Marketing Mix - Pricing Flashcards
Factors affecting pricing
- Product life cycle
- Objectives (corporate and marketing) and the product portfolio
- Products position in the market
- Competitors Strategies and Prices
- Potential Competitors
- COSTS –own and competitors
- Channels of distribution
Setting the Price
A firm must consider many factors in setting its pricing policy.
Setting the Price
- Selecting the Pricing Objective
- Survival
- Maximum Current Profit
- Maximum Market Share
- Maximum Market Skimming
- Product-Quality Leadership
Market Share MS
Market Growth MG
Cash Cows - High MS Low MG
Stars - High MS HIGH MG
Question Marks - Low MS High MG
Dogs - Low MS Low MG
Setting the Price
- Determining Demand
Price sensitivity
- Companies prefer customers who are less price-sensitive
Estimating demand curves
- Inelastic demand occurs when demand hardly changes when there is a small change in price
- Elastic demand occurs when demand changes greatly for a small change in price
Price Elasticity of Demand
Setting the Price
- Estimating Costs
Target Costing
The price of the product is determined by market conditions. The company is aprice takerrather than aprice maker.
The minimum required profit margin is already included in the target selling price.
It is part of management’s strategy to focus on cost reduction and effective cost management.
Setting the Price
- Analysing competitors
Market Price
Production Costs
Competitor Reaction
Setting the Price
- Marginal Cost Pricing
Margin - The percentage margin is the percentage of the final selling price that is profit.
Markup - A markup is what percentage of the cost price do you add on to get the selling price.
- Target-Return Price
Break Even Chart, return the target
- Perceived Value Pricing
Perceived value pricing
Value = Benefits - Costs
Effective customer-oriented pricing involves understanding how much value consumers place on the benefits they receive from the product and setting a price that captures that value
- Value Pricing
Value pricing is not just setting lower prices; it is a matter of reengineering the company’s operations to become a low-cost producer without sacrificing quality
- Discount Pricing
Discount pricing, is when companies adjust their list prices, and give discounts and allowance for early payments, volume purchases, and off-season buying.
- Going-Rate Pricing
- Follow the Leader
- Occurs where there is no differentiation between products
- Match going rate to retain market share
- Pricing New Products: Skimming pricing strategy
Skimming:
- Demand is likely to be inelastic
- Different price-market segments, thereby appeals to those buyers first who have a higher range of acceptable prices
- Little is known about product costs
- Pricing New Products: Penetration pricing strategy
Penetration:
- Demand is likely to be elastic
- Competitors are likely to enter the market quickly
- No distinct and separate price-market segments
- There is the potential of large savings in production & marketing costs based on volume
Market Skimming
- High price charged
- ‘Just’ worthwhile for some segments to adopt new product
- As competitors enter market, price is lowered
Market Penetration
- Low initial price charged
- Attract large volume sales quickly
- Large market share
- High volume sales save costs
- Economies of scale on production and distribution
Pricing New products
Step 6: 3 Cs Model
Low Price - No possible profit at this price
Costs
Competitors’ prices and prices of substitutes
Customers assessment of unique product features
High price - No possible demand at this price
Step 6: The Final Price
- Impact of other marketing activities
- Company pricing policies
- Gain-and-risk sharing pricing
- Impact of price on other parties
Place: Distribution
All those organisations through which a product must pass between its point of production and consumption
A way in which goods move from the producer to the end user
Functions of Channel Intermediaries
Reconciling needs of
producers and consumers
Improving efficiency
Improving accessibility
Providing specialist services
Distribution channels - Consumer goods
Producer - Agent - Wholesaler - Retailer - Consumer
Distributional channels for industrial goods
Producer - agent - distributor - Industrial consumer
Service Channels
Service provider to consumer
Service provider to agent to business customer
Managing Channel Conflict
Sources.
- Differences in goals.
- Differences in desired product line.
- Multiple distribution channels.
- Inadequacies in performance.
Avoiding and resolving conflict. Developing a partnership approach. Training. Market positioning. Improving performance. Channel ownership. Coercion
