailers must also be met. Buyer perceptions: members of one market may be more sensitive to price than members of a different target market. Markets must ascertain a customers reason for buying the product and set price according to the buyers perception of product value.
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FACTORS INFLUENCING PRICE 5

Competition: a marketer will need to know the prices that competitors charge and will also have to take into account the possible entry of new competitors. Legal and regulatory issues: governments through legislation to protect consumers or may introduce price controls to curb inflation.
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GENERAL PRICING APPROACHES

Cost-based pricing
Customer based pricing Competition based pricing

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COST BASED PRICING

Two cost based methods are cost-plus pricing and mark-up pricing. Cost-plus pricing involves calculating all the costs of making a product (including production, promotion, distribution and overheads) and adding an amount to provide an acceptable level of profit.
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COST BASED PRICING 2

Cost-plus pricing does not take account of how customers will react to the quoted prices. If they perceive that the price does not constitute value for money they will not buy the product. On the other hand if the customer thinks that it represents great value the firm may suffer stock-outs and miss vital sales.
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COST BASED PRICING 3

Mark-up pricing is similar to cost-plus and is the method used by most retailers. A retailer buys in stock and adds on a fixed percentage to the bought in price ( a markup) in order to arrive at the shelf (sale) price. Usually there is a standard mark-up for each product category.
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COST BASED PRICING 4

Mark-up is a popular approach, as sellers are more certain about costs than they are about demand. As the price is tied to cost, sellers do not have to make frequent adjustments to price as demand changes. When all firms in the industry use this approach, prices tend to be similar and competition is reduced.
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CUSTOMER BASED PRICING

Two customer-based pricing methods are demand-based pricing and psychological pricing. Firms sometimes use demand-based pricing rather than establishing the price of a product on its costs. Demand-based pricing is determined by the level of demand for the product, resulting in high price when demand is strong and low when it is weak.
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CUSTOMER BASED PRICING 2

Demand based pricing usually begins with the marketer assessing what the demand will be for the product at varying prices. This is done by asking customers what volumes they would by at different prices. Since revenue = turnover x margin, the success of demand-based pricing depends on the firms ability to estimate demand accurately.
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CUSTOMER BASED PRICING 3

Psychological pricing relies on the buyers perceptions of value rather than on the sellers costs. Psychological pricing is designed to encourage purchases that are based on emotional rather than rational responses

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CUSTOMER BASED PRICING 4

Higher prices are often seen as an indicator of quality, so some companies will use prestige pricing. This approach is used for products such as perfumes, jewellery and certain clothing items. Service firms e.g. restaurants and hotels often use this approach because of the value added by atmosphere and service.
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CUSTOMER BASED PRICING 5

Companies use the non-price marketing mix variables to build up perceived value in customers minds. Odd-even pricing is another method of psychological pricing. This is the practice of ending prices with an odd number, e.g. 9.99 Euros rather than 10 Euros. The customer perceives the product as cheaper than it actually is.
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COMPETITION BASED PRICING

This approach is based on recognising the influence of competition in the market. The marketer must decide how close the competition is in providing for customers needs.

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THE PLC AND PRICE

In the introduction stage when pricing a new product all firms share three objectives: to establish the product on the market to maintain market share in the face of competition from later entrants to produce profits.

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THE PLC AND PRICE 2

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