Marketing Mix: Price

Price definition
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 service – Kotler et al 2005
Product strategy
is needed before setting up a price, defines companies aims and marketing objectives SCMP
Survival Product Strategy
Troubled/new start companies – in the short run survival is more important than profit, immediately effects competitors/industry
Current Profit Maximisation Product strategy
for companies seeking current financial outcomes than long run performance, set price according to demand to produce maximum cash flow/profit
Market Share Leadership Product strategy
aim to gain dominate market-share position, larger share owned = enjoy low costs and a high long-run profit, therefore price set low as possible
Product quality leadership product strategy
Apple, established known quality =company to demand a high price, needs well-engineered product w/high quality w/sustainable budget to maintain
Common price mistakes
too cost orientated, fails to reflect market changes, not take into account the rest of the marketing mix, not varied enough for different product items and market segments
Sport special nature in price
Service perishability, the price fluctuates with demand – Seasonal pricing necessary
Leisure special nature in price
high vulnerability to economic/political events, high price elasticity, social objectives in pricing, guaranteed competitor cuts in prices when supply outstrips demand
The demand curve
conceptualises the relationship between the quantity demanded and different price levels – effective to know products elasticity for supply purposes
Price elasticity
price drops and demand increases= price elastic, price drop and no demand increase= price inelastic – inelastic Buyers less price sensitive when: unique product, high in quality/prestige/reputation, hard to find
Full cost pricing
calculates all associated costs to make product, being based on certain sales volume assumptions
Full cost pricing pros
indication of minimum price needed to make profit, can be used w/other methods
Full cost pricing cons
takes no account of customers willingness to pay, illogical to set sales estimate before price is set, leads to increase in price when demands fall which is not ideal, may be problem allocating overheads
Direct cost pricing
involves the calculation of only those costs which are likely to rise as output increases.
Direct cost pricing pros
indicate lowest price for business to ensure machinery/rooms at not left idle – avoids problem of allocating overheads and ‘price up as demand down’ problem, indicates at lowest price at which it is sensible to take business
Direct cost pricing cons
cannot be used long term, price does not cover full costs
Break-even analysis
a method of examining the relationships between fixed costs, variable costs, volume, and price. The objective of the analysis is to determine the break-even point at alternative prices and a given cost structure.
Competition pricing: Going-rate
good for no product differentiation with other companies e.g. same football, allows perfect competition – but bad if company strives for premium price/higher profits
Competition pricing: Competitive bidding
supplier prices according to specification required by purchaser, buyer will choose lowest/most competitive supply prices: Expected profit = profit x probability of winning bids cons: difficult/almost impossible for price bid being successful
Market Strategy Pricing
cost of product should be in line with strategy regarding positioning, objectives, promotion distribution and product benefits
Positioning pricing
involves choice of target market and the creation of a differential advantage – trainers differ from professional/amateurs to fashion/trendy stylist
Rapid skimming launch strategy
high price and high promotion expenditure to provide high margin returns and high levels of product awareness/knowledge: Nike do this for new range of trainers
Slow skimming launch strategy
high price with low promotion expenditure, leaves high profit margins/ promotion cost may be unnecessary: rely on word of mouth e.g. Rolls Royce product is well-known
Rapid penetration launch strategy
low prices with heavy promotional expenditure aiming to gain market share rapidly e.g. Easy Jet attacking British airways w/cheap prices, same with tesco ‘evry lil helps’
slow penetration launch strategy
low price with low promotional expenditure/higher profits w/lower prices: popular with own-label brands as they will sell due to cheapness of product: Lidls/aldi
High pricing conditions
high niche functional value or high reflection psychological/Gucci, lack of competition, excess demand, customers high ability to pay, business bill payer, high pressures to buy item
Low pricing conditions
already market presence/domination: only feasible alternative, make money later: gillete machines cheap, ink expensive/elsewhere, market penetration to gain attention, barrier to entry: deter competition if dominating market, predation: to put other companies out of business, sales promotion/awareness
Trade off analysis
measures trade off between price and other products ask/tell customer to select customers of their product features/price and measure w/comp: results = proposed new product/optimal price found
Controlled store experiment
Product placed at different locations with different prices, can estimate value of product by success of a certain price – – involves paying supermarkets to put different prices and calculate sales
Test marketing experiment
involves lots of areas, requires a long trial, lots of effort but gives good information on how to set price nationally/reactions but easily effected by competitors/store bias shelf placement
Ethical issues on pricing PPDPPP
Price fixing, Predatory pricing, Deceptive pricing, Penetration pricing and obesity, price discrimination and price dumping
Price fixing
occurs when producers agree amongst themselves not to compete on price
Predatory pricing
occurs when a firm cuts its prices with the aim of driving out the competition
Deceptive pricing
occurs when consumers are mislead by price deals offered by companies
Penetration pricing and obesity
when companies charge low prices for fatty food targeting young ppl
Price discrimination
occurs when a supplier offers a better price for the same product to one buyer and not to another, which results ain an unfair competitive advantage.
Price dumping
involves the export of products at much lower prices than charged in the domestic market (sometimes even below the cost of production)
International pricing
some companies set uniform price worldwide, other companies adjust to reflect Local market conditions and cost considerations.
International local marketing conditions
Economic conditions, Competitive situations, Laws and regulations, Consumer perceptions and preferences, Development of wholesaling and retailing system, The firm’s marketing objectives in different countries
International pricing cost conditions
Costs of adapting the product, Import tariffs and taxes, Shipping and insurance costs, Costs associated with exchange-rate fluctuations, Channel and physical distribution costs