Principle of Marketing - Pricing Context and Concepts

8/3/2019 Principle of Marketing - Pricing Context and Concepts

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PPRINCIPLESRINCIPLES OFOF MMARKETINGARKETING

Pricing Context and Concepts

Prof. Rushen Chahal

Prof. Rushen Chahal 1


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1. Roles and Perception of Price1. Roles and Perception of Price

Price:-

The value that is placed on something. What

someone is prepared to give in order to gain

something else, e.g. you scratch my back

and I scratch yours

Pricing is a skill, interpreted differently by

different people and comes under various

names



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Customers perspective:-

Assess the price against values such as:

Functional areas design and ability benefitsto satisfy promises

Quality reflecting the worth of a product

Operational in relation to influence a

production process or increase efficiency

Financial purchases seen as investments



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Sellers perspective:-

A distinctive and highly visible element of the

marketing mix

Generator of revenue and provides the basis of

recovering costs and creating profit

Pricing requires knowledge and understanding

of the customer and external environment



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2. Pricing contexts2. Pricing contexts

a. Consumer markets:-

Psychological factors can play an important

role in consumers choice of purchase

Price negotiation in consumer markets can

be difficult - the price is on the product take

it or leave it

Price banding can be useful in market

segmentation, e.g. gym membership pricing



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b. Retailand wholesale markets:-

These groups take a more rational approach

to price interpretation.

Pricing structures need to reflect demand.

Price discipline is expected - manufacturers

should not sell direct to the public at lower

prices than retailers could set.



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c. Non-profit markets:-

These organisations encourage people to use

their products/services and participate in theiractivities.

Pricing - selling goods at cost or subsidising

costs visibly below market rates. Price

sometimes passes through a third party, e.g.

free governments medical insurance



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d. B2B markets:-

The costs of installation, training, financing,

employee and social safety, service, after-sales, re-maintenance etc., are all

considered before the pricing.

Much companies use value managementto analyze the greatest costs incurred in

the products and processes.



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3. External influences on price3. External influences on price



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a. Customers and consumers

Must take into account behavioural

feelings and price sensitivity of the end

buyer. Critical to understand the price

threshold, i.e. the highest or lowestpoint the price can go.



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b. Demand and priceelasticity

If price rises, then demand falls. If

price falls then demand rises.



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Theboomerang demand curve


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Elastic demand Inelastic demand curves


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Factors influencing price sensitivity:-

1. The unique value effect:- the better

differentiated the product, the lower theprice sensitivity

2. The substitute effect:- The greater the numberof substitutes the greater the price sensitivity

3. The difficult comparison effect:- The moredifficult it is to make a comparison betweenthe products, the lower the price sensitivity


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4. The total expenditure effect:- the smaller

the proportion of total spend the product

represents, the lower the price sensitivity

5. The end benefit effect:- greater the end

benefit of the product, the lower the price

sensitivity



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c. Channels of distribution

Take into account the businesses in thedistribution chain, from manufacturers,

wholesalers, retailers, agents etc.d. Competitors

Must reflect the price intensity of the industry

Monopoly

Oligopoly Monopolistic competition

Perfect competition



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4. Internal influences on price4. Internal influences on price



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4. Internal influences on price4. Internal influences on price

Pricing is influenced by internal factors:-

a. Marketing objectives For profit

maximization, market share maximization,

cost leadership

b. Costs - A company's costs take two forms,

fixed and variable


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Principle of Marketing - Pricing Context and Concepts