MKTG CH 9

What is price?

What is price?

• Marketer's pov: Money or other considerations (goods/services) exchanged for ownership of use of a product

• Consumer's pov: indicate a vaue when it's compared with perceived benefits of a product or service = quality, durability, etc…

Value formula

• Value = perceived benefits / price

Demand oriented approaches

• Emphasize factors underlying expected customer tastes and preferences more than such factors as cost, profit, and comp when selecting price level

Skimming pricing

• firm introducing new product -- setting highest initial price that customers really desiring the product are willing to buy

  • Once demand of those customers satisfied, firm lowers price to attract more price sensitive segment

Penetration pricing

setting lower, more affordable, initial price on new product to appeal immediately to mass market

• discourages comps from entering market since profit margin relatively low

prestige pricing

setting high price so quality / status-conscious consumer are attracted

• Higher the price of prestige product = greater status associated with it and greater exclusivity -- fewer people can afford it

odd even pricing

• setting prices a few dollars or cents under an even number

  • Ex: $399.99, $2.97

bundle pricing

• marketing two or more products in one package price

  • Ex: vacation packages -- airfare, car rental, hotel

    • Consumers value package more than individual items bc benefits received from not having to  make separate purchases

    • Often provides a lower total cost to buyers and lower marketing costs to sellers

yield management pricing

• varying prices based on time, day, week, or season to match demand and supply

  • Ex: airlines, hotels, car rentals -- one pays more than the other for the same airline ticket

cost oriented approaches

• Balance both revenues and costs to set price. Might involve either setting a target of a specific dollar volume of profit or expressing this target profit as % of sales or investments

  • Target profit pricing: firm sets an annual target of specific dollar amount of profit

profit

profit = total revenue - total costs

profit = (pictures sold * price/picture) - [(cost/picture * pictures sold) + overhead cost]

competition oriented approaches

• Rather than emphasize demand, cost, or profit factors, a company's approach may be based on an analysis of what competitors are doing

The importance of accurate forecasting

• Forecasts created by marketing department impact decisions made in other areas of org -- production and finance

• Inaccurate info and poor estimates = bad to the profitability of marketing campaign

• Quantitative and qualitative analysis

• It is an estimate -- researchers need to identify methodologies that can help marketers forecast more accurately

  • Profit and loss: accurate statements help org measure financial performance, revenue, costs, expenditures over time

  • ROI % = (gain attributable to investment - cost of investment) / cost of investment

fundamentals of estimating demand

• Demand for product / service estimated diff ways

• Org study marketplace by reviewing historical results from sales and competitors sales

• Org can also conduct tests to gauge demand of product

  • Demand curve: graph relating quantity sold and price

    • 3 key factors:

    • Want

      1. Consumer taste

      2. Price and availability of similar products

    • Need

      1. Consumer income

fundamentals of estimating revenue

• Total revenue = P * Q

break even point

• BEP = fixed cost / (unit price - unit variable cost)

• Used most frequently to study impact on profit of changes in price, fixed cost, and variable cost.

identifying pricing objectives

• Specify role of price in org's marketing and strategic plans

identifying pricing constraints

• Factors that limit range of price a firm may set

• Consumer demand for product clearly affects the price that can be changed

legal and ethical considerations

• Laws and regulations that play a role in price decision

• Price fixing: competitors collab and conspire to set prices

• Price discrimination: diff customers get diff prices

• Deceptive pricing: price offers that mislead

• Predatory pricing: low price set to drive competitors out of business

setting final price

• One of most difficult tasks

• 4 steps

1. Select approx price level

2. Set list or quoted price

3. Make special adjustments to list or quoted price

4. Monitor and adjust prices