Marketing Management

YOU DO NOT SELL THROUGH PRICE YOU SELL THE PRICE

Pricing

PRICE The amount of money needed to acquire a product / utility having attributes with potential to satisfy wants A price may be; Fee Rent Commission Fare Retainer-ship Wages / salary Tuition charges Toll charges

It is the monetary value of a product / service

Marketing Management

Pricing

It is the most flexible elements of Marketing Mix and can be changed most quickly as compared to other elements It is the basic regulator of the economic system as it influences the allocation of resources for other activities of the business such as R & D, Production, Purchase of assets etc. It represents the value of the goods and / or services being offered (the value being the ratio of perceived benefits to costs incurred by customers Pricing is the only element in the marketing mix which generates revenue. All other elements or activities of business are costs (or expenses)

Marketing Management
The factors considered for pricing the products are; A. Internal Factors affecting the pricing decisions 1. Marketing objectives Survival Increase profits Be market leader in volumes Quality leadership

Pricing

2. Marketing mix strategy decisions made for other marketing mixes may effect pricing decision For example if the organisation wants to make a quality product, the pricing needs to be high. Similarly a seller deciding to sell high quantities and covering more markets, may price competitively The marketers must consider total marketing mix when setting the prices of the products

Marketing Management
3. Costs Is the basic element which sets the cost of a product

Pricing

The company would like to charge price which may cover all production costs and marketing costs including distribution, promotion, trade discounts, distribution and logistic cost (basically all the fixed and variable costs

4. Organisational considerations means who sets the pricing in the organisations. It is normal that the top management sets the guidelines for setting the prices In small companies it is done by top management rather than by marketing/sales departments In large companies, divisional or product managers set the prices In the case of industrial products the sales persons are authorised to negotiate within a range and finalise prices with the customers

Marketing Management B. External Factors affecting the pricing decisions

1. The market and demand of the products

Pricing

Costs set the lower level of prices WHILE the market and the demand set the higher level of prices The market may be pure competitive, monopolistic or oligopolistic Consumers perception of price and value meals at a restaurant or a five star hotel Price & demand relationship higher the prices, lower is the demand and vice versa

2. Competitors costs, prices and offers What are the prices of competitors and how is the product competing on quality

3. Other external factors Economic conditions (factors such as boom or recession, inflation, rates of interest in the economy, government policies etc

Marketing Management Pricing approach

1. Cost based pricing

Pricing

The simplest approach wherein the organisations cover the fixed costs over a quantity, variable cost of the product and the margin of profit decide the price of the product

2. Break even analysis and target profit pricing 3. Value based pricing Prices are based on buyers perceptions and not the real cost of the product In this case price is considered when other marketing mixes are planned or drawn Montblanc

pens

This actually the reverse of cost based pricing as per following chart Product---Cost---Price---Value---Customer Customer---Value---Price---Cost---Product

Cost based is: Value based is:

Marketing Management Pricing approach

4. Value Pricing

Pricing

When companies offer value pricing strategies i.e. offering just the right combination of price, quality and good service These are normally not the top of the line products but products which consumers feel is the right price (value for money)

5. Value added marketing prices Normally done in commodity product where the seller adds values to its marketing efforts to differentiate the price 6. Competition based pricing Prices are based on competitors prices rather than their own costs Small manufacturers normally follow the leader and keep on changing when the leader changes the price

Marketing Management New Product Pricing strategy

1. Market skimming pricing

Pricing

2. Market penetration pricing

Marketing Management Product Mix pricing strategy

Pricing

When the organisation has a product mix, the idea is to get maximum profit on a mix rather than on individual products. The situations could be as under; 1. Product line pricing Normally companies plan a product line and accordingly the product are priced to get higher profits

2. Captive product pricing When companies price their product at competitive prices but keep the prices of utilities high (Printers and prices of color cassettes or companies selling game consoles at lower prices but price games very high)

3. By Product pricing The companies producing chemicals, fertilizers, petroleum products etc, by-products are produced. Therefore they try to sell the byproducts at some price and thus recover revenue to adjust in main product prices or make prices of main product competitive

Marketing Management Product Mix pricing strategy

4. Product Bundle pricing

Pricing

When the companies sell a bundle of products (a combination of different products in certain ratios) and then price at a lower price to reduce the inventory. This is normally done to have good good demand products and some slow moving products

Marketing Management Price adjustment strategies

1. Discount and Allowance pricing

Pricing

When companies offer cash discounts for immediate payments, special discounts when large quantities are taken (also known as quantity discounts) or special discounts during off season or replacing a new product after returning the old product at a discount

2. Segmented pricing When companies price their product differently for different segments of markets

3. Psychological pricing 4. Promotional pricing 5. Geographical pricing 6. International pricing

Marketing Management Price Changes

1. Initiating Price changes Initiating price cuts Initiating price increases Buyer reaction to price changes Competitor reaction to price changes

Pricing

Marketing Management Responding to Price Changes

Has competitors cut price Yes Will the move impact your share and profits Yes Should effective action should be taken Yes No No No

Pricing

Hold prices & watch competitors activities

Reduce prices Improve quality and increase prices Raise perceived quality

Launch Low priced Fighting Brand