MS - pricing strategies (long term tactics)

Question 1

what is price in the ‘marketing mix’

Answer 1

Price relates to the amount or value at which goods and services are sold to customers

(REMEMBER: this is different from ‘cost’ which is a consideration for businesses in terms of what it takes to produce a good or service)

Price is vital in the marketing mix because it still drives much of consumer decision-making

A price set too high could mean lost sales unless superior benefits are offered. A price set too low may give customers the impression that the product is ‘cheap and nasty’

Question 2

key considerations with pricing

Answer 2

1. What methods will I use to price my products in the long term
2. What strategies/tactics will I use to alter the price for my products in the short term?

Question 3

pricing methods

Answer 3

1. Cost based
2. Market based
3. Competition based
4. Value based

Question 4

when selecting pricing methods businesses must consider

Answer 4

The level of competition

Government regulations

The location of the product on its life cycle

The level of economic activity

The status and value of the product/service

Question 5

cost based pricing

Answer 5

This method of pricing is based on determining the total costs of production per unit before adding an additional amount or mark up to provide an adequate profit margin

A business can also decide to avoid the use of the profit margins and decide that price= total cost per unit. This is called break-even pricing

Question 6

market based pricing

Answer 6

This is a method of setting a price according to the interaction between supply and demand – this is whatever the market is prepared to pay

If there is greater demand than available supply, the price will go up to meet this demand. If the supply exceeds the demand, the price will come down to clear this excess

Benefits: high demand means increased revenue, more flexible
Limitation: supply exceeds demand price must be dropped, fluctuations, uncertain

Question 7

competition based pricing

Answer 7

This method uses the price of competitors prices as a guide.

The price chosen covers costs and is then comparable to the competitors price i.e. Set them the same, above or below competitors

This would normally be done in highly competitive environments.

Those that set the price that is then used as a signal by others are known as price leaders

Benefits: competitive advantage, set a position as exclusive or more accessible, greater market share or higher sales revenue
Limitations: may be limiting profitability by undercutting = too low and reducing margins

Question 8

value based pricing

Answer 8

This method involves setting prices primarily based on a consumers perceived value of the product or service in question

Businesses that offer unique or highly valuable features or services are better positioned to take advantage of the value-based pricing than those that make mass market goods

Benefits: reinforcing a position of high value (status)