MKTG CH 9

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

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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

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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