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The amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or pricing.
o The money charged for a product or a service o Cost is incurred to the supplier/producer in supplying/producing the product o Price is paid by the buyer to acquire
Importance of price to marketers
Price is a key element in the marketing mix because: ℗ Directly
℗ - Price relates directly to the generation of total revenue ℗ -Price is also the only marketing mix element that generates revenue, others are costs ℗ Indirectly ℗ -Price can be a major determinant of the quantity of goods sold ℗ -Price also influences total costs through its impact on quantity sold ℗ Symbolically ℗ Price has a psychological impact on customers ℗ By raising price the quality of the product can be emphasised ℗ By lowering price marketers can emphasis a
Factors influencing pricing decisions INTERNAL FACTORS:
℗ Costs - the relationship between price and cost; balancing the need to cover costs against the price the market will bear.
℗ Organisational objectives - the role pricing can play in achieving long and short-term corporate objectives.
℗ Demand- The market demand for a product or service has a big impact on pricing.
℗ Competition – What price does the competitor is charging for similar products and possibilities lie ahead for raising and lowering prices.
℗ Buyers- The nature and behavior of the consumer and users to purchase a particular product.
Pricing - link between price and business objectives.
• The pricing objectives of businesses are generally related to satisfying one of five common strategic objectives:
Objective 1: To Maximize Profits • Although the ‘maximization of profits’ can have negative connotations for ‘the public’, in economic theory, one function of ‘profit’ is to attract new entrants to the market and the additional suppliers keep prices at a reasonable level. By seeking to differentiate their product from those of other suppliers, new entrants also expand the choice to consumers, and may vary prices as niche markets develop
Contd… . .
Objective 2: To Meet a Specific Target Return on Investment (or on net sales) • Assuming a standard volume operation (i.e. production and sales) target pricing is concerned with determining the necessary mark-up (on cost) per unit sold, to achieve the overall target profit goal. Target return pricing is effective as an overall performance measure of the entire product line, but for individual items within the line, certain strategic pricing considerations may require the raising or lowering of the standard price.
Objective 3: To Achieve a Target Sales Level • Many businesses measure their success in terms of overall revenues. This is often a proxy for market share. Pricing strategies with this objective in mind usually focus on setting price that maximizes the volumes sold.
Contd. . . .
Objective 4: To Maintain or Enhance Market Share • As an organizational goal, the achievement of a desired share of the market is generally linked to increased profitability. An offensive market share strategy involves attaining increased market share, by lowering prices in the short term. This can lead to increased sales, which in the longer term can lead to lower costs (through benefits of scale and experience) and ultimately to higher prices due to increased volume/market share.
Objective 5: To Meet or Prevent Competition • Prices are set at a level that reflects the average industry price, with small adjustments made for unique features of the company’s specific product(s). Firms that adopt this objective must work ‘backwards’ from price and tailor costs to enable the
SETTING PRICING POLICY
MAXIMUM MARKET SHARE
MAXIMUM MARKET SKIMMING
DETERMINING PRICING METHOD
Customer Assessment & Demand Competitors & Substitute Price No possible Demand at this Price CEILING PRICE
Cost Low Price
FLOOR PRICE No possible Profit at this Price
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PRICE - QUALITY STRATEGIES
Selecting a Pricing Method
Markup Pricing Target-Return Pricing Perceived-Value Pricing Value Pricing Going Rate Pricing Sealed-Bid Pricing
Elementary method - add standard markup to product cost
Most popular pricing method e.g. Resellers / Retailers
Target Return Pricing
Determine the price that would yield its target rate of Return on Investment (ROI)
Break-even Volume e.g. MHADA
Break-even volume = fixed cost / (price – variable cost)
Break-Even Chart for Determining Target-Return Price and Break-Even Volume
Buyers perception of value – not seller’s cost Use of Marketing Elements – Advtg & Sales e.g. Luxury Brands
Low price for a high-quality offering Everyday low pricing (EDLP) High-low pricing e.g. Supermarkets
Going Rate Pricing
Based on Competitor’s Pricing Follow the Leader e.g. Bottled water, Soft Drink, Toothpaste etc.
Sealed Bid Pricing
Pricing based on expectations how competitor’s will price rather than on costs or demand e.g. Bids for Government Project
NEW PRODUCT PRICING STRATEGIES
PRODUCT MIX PRICING STARTEGIES
Setting Price Steps Between Product Line Items i.e. Rs.299, Rs.399
Product Line Pricing
Product Mix Pricing Strategies
Pricing Optional or Accessory Products Sold With The Main Product i.e. Car Options Pricing Products That Must Be Used With The Main Product i.e. Razor Blades, Film, Software
Pricing Bundles Of Products Sold Together
Price -Adjustment Strategies=
Initiating and Responding to Price Changes
Initiating and Responding to Price Changes
Competitor Reactions to Price Changes
Initiating Price Cuts
Buyer Reactions to Price Changes
Initiating Price Increases
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