Mark 7 Flashcards
What factors affect the choice of pricing method
Define cost-based pricing
Cost-based pricing is a useful approach to price setting in that it can give an indication of the minimum price that needs to be charged in order to break even.
The real value of this approach is that it gives an indication of the minimum price necessary to make a profit.
The problems with this method are the following:
- Using cost-based pricing leads to an increase in the price as sales fall.
- The procedure is illogical because a sales estimate is made before the price is set.
- It focuses on internal costs rather than the customer’s willingness to pay.
Define competitor-orientated pricing
This type of pricing may take one of 3 forms:
- Where firms follow the prices charged by leading competitors
- Where producers take the going-rate price
- Where contracts are awarded through a competitive bidding process
Define market-led pricing
A key marketing consideration when pricing is estimating the value to the customer. Three useful techniques for determining customers’ perception of value are:
- Trade-off analysis: Measurement of the trade-off between price and other product features. This exercise enables one to measure the impact on preferences of increasing or reducing the price.
- Experimentation: The placement of a product on sale at different locations with varying prices to test the effectiveness of varying prices within certain markets.
- Economic value to the customer analysis (EVC): The more value a product gives compared to the competition, the higher the price that can be charged.
What other factors can affect price setting decisions
Positioning strategy
New product launch strategy
Product-line strategy
Competitive marketing strategy
Channel management strategy
International marketing strategy
What is an ethically fair price
Price is a hotly debated aspect of marketing. There are several ways organisations can exploit consumers by overcharging for goods and service.
Price fixing: companies collude with each other to ensure that everyone charges the same or similar prices.
Deceptive pricing: prices are not the same as they may first appear. Consumers need to be very careful when judging the price of a good or service
Define new product launch strategy
When launching new products, price should be carefully aligned with the promotional strategy. The high price provides high-margin returns on investment and the heavy promotion creates high levels of product awareness and knowledge.
Define product line strategy
Marketing-orientated companies need to take account of where the price of a new product fits into its existing product line.
Where multiple segments appear attractive, modified versions of the product should be designed, and priced differently, not according to differences in costs, but in line with the respective values that each target market places on a product.
Define Competitive marketing strategy
The pricing of the products should also be set within the context of the firm’s competitive strategy.
- Build an objective
- Hold objective
- Harvest objective
- Reposition objective
Define Channel management strategy
When products are sold through intermediaries such as distributors or retailers, the list price to the customer must reflect the margins required by the distributors.
The implication is that pricing strategy is dependent on understanding not only the ultimate customer but also the needs of distributors and retailers who form the link between them and the manufacturer
Define International Marketing Strategy
The first challenge that managers will have to deal with when exporting is price escalation.
Price escalation means a number of factors may combine to put pressure on the firm to increase the prices it charges in other countries. These may include inflation rates, exchange rates and customs duties.
In such instances it is important for firms to guard against parallel importing – this is when products destined for an international market are re-imported back into the home market and sold through unauthorized channels at levels lower than the company wishes to charge
What makes companies initiate price changes
There are 3 key issues associated with initiating price changes:
- Circumstances which might lead a company to raise or lower prices
- Tactics
- Estimating the competitor’s reaction
Evaluate price changes in responce to competitors
Define customer value through pricing
Price leadership has become the central value for firms throughout different industries. The three tools utilised by firms to assist in the challenges are:
Cost management: Cost control is critical for firms that attempt to lead on price as their success in controlling costs has a direct impact on profit margins.
Yield management: Very popular in services businesses like travel and hotel is the monitoring of demand or potential demand patterns.
Dynamic pricing: This means that prices are adjusted continually, based on demand and potential demand.
