PRICING

18-1
 Synonyms for Price
 Rent  Special assessment
 Tuition  Bribe
 Fee  Dues
 Fare  Salary
 Rate  Commission
 Toll  Wage
 Premium  Tax
 Honorarium

18-2
 What is Price?
 Price is commonly confused with the notion of cost.
 Price is what a buyer pays to acquire products from a
seller whereas cost concerns the seller’s investment
(e.g., manufacturing expense) in the product being
exchanged with a buyer.
 Price is the only element in the marketing mix of the
firm that generated revenue.
 Price is the amount customer have to pay to obtain
the product.
 In general terms price is a component of an exchange
or transaction that takes place between two parties
and refers to what must be given up by one party
(buyer) in order to obtain something offered by
another party (seller).

18-3
 Price is a key element in the
marketing mix
 Directly
-Price relates directly to the generation of total revenue
-Price is also the only marketing mix element that generates revenue, others are costs

 Indirectly
-Price can be a major determinant of the quantity of goods sold
-Price also influences total costs through its impact on
quantity sold

 Symbolically
-Price has a psychological impact on customers
-By raising price the quality of the product can be emphasised
-By lowering price marketers can emphasis a bargain

18-4
 Importance of Pricing
 Most Flexible Marketing Mix Variable
 Trigger of First Impressions
 Important Part of Sales Promotion
 Setting the Right Price

18-5
 Price - Quality Strategies
Price
High Medium Low
High
High
Product Quality

Premium
Premium High Super
Value
Value Value Value

Med Medium
Overcharging Good-Value
Value

Low False
Rip-Off Economy
Low Economy
18-6
18-7
 The Three C’s Model
for Price Setting

Low Price Costs Competitors’ Customers’ High Price

prices and assessment
No possible prices of of unique No possible
profit at substitutes product demand at
this price features this price

18-8
 Price and Competition

 Price competition  Non-price competition

Is a policy whereby Is a policy in which a seller
marketers emphasises elects not to focus on price
price as an issue and but to emphasis other
matches or beats the factors instead.
prices of competitors

18-9
 Non-Price Competition
Non price competition is done in the following ways:

- Reinforcing the quality image of the product

- Reinforcing the desirability of the product benefits
- Using extended warranty to help customers think they are getting more for
their money
- Emphasise the longer term cost saving derived from using this product with
the cheaper competition
- Customer loyalty cards
- Incentives for purchasing off-peak, or out of season
- Internet shopping
- Home delivery systems

18-10
 Internal Influences on Pricing
 Organisational objectives - the role pricing can play in
achieving long and short-term corporate objectives

 Marketing objectives - long & short term marketing

objectives; price & product positioning

 Costs - the relationship between price and cost; balancing

the need to cover costs against the price the market will
bear

18-11
 External influences on pricing

 Customers and consumers: demand & elasticity; price

sensitivity
 Channels of distribution: need to cover costs, value
added to products; desired margins
 Competitors: pricing under different market structures
 Legal and regulatory: freedom to set prices, unfair
pricing practices: sales taxes, VAT and their impact on
prices

18-12
 Internal & External Influences on Pricing

 Internal factors -  External factors

Marketing strategies -Types of customers
.Targeting -customer perception of
.positioning and .marketing value of the product
mix strategy -Financial
-elasticity of demand
strategies .the cost
-the competitiveness of the
base of fixed & variable
market place
costs .the
.perfect competition
financial objectives of the .monopolistic
organisation .oligopolistic .
pure monopoly

18-13
18-14
Two generic pricing strategies for
new products
Skimming Policy
 Price skimming involves
charging a relatively high
price for a short time where a
new, innovative, or much-
improved product is launched
onto a market
 A major disadvantage is that
it encourages new entrants
Penetration Policy
 Penetration pricing involves the
setting of lower, rather than higher
prices in order to achieve a large, if
not dominant market share.
 This strategy is most often used in
businesses wishing to enter a new
market or build on a market share.
 A successful penetration pricing
strategy may lead to large sales
volumes/market shares and
therefore lower costs per unit.
18-15
 New product launch strategy
Promotion
High Low

High Rapid Slow

skimming skimming

Price

Rapid Slow
Low penetration penetration

18-16
 New product launch pricing
strategies
 Rapid Skimming strategy  Slow skimming strategy -
- tends to combine high price and tends to combine high prices with low level
high promotion expenditure. High of promotion expenditure - High prices
means high revenue but promotion is left to
prices is used to create high revenue,
mainly word-of-mouth
while high promotion used for
product awareness & knowledge

 Rapid penetration strategy  Slow penetration strategy

- tends to combine low - tends to combine
prices with high promotional low prices with low promotional
expenditure - aims to gain expenditure -
market share rapidly mainly used by Own-label brands
18-17
 Conditions for charging high &
low prices
 Conditions for charging  Conditions for charging low
high prices prices
-lack of differential advantage
-product provides high
value -market presence/dominance
-economies of scale
-customers have high
-to make money later
ability to pay
-make money by using loss leader
-lack of competition to attract customers
-high pressure to buy -using low price as a barrier to
entry

18-18
1. Selecting the pricing
objective

2. Determining demand

3. Estimating costs

4. Analyzing competitors’
costs, prices, and offers

5. Selecting a pricing
method

6. Selecting final price

18-19
 COSTS
Fixed
Fixed Costs
Costs Variable
Variable Costs
Costs
(Overhead)
(Overhead)
Costs
Coststhat
thatdon’t
don’t Costs
Coststhat
thatdo
dovary
vary
vary
varywith
withsales
salesor
or directly
directlywith
withthe
the
production
productionlevels.
levels. level of production.
level of production.
Executive
ExecutiveSalaries
Salaries Raw
Rawmaterials
materials
Rent
Rent

Total
Total Costs
Costs
Sum
Sumof
ofthe
theFixed
Fixedand
andVariable
VariableCosts
Costsfor
foraaGiven
Given
Level
Levelof
ofProduction
Production
18-20
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PRICING

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18-23