Marketing Mix - Price

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Broad overview of pricing strategies in marketing

Text of Marketing Mix - Price

  • + Pricing The Marketing Mix Price
    • What is meant by a pricing strategy?.
    • Identify the key determinants for pricing policy decision making.
    • Identify the different methods available for pricing products and services.
    • Explore how pricing strategy fits in with other elements of the marketing mix.
  • Introduction
    • Marketing is defined as:
      • The management process responsible for identifying, anticipating and satisfying customer requirements profitably.
      • The key words in the definition in relation to the Pricing Policy are:
        • Customer Requirements.
        • Profitability .
  • Introduction
    • The prices a company sets for its product and services must strike a balance between
      • gaining acceptance with the target customers and making a profit for the organisation .
  • Pricing Strategy
    • The first thing which we must define, is what is meant by price. Price is defined as:
      • The amount in money for which something is offered for sale.
  • Pricing Strategy
    • A Pricing Strategy is defined as:
    • A plan which determines the best (at the time of making) pricing decision.
      • The planning of prices, including the setting of discounts, in considering items such as the price of competitive products, manufacturing and distribution costs, the firms growth and profitability, customer wants, and the elasticity of demand.
  • Pricing Strategy
    • When setting prices we must consider:
      • Whether to discount or not.
      • The price that the competition charges.
      • The cost of providing the product or service.
      • The companys market position e.g. is it a market leader.
      • The type and nature of demand e.g. if an increase or a decrease in price will effect amounts purchased.
      • The market segments we are seeking to attract.
  • Pricing Strategy
    • It must be remembered, that price is a key element in the marketing mix because -
      • for a profit motivated company, it relates directly to the total revenue, and ultimately the profit of the business.
    Profits = Total Revenues Total Costs Profits = (Prices x Quantities sold) Total Costs OR
  • The Key Determinants for Pricing Strategy
    • The key determinants of pricing decisions are:
      • Organisational and Marketing objectives
      • Pricing objectives
      • Costs
      • Other marketing mix variables
      • Legal and regulatory issues
      • Competition
      • Buyers perceptions
      • Consideration of intermediaries (retailers, wholesalers)
  • Firms overall objectives Marketing & Selling objectives
    • Marketing Costs
    • product costs
    • distribution costs
    • promotional obj / costs
    • Total costs
    Competitors pricing behaviour and type Market demand / perception Legal / regulatory requirements MARKETPLACE ORGANISATIONAL Factors influencing price selection
  • Pricing Strategies
    • Quantity or trade discounts
    • Cash discounts
    • Freight costs
    • Flexible pricing
    • Price lining
    • Leader pricing
  • Quantity or Trade Discount
    • Quantity discounts:
      • Deductions from a sellers list price that are offered to encourage customers to buy in bulk
      • eg. Buy a particular resort package children fly free
    • Trade discounts:
      • Reductions from the list price offered to buyers in payment for marketing functions that they will perform
  • Cash Discounts
    • A deduction granted to buyers for paying by cash or within a specified time.
      • They are usually calculated on a net amount due after first deducting trade and quantity discounts from the base price.
  • Flexible Price Strategy
    • With a flexible price strategy, similar customers may each pay a different price when buying similar quantities of a product.
      • Trade-in
  • Price Lining
    • Involves selecting a limited number of prices at which a business will sell related products.
      • A shoe shop which will sell several styles of shoes at $69.95 and another group at $89.95.
  • Leader Pricing
    • Temporary cutting of prices on a few items to attract customers
      • Gotta Go Flights
    • You own a fast food restaurant chain and are considering selling your product at below cost price for a short period of time. Why would you do this?
    Activity
  • Feedback
    • This is known as a tactical price reduction and may be introduced for a short period of time, even if it does not cover all costs.
      • To temporarily match the competitor's prices
      • To generate substantial cash flow.
      • To increase market share.
  • Buyers Perceptions
    • The marketer must consider the importance of price to the customer in the target market segments when setting prices.
    • Try the following activity to illustrate this:
    • You have been given the job of pricing two new products as follows:
    • Product A Budget hotel room Target Families ( lower middle to low income)
    • Product B Luxury hotel room Target Business People ( High to middle income )
    • How important will the price be to the target customers?
    • PRODUCT A
    • PRODUCT B
    Activity
  • Feedback
    • Price will be very important in both markets as follows:
      • PRODUCT A
        • Price must be reasonable or cheap to reflect the nature of the product on offer.
        • Price will often be the first consideration of the target customers value for money is key.
  • Feedback
    • Price will be very important in both markets
      • PRODUCT B
        • Prices here will be much higher but price is just as important to the business traveller
        • It must be high enough to give a quality impression but competitive in relation to other luxury hotels.
  • Feedback
    • Prices of products and services are key in both budget and luxury markets.
    • It is possible to overprice and underprice in both examples, in the eyes of the customer.
    • It is also important that the price reflects the other elements of the marketing mix.
  • Competition
    • Companies who are selling products and services in competitive markets try to win customers over from rival companies.
    • This is achieved in one of two ways:
      • PRICE COMPETITION
      • NON PRICE COMPETITION
  • PRICE COMPETITION
    • This involves offering the product or service at a lower price than that of its competitors products or services.
  • NON PRICE COMPETITION
    • This involves the company trying to increase market share of its product or service by
      • leaving the price of its product or service unchanged but by persuading the target customers of the superiority or advantages associated with it.
    • Whether a firm uses price competition or non price competition, depends on the state of the market.
      • In a very competitive market place, the firm is more

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