Pricing Flashcards
Why it’s important
A firm can develop a great product,driver superior value, and have it available in the idea location, but if they cannot get the pricing right they won’t be successful
At the same time good pricing with a message that does not resonate with members of the target market will also prove to be ineffective
Role of price
The exchange value of a product or service in the market place
Easy to change
Should be signed with the overall marketing strategy of the brand
In the marketing mix
Price is the study of how we price the product or the service
Differentiate between value and worth
How do we price products and services
A) cost based
B) competitive based
C) market based (value based)
Cost based
Profit= revenue(price x units sold ) - costs (fixed +variable )
Competitive based
Competition
Going rate price
Common for commodities
Market based (value based)
Market related factors
New product pricing Value to the customer Product line pricing Price equality relationships Explicability Negotiating margins Effect on distributors/ retailers
What effects or influences prices
Competition
Direct or indirect ?
Effect on distributors / retailers
More likely to stock if margins are attractive m
Legal factors
What is value to the customer does it affect price
Need to estimate how much customers are willing to pay
Trade off analysis -conjoint analysis
Normal price and normal service
E.g. 5% higher price and rapid service
Experimentation- store experiments
Economic value to customer (EVC)
Analysis of purchase price and lifetime running costs
Design Reliability Performance Endurance Safety Cost reductions
Other influences
Seasonality
Obsolete stock
Other products
Information
Legal
Natural etc
What strategies do we use
Pricing strategy identifies what a business will charge for its products and services
1) develop pricing objectives
2) estimate demand
3) determine costs
4) evaluate market environment
5) choose pricing strategy
6) develop pricing tactics
Pricing objectives
Profitability - need to meet profit targets
Meeting competition - position price near competitors if price in main differential
Prestige - being perceived as luxurious can be beneficial
Volume-economies of scale reduce cost and increase output, may put price low to increase volume of sales to gain market share to limit competitors from entering or to enter a crowded market
Penetration pricing
Product offered at lower price compared to comp to quickly generate sales volume
High volume reduces costs Low price deters competitors Demand is elastic Buyers price sensitive Competitor imitation possible
Price skimming
High price at introduction and then lowered over time, done to generate as much profit as possible before competitors enter the market
Product outperforms others Early adopters value product Demand is inelastic Expected demand can't be met High quality is desired position
Other pricing strategies
Storefront and online
Storefront pricing - prices being set on brick and mortar sales - prices set based on required markup to support a physical location (online don’t pay)
Online pricing - setting prices based on cost structure of an internet retailer, while online retailers incur costs but not as significant as a traditional retailer
