pricing 1212321231

Price

is the one element of the marketing mix that produces revenue - kotler and keller

PRODUCT

• Product variety

• Quality

• Design

• Features

• Brand name

• Packaging

• Sizes

• Services

• Warranties

• returns

PLACE

• Channels

• Coverage

• Assortments

• Locations

• Inventory

• Transport

PRICE

• List price

• Discounts

• Allowances

• Payment period

• Credit terms

PROMOTION

• Sales promotion

• Advertising

• Sales force

• Public relations

• Direct marketing

MODERN MARKETING MANAGEMENT 4PS

• People

• Processes

• Programs

• Performance

HOW CONSUMERS PROCESS AND EVALUATE PRICES

• Price is not just a number on a tag

• It comes from many forms and performs many functions

• Rent, tuition, fares, fees, rates, tolls, retainers, wages, and commissions are all the price you pay for some good or service

LIST OF HOW THE INTERNET HAS BEEN CHANGING HOW BUYERS AND SELLERS INTERACT

• Get instant price comparisons from thousands of vendors

• Name their price and have it met

• Get products free

• Give certain customers access to special prices

• Negotiate prices in online auctions and exchanges or even in person

PURCHASE DECISION

are based on how consumers perceive price and what they consider the current actual price to be - “and not on the marketer’s stated price”

CUSTOMERS HAS LOW PRICE THRESHOLD

below which prices signal inferior or unacceptable quality, as well as an upper price threshold above which prices are prohibitive and the products appears not worth the money

in small company

the boss often set prices

large companies

division and product line managers set the price

Top management

sets general pricing objectives and policies and often approves lower management’s proposals

This department reports to marketing department, finance or top management to set or assist others in setting appropriate prices

Others who influence pricing includes:

• Sales managers

• Production managers

• Finance managers

• accountants

Many companies do not handle pricing well and fall back on strategies such as:

• we determine our costs and take our industry’s traditional margins

• Other common mistakes are not revising price often enough to capitalize on market changes

• Setting price independently of the rest of the marketing program rather than as an intrinsic element of market positioning strategy

• Not varying price enough for different product items, market segments, distribution channels, and purchase occasions.

CONSUMERS PSYCHOLOGY ON PRICING

Many economists traditionally assume that consumers were “price takers” and accepted price at “face value” or as given.

POSSIBLE CONSUMER REFERENCE PRICE

• Fair price (what consumers feel the product should cost)

• Typical price

• Last price paid

• Upper bound price (reservation price or the maximum most consumers would pay)

• Lower bound price (lower threshold price or the minimum most consumers would pay)

• Historical competitor prices

• Expected future price

• Usual discounted price

Fair price

what consumers feel the product should cost

Upper bound price

reservation price or the maximum most consumers would pay

Lower bound price

ower threshold price or the minimum most consumers would pay

Image pricing

is especially effective with ego-sensitive products such as perfumes, expensive cars, and designer clothing

PRICE ENDINGS

many sellers believe prices should end in an odd number.

• Customers see and item priced at 299 as being in the 200 rather than the 300 range; they tend to process prices “left-to-right” rather than by rounding

PRICE ENCODINGS

in this fashion is important if there is a mental price break at the higher rounded price

SALE

signs next to prices spur demand, but only if not overused: total category sales are highest when some, but not all, items in a category have sale signs; past a certain point, sale signs may cause total category sales to fall.

PRICING CUES

such as sale signs and prices that end in 9 are more influential

LIMITED AVAILABILITY

can spur sales among consumers actively shopping for a product

FACTORS AFFECTING PRICE OF COMMODITIES IN THE MARKET

GOVERNMENT POLICIES, ECONOMIC POLICIES STORAGE AND TRANSPORTATION FACTORS, DEMAND AND SUPPLY

GOVERNMENT POLICIES

also affect prices of the commodity. Especially their export and import policy for the purchaser and seller will have a huge impact on commodity prices. SIMILAR INCREASE IN THE PRICE OF A CONTRACT.

ECONOMIC POLICIES

Prices of commodities are also affected by the economic and political events of the countries that are producing using that commodity.

STORAGE AND TRANSPORTATION FACTORS

Almost all kinds of commodities need to be stored prior to Its distribution.

DEMAND AND SUPPLY

are the important factors that force the movement of price in the commodity market.

The rule of demand and supply plays the same role for both equity as well as commodity markets.

Demand and supply of all commodities change from time to time.

It depends upon national, seasons, and international conditions.

• Inflation

• Exchange rates

• Productivity

WEATHER CONDITION 

A number of commodities traded in these markets are agricultural goods, and the production of these goods depend on the weather.

SETTING THE PRICE

STEP 1. SELECTING THE PRICING OBJECTIVES

The company shall first decide where it wants to position its market offering.The clearer the firm’s objectives, the easier it is to set price.There are five (5) major objectives:

• SURVIVAL

• MAXIMUM    CURRENT PROFIT

• MAXIMUM    MARKET SHARE

• MAXIMUM    MARKET SKIMMING

• PRODUCT QUALITY LEADERSHIP

• OTHER OBJECTIVES

SURVIVAL

Company set this major objectives because of

• Overcapacity

• Intense competition

• Changing consumer wants

MAXIMUM CURRENT PROFIT

• Most of the companies try to set prices that will always maximize current profits.

• Companies estimate demand and costs associated with alternative prices and choose the price that produces current profit

• Cash flow or Rate of Return on Investment ( ROI)

• In emphasizing current performance, the company may sacrifice long run performance

• Ignores the effect of Marketing variables, competitor's reaction and legal restraints

MAXIMUM MARKET SHARE

• Companies believe that higher sales volume will lend to lower unit costs and higher long-run profit.

• Using Market-Penetration Pricing

• This condition favor adopting Market Penetration Strategy

• The market is highly price sensitive & low price stimulates market growth

• Production and distribution fall with accumulated production experience

• Low price discourages actual and potential competition.

MARKETING SKIMMING PRICING

prices start high and slowly drop overtime.

IN WHAT CONDITION MARKET SKIMMING MAKES SENSE?

• A sufficient number of buyers have high current DEMAND;

• The unit costs of producing a small volume arc high enough to cancel the advantage of charging what the traffic will bear;

• The high initial price does not attract more competitors to the market;

• The high price communicates the image of a superior product

PRODUCT QUALITY LEADERSHIP

A company might aim to be the product Quality Leader in the market.

“affordable luxuries“

products or services characterized by high levels of perceived quality, taste, and status with a price just high enough not to be out of consumers’ reach.

PRICE SENSITIVITY

• Each price will load to a different level of demand and have a different impact on a Company's marketing objectives.

• The normally inverse relationship between price and demand is captured in a demand curve (see Figure 14.1):

• The higher the price, the lower the demand.

• For prestige goods, the demand curve sometimes slopes upward.

• One perfume company raised its price and sold more rather than less! Some consumer1' take the higher price to signify a better product.

• However, if the price is too high, demand may fall.

INELASTIC DEMAND

 occurs when people buy about the same amount of a product or service, no matter how much the price changes.

ELASTIC DEMAND

one in which the change in quantity demanded due to a change in price is large

Factors Leading to Less Price Sensitivity

• The product is more distinctive.        

• Buyers are less aware of substitutes.

• Buyers cannot easily compare the quality of substitutes.

• The expenditure is a smaller part of the buyer’s total income.

• The expenditure is small compared to the total cost of the end product.

• Part of the cost is borne by another party.

• The product is used in conjunction with assets previously bought.

• The product is assumed to have more quality, prestige, or exclusiveness.

• Buyers cannot store the product.

CONDITIONS THAT LEAD CUSTOMERS TO BE LESS PRICE SENSITIVE

• There are few or no substitutes or competitors

• Customers don't readily notice the higher price.

• They are slow to change their buying habits

• They think the higher prices are justified

• Price is only a small part of the total cost of obtaining, operating, and servicing the product over its lifetime.

ESTIMATING DEMAND CURVES

SURVEYS, PRICE EXPERIMENTS,STATISTICAL ANALYSIS,PRICE ELASTICITY OF DEMAND

SURVEYS

can explore how many units consumers would buy at different proposed prices.

• Although consumers might under Male their purchase intentions at higher prices to discourage the company from pricing high, they also tend to actually exaggerate their willingness to pay for new products or services

PRICE EXPERIMENTS

an vary the prices of different products in a store or charge different prices for the same product in similar territories to sex- ho« the change affects sales An e-business could test the impact of a 5 percent price in- crease by quoting a higher price to every 40th visitor, to compare the purchase response.

STATISTICAL ANALYSIS

past prices, quantities sold, and other factors can reveal their relation- ships.

• The data can be longitudinal (over time) or cross-sectional (from different locations at the same time).

PRICE ELASTICITY OF DEMAND

Marketers need to know how responsive, or elastic, demand is to a change in price.

PRICE ELASTICITY OF DEMAND

The higher the elasticity, the greater the volume growth resulting from a 1 percent price reduction.

•  If demand is elastic, sellers will consider lowering the price. A lower price will produce more total revenue. This makes sense as long as the costs of producing and selling more units do not in- crease disproportionate

SKU

stock keeping unit