pricing strategy
MODULE 1: PRICING STRATEGY
Price is the one element of the marketing mix that produces revenue - kotler and keller
MARKETING MIX
PRODUCT
| PLACE
|
PRICE
| PROMOTION
|
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
COMPONENTS OF PRICE
If you buy a new car, the sticker price may be adjusted by rebates and dealer incentives
Some firms allow for payment through multiple platforms such as 15k + 25k frequent flier miles for a flight
Prices were set by negotiation between buyers and sellers
Bargaining is still a sport in some areas
A CHANGING PRICING ENVIRONMENT
A combination of environmentalism, renewed frugality and concerns about jobs and home values forced many U.S Consumers and Asian Consumers to RETHINK how they spent their money
They replaced luxury purchases with basics
They buy fewer accessories
They ate at home more often and purchased espresso machines, make lattes in their kitchen instead of buying them in expensive cafe’s
In buying cars, they downsize to smaller, more fuel efficient
They even cut back spending on hobbies and sport activities
Downward price pressure from a changing economic environment coincided with some longer trends in the technological environment
The internet has been changing how buyers and sellers interact
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
HOW COMPANIES PRICE
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 companies, the boss often set prices
In large companies, division and product line managers do
Top management sets general pricing objectives and policies and often approves lower management’s proposals
When pricing is a key factor (aerospace, railroads, oil companies), companies often establish a pricing department to set or assist others in setting appropriate prices
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.
For any organization, effectively designing and implementing pricing strategies requires a thorough understanding of consumer pricing psychology and a systematic approach to setting, adapting and changing prices
CONSUMERS PSYCHOLOGY ON PRICING
Many economists traditionally assume that consumers were “price takers” and accepted price at “face value” or as given.
However, they recognize that consumers:
Often actively process price information, interpreting it from the context of prior purchasing experience, formal communications (advertising, sales calls, brochures) informal communications (friends, colleagues or family members) point of purchase or online resources and other factors
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
PRICE QUALITY INFERENCES
Many consumers use price as an indicator of quality.
Image pricing is especially effective with ego-sensitive products such as perfumes, expensive cars, and designer clothing.
When information about true quality is available, price becomes a less significant indicator of quality. When this information is not available, price acts as a signal of quality.
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