DTM 50153

Tourism & Hospitality

Marketing

TOPIC 2
Marketing Mix
Marketing Mix

8 Ps
#2 - Price
 Topic Review
2.2 Demonstrate mastery of knowledge and understanding of
Price
2.2.1 Explain the meaning of price
2.2.2 Describe the factors that influence price fixing
a. Internal
b. External
2.2.3 Explain the types of strategies in price fixing
a. New product
b. Product mix
c. Price regulation
d. Price change
What Is Price ?
 PRICE
 Price is the second element of
marketing mix.

Price is the amount of money

paid by the customer in the
exchange of products or
services.
PRICE………

 Price can be seen in different

forms such as Fee, Rent, Wage,
Deposit and Instalment.
PRICE………

 A marketing manager will be aware

that price says something to the
consumer about the nature of the
product.

Price is the only element in the

marketing mix that produces
revenue; all other elements represent
costs
 Pricing Objectives
Profit-Oriented • To achieved certain target
Pricing profit level or to generate the
Objective maximum amount of profit.

Sales-Oriented • Emphasizes sales volumes

Pricing rather than profits.
Objective

• To maintain position relative

Status-Quo- to competitors.
Oriented Pricing
 What are the
factors that
Influence Price
Fixing?
Factors that influence Price Fixing……..

Internal
Factors

External
Factors
Internal Factors
that Influence
Price Fixing
Internal Factors
to Consider
When Setting
1.
Price Marketing
objectives

2.
Marketing
mix
strategies

4.
3. Costs Organizational
considerations
Internal Factors that Influence Price Fixing…..

#1 :- Marketing Objectives
• Market positioning influences pricing
strategy.
• Other pricing objectives:
– Survival
– Current profit maximization
– Market share leadership
– Product quality leadership
Internal Factors that Influence Price Fixing…..

#2 :- Marketing Mix Strategies

• Pricing must be carefully coordinated with
the other marketing mix elements.
• Target costing is often used to support
product positioning strategies based on
price.
• Non-price positioning can also be used.
Internal Factors that Influence Price Fixing…..

#3 :- Cost
• Types of costs:
– Variable
– Fixed
– Total costs
• How costs vary at different production
levels will influence price setting.
• Experience (learning) curve affects price.
Internal Factors that Influence Price Fixing…..

#4 :- Organizational Considerations

• Who sets the price?

– Small companies: CEO or top management
– Large companies: Divisional or product line
managers
• Price negotiation is common in
industrial settings where pricing
departments may be created.
 External
Factors that
Influence Price
Fixing
 External
Factors to 1. Nature
Consider of Market
and
When Demand

Setting Price
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External Factors that Influence Price Fixing…..

#1 :- Nature of market and demand

• Types of markets
– Pure competition
– Monopolistic competition
– Oligopolistic competition
– Pure monopoly
• Consumer perceptions of price and value
• Price-demand relationship
– Demand curve
– Price elasticity of demand
External Factors that Influence Price Fixing…..

#2 :- Competitors’ costs, prices, and offers

• Consider competitors’ costs, prices, and possible

reactions.
• Pricing strategy influences the nature of
competition
– Low-price low-margin strategies inhibit @prevent competition
– High-price high-margin strategies attract competition
• Benchmarking costs against the competition is
recommended.
External Factors that Influence Price Fixing…..

#3 :- Other environmental elements

• Economic conditions
– Affect production costs
– Affect buyer perceptions of price and value
• Reseller reactions to prices must be considered
• Government may restrict or limit pricing options
• Social considerations may be taken into account
Strategies in
Pricing
The Pricing Strategies
New-Product
Pricing Strategies
Product Mix
Pricing Strategies
Price Adjustment
Strategies

Price Changes
Strategy #1
The Pricing Strategies.…..

Pricing Strategies
#1_New-Product

i.ii.Market-skimming
Market-penetration pricing
pricing
iii. Prestige pricing
The Pricing Strategies : New-Product Pricing Strategies.…..

Pricing Strategies i) Market-skimming pricing

#1_New-Product

Is a strategy with high initial prices to

“skim” revenue layers from the market.
 Product quality and image must support the
price.
 Buyers must want the product at the price.
 Costs of producing the product in small
volume should not cancel the advantage of
higher prices.
 Competitors should not be able to enter the
market easily.
The Pricing Strategies : New-Product Pricing Strategies.…..

Pricing Strategies ii) Market-penetration pricing

#1_New-Product

 Sets a low initial price in order to

penetrate the market quickly and
deeply to attract a large number of
buyers quickly to gain market share.
 Price sensitive market.
 Inverse relationship of production and
distribution cost to sales growth.
 Low prices must keep competition out
of the market.
The Pricing Strategies : New-Product Pricing Strategies.…..

Pricing Strategies iii) Prestige pricing

#1_New-Product

 Hotels and restaurants seeking to

position themselves as luxurious and
elegant enter the market with a high
price to support this position.
 Lowering the price would reposition
the business, resulting in a failure to
attract the target market.
Strategy #2
The Pricing Strategies.…..

• Product line pricing

Pricing Strategies i.
#2_Product Mix

• Optional- product pricing

ii.
iii • Captive- product pricing
.
• By-product pricing
iv.
• Product bundle pricing
v.
The Pricing Strategies : Product Mix Pricing Strategies.…..

Pricing Strategies i) Product line pricing

#2_Product Mix

 takes into account the cost differences

between products in the line,
customer evaluation of their features,
and competitors’ prices
The Pricing Strategies : Product Mix Pricing Strategies.…..

Pricing Strategies ii) Optional-product pricing

#2_Product Mix

 takes into account optional or

accessory products along with the
main product
The Pricing Strategies : Product Mix Pricing Strategies.…..

Pricing Strategies iii) Captive-product pricing

#2_Product Mix

Involves products that must be used

along with the main product.
 Two-part pricing involves breaking the
price into:
– Fixed fee
– Variable usage fee
eg: Phone line (sms & call)
The Pricing Strategies : Product Mix Pricing Strategies.…..

Pricing Strategies iv) By-product pricing

#2_Product Mix

Is setting a price for by-products in

order to make the main product’s price
more competitive.
 Refers to products with little or no
value produced as a result of the main
product.
 Producers will seek little or no profit
other than the cost to cover storage
and delivery.
The Pricing Strategies : Product Mix Pricing Strategies.…..

Pricing Strategies v) Product bundle pricing

#2_Product Mix

 combines several products at a

reduced price.
 (eg: value meal set)
Strategy #3
 #3_Price-Adjustment
Strategies

Discount and allowance pricing

The Pricing Strategies.…..

Segmented pricing

Psychological pricing

Promotional Pricing

Geographic Pricing
Strategies

Dynamic Pricing

International Pricing
The Pricing Strategies : Price-Adjustment Strategies..…..

i) Discount and allowance pricing

#3_Price-Adjustment

Reduces prices to reward customer

Strategies

responses such as paying early or

promoting the product.
 Discounts
 Allowances
The Pricing Strategies : Price-Adjustment Strategies..…..

ii) Segmented pricing

#3_Price-Adjustment

Is used when a company sells a product

at two or more prices even though the
Strategies

difference is not based on cost.

 To be effective:
– Market must be segmentable
– Segments must show different degrees of
demand
– Watching the market cannot exceed the extra
revenue obtained from the price difference
– Must be legal
The Pricing Strategies : Price-Adjustment Strategies..…..

iii) Psychological pricing

#3_Price-Adjustment

 occurs when sellers consider the

psychology of prices and not simply
Strategies

the economics.
The Pricing Strategies : Price-Adjustment Strategies..…..

iv) Promotional pricing

#3_Price-Adjustment

Is when prices are temporarily priced

Strategies

below list price or cost to increase

demand.
– Loss leaders
– Special event pricing
– Cash rebates
– Low-interest financing
– Longer warrantees
– Free maintenance
The Pricing Strategies : Price-Adjustment Strategies..…..

v) Geographical pricing
#3_Price-Adjustment

Is used for customers in different parts

Strategies

of the country or the world

– Free on board (FOB)-origin pricing

– Uniformed-delivered pricing
– Zone pricing
– Basing-point pricing
– Freight-absorption pricing
The Pricing Strategies : Price-Adjustment Strategies..…..

vi) Dynamic pricing

#3_Price-Adjustment

Is when prices are adjusted continually

Strategies

to meet the characteristics and needs

of the individual customer and
situations.
The Pricing Strategies : Price-Adjustment Strategies..…..

vii) International pricing

#3_Price-Adjustment

Is when prices are set in a specific

Strategies

country based on country-specific

factors :-
– Economic conditions
– Competitive conditions
– Laws and regulations
– Infrastructure
– Company marketing objective
Strategy #4
The Pricing Strategies.…..

#4_Price Changes

i. Price
Cuts

ii. Price
Increases
The Pricing Strategies : Price Changes.…..

#4_Price Changes i) Price Cuts

 Price cuts occur due to:
– Excess capacity
– Increased market share

 Buyer Reactions to Pricing Changes:-

New models will be available
Models are not selling well
Quality issues
The Pricing Strategies : Price Changes.…..

#4_Price Changes ii) Price increase

 Price increase from:-
– Cost inflation
– Increased demand
– Lack of supply

 Buyer Reactions to Pricing Changes:-

• Product is “HOT”
• Company greed
General Pricing
Approach
End…….
The Pricing Approach
Cost Based Pricing

Break Even Pricing

Value Based
Pricing
Competition
Based Pricing
The Pricing Approach : Cost based Pricing

#1 Cost based Pricing

A product should not be priced
below the price floor or else the
marketer will run the risk of selling
unit at a loss.
Must be generate sufficient revenue
to cover the costs of production and
marketing and a fair rate of return
for every level of production.
The Pricing Approach : Cost based Pricing

#1 Cost based Pricing

Suits to companies that want to

maintain low costs who therefore
charge lower prices to consumers.
To beat competitors in the market
to gain a larger market share.
The Pricing Approach : Break Even Pricing

#2 Break Even Pricing Amounts of money for which an asset must

be sold to cover the costs of acquiring and
owning.
Refer to the amount of money for which a
product/service must be sold to cover the
costs of manufacturing or providing it
Break Even quantity is the sales quantity
when the company’s total revenue just
covers the costs.
Profits are not made at this point.
The Pricing Approach : Break Even Pricing

Total Revenue must equal to the

#2 Break Even Pricing
Total Cost.
The Pricing Approach : Value Based Pricing

#3 Value Based Pricing

Consumer’s perception of a product
or service’s value determines the
maximum price (price ceiling) they
are willing to pay.
There will be no demand of a
product above the ceiling price.
Marketers need to consider value
based pricing.
The Pricing Approach : Value Based Pricing

#3 Value Based Pricing

Value is the perceived benefit that
a customer gains from a product
for the costs the customer has to
incur.
The worth may be measured from
the customer’s perception of the
product’s image, features, quality,
additional services etc.
The Pricing Approach : Competition Based Pricing

#4 Competition Based Pricing

This method allows a company to
consider the price of competing
products/services before setting
the initial price.
The ability for a company to
control the price charged depends
on the market structure of the
industry.