Principles of Marketing - Pricing Strategies

1. Definition of Price

• Price is the amount of money charged for a product or service.

• Broad definition: It is the sum of all values that customers exchange for the benefits of having or using a product or service.

2. Major Pricing Strategies

Companies set prices between a price floor (production costs) and a price ceiling (customer perceptions of value).

1. Customer Value-Based Pricing: Setting price based on buyers' perceptions of value rather than on the seller's cost.

2. Cost-Based Pricing: Setting prices based on the costs of producing, distributing, and selling the product plus a fair rate of return for effort and risk.

3. Competition-Based Pricing: Setting prices based on competitors' strategies, prices, and market offerings.

3. Customer Value-Based Pricing (CVBP)

• Good-Value Pricing: Offering just the right combination of quality and good service at a fair price.

  • Everyday Low Pricing (EDLP): Charging a constant, everyday low price with few or no temporary price discounts (e.g., Walmart).

  • High-Low Pricing: Charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items.

• Value-Added Pricing: Attaching value-added features and services to differentiate a company's offers and thus support higher prices.

4. Cost-Based vs. Value-Based Pricing

• Value-Based Pricing (Customer-driven):

  1. Assess customer needs and value perceptions.

  2. Set target price to match customer perceived value.

  3. Determine costs that can be incurred.

  4. Design product to deliver desired value at target price.

• Cost-Based Pricing (Product-driven):

  1. Design a good product.

  2. Determine product costs.

  3. Set price based on cost.

  4. Convince buyers of product's value.

5. Cost-Based Pricing Details

• Total Costs ($TC$): The sum of the Fixed Costs ($FC$) and Variable Costs ($VC$) for any given level of production.

  • $TC = FC + VC$

• Fixed Costs ($FC$): Costs that do not vary with production or sales level (e.g., rent, executive salaries).

• Variable Costs ($VC$): Costs that vary directly with the level of production (e.g., raw materials, packaging).

• Cost-Plus Pricing (Markup Pricing): Adding a standard markup to the cost of the product.

• Break-Even Pricing (Target Return Pricing): Setting price to break even on the costs of making and marketing a product, or setting price to achieve a specific target return. This is often calculated using a break-even chart.

6 & 7. Production Scales and Unit Costs

• Economies of Scale: As a factory or "plant" gets bigger and produces more, fixed costs are spread over a larger volume, causing the cost per unit to decrease.

• Experience Curve (Learning Curve): The drop in the average per-unit production cost that comes with accumulated production experience. The more you produce, the better you become at the process, lowering the unit cost.

8. Competition-Based Pricing

• Strategy where price is determined by evaluating competitors' strategies, costs, prices, and market offerings.

• Consumers base their judgments of a product's value on the prices that competitors charge for similar products.

9. Other Considerations Affecting Pricing

• Target Costing: Pricing that starts with an ideal selling price based on customer value considerations and then targets costs that will ensure that the price is met.

• Organizational Considerations: Decisions regarding who within the organization sets prices and how the process is managed.

• The Market and Demand: Understanding how price affects demand via the demand curve.

10. Types of Market Structures

• Pure Competition: A market with many buyers and sellers trading in a uniform commodity; no single participant has a significant impact on market price.

• Monopolistic Competition: A market with many buyers and sellers trading over a range of prices rather than a single market price because offers are differentiated.

• Oligopolistic Competition: A market with only a few large sellers who are highly sensitive to each other's pricing and marketing strategies.

• Pure Monopoly: A market dominated by a single seller (e.g., government monopoly or private regulated monopoly).

11. Price Elasticity of Demand

• Definition: A measure of the responsiveness of demand to changes in price.

• Inelastic Demand: Demand hardly changes with a small change in price.

• Elastic Demand: Demand changes significantly with a small change in price.

12. The Promotional Mix

• The Promotion Mix (Marketing Communications Mix): The specific blend of promotion tools that the company uses to persuasively communicate customer value and build customer relationships. The five major tools are:

  • Advertising: Paid, nonpersonal presentation of ideas, goods, or services by an identified sponsor.

  • Sales Promotion: Short-term incentives to encourage purchase.

  • Personal Selling: Personal interactions by the sales force to build relationships and make sales.

  • Public Relations (PR): Building good relations with publics and handling favorable/unfavorable publicity.

  • Direct and Digital Marketing: Engaging directly with targeted consumers for immediate response.

13. Today’s Marketing Communication Model

• Factors Affecting the Model:

  • Changing Consumers: Better informed and digitally empowered.

  • Changing Marketing Strategies: Shifting from mass marketing to focused programs building closer relationships in micromarkets.

  • Advancements in Digital Technology: New tools allow more targeted, social, and interactive communication.

14. Content Marketing

• Definition: Creating, inspiring, and sharing brand messages and conversations with consumers across a fluid mix of paid, owned, earned, and shared channels.

• Discussion: Marketers act as content publishers rather than just ad buyers to share helpful/entertaining info.

• Examples: YouTube recipe videos by food brands, fitness blogs by apparel companies.

15. Integrated Marketing Communication (IMC)

• Definition: Carefully integrating and coordinating the company’s many communications channels to deliver a clear, consistent, and compelling message about the organization and its products.

• Application: Ensuring that every touchpoint (website, retail display, social media, TV ad) conveys the same brand message.

16. The Communication Process

• Sender: Party sending the message.

• Encoding: Putting thought into symbolic form.

• Message: The symbols transmitted.

• Media: Communication channels used.

• Decoding: Meaning assigned by the receiver.

• Receiver: Party receiving the message.

• Response: Reactions after exposure.

• Feedback: Response communicated back to sender.

• Noise: Unplanned static or distortion.

17. Steps in Developing Effective Marketing Communication

1. Identify the Target Audience: Determining who the message is for.

2. Determine Communication Objectives: Moving the audience through the Buyer-Readiness Stages: Awareness → Knowledge → Liking → Preference → Conviction → Purchase.

3. Design a Message: Addressing Content (Appeals), Structure (Logic), and Format (Symbols).

4. Choose Channels and Media: Deciding between Personal (face-to-face) and Nonpersonal (major media).

5. Select the Message Source: Using credible sources to increase persuasiveness.

6. Collect Feedback: Researching the effect on the target audience.

18. Setting the Total Promotion Budget

• Affordable Method: Based on what management thinks the company can afford.

• Percentage-of-Sales Method: Based on current or forecasted sales.

• Competitive-Parity Method: Matching competitors’ spending.

• Objective-and-Task Method: Defining objectives, determining tasks, and estimating costs.

19. Push vs. Pull Promotion Strategies

• Push Strategy: The producer uses personal selling and trade promotions to ‘push’ the product to the retailer, who in turn ‘pushes’ it to the consumer.

• Pull Strategy: The producer markets directly to consumers to create demand, which ‘pulls’ the product through the channel as consumers demand it from retailers.

20. Social Responsibility

• Marketers must ensure advertising and selling are honest and avoid deceptive practices like bait-and-switch. Communications should be socially responsible and avoid offending groups or promoting harmful substances.

1. Introduction and Definition of Direct and Digital Marketing

   • Definition: Engaging directly with carefully targeted individual consumers and customer communities to both obtain an immediate response and build lasting customer relationships.

   • Direct marketing has been transformed by digital technologies, moving from a supplementary channel to a core business model for many firms.

2. Benefits of Direct and Digital Marketing

   • For Buyers:

     • Convenience: Easy and private shopping experience.

     • Access: Anywhere, anytime access to an almost unlimited count of goods and wealth of product information.

     • Interaction: Interactive and immediate engagement with brands.

   • For Sellers:

     • Efficiency: Low-cost, speedy way to reach targeted markets.

     • Flexibility: High flexibility in adjusting prices and programs in real-time.

     • Relationships: Facilitates the building of one-on-one, long-term customer relationships.

3. Traditional vs. Digital and Social Media Marketing

   • Traditional Forms: Includes face-to-face selling, direct-mail, catalog, telemarketing, direct-response TV, and kiosk marketing.

   • Digital Forms: Includes online marketing (websites, ads, email, blogs), social media marketing, and mobile marketing.

   • Conclusion: Successful companies typically do not choose one over the other; instead, they utilize an integrated mix of both traditional and digital tools to maximize reach and engagement.

4. Company Response and Strategies

   • Companies are increasingly shifting their budgets toward digital media as it allows for more precise targeting and measurable results.

   • Strategies focus on creating brand engagement and community rather than just pushing for a transaction.

5. Omni-Channel Retailing

   • Definition: Creating a seamless cross-channel buying experience that integrates in-store, online, and mobile shopping.

   • Application: In a case setting, a retailer succeeds in omni-channel marketing when a customer can browse on a mobile app, check local store inventory, buy online, and pick up the item in-store with a consistent brand experience.

6. What Online Marketing Entails

   • Definition: Marketing via the internet using company websites, online ads and promotions, email, online video, and blogs.

     • Marketing Web Sites: Designed to engage consumers and move them closer to a direct purchase.

     • Branded Community Web Sites: Designed to present brand content that engages consumers and creates customer community rather than selling products directly.

7. Social Media and Mobile Marketing

   • Social Media Marketing: Independent and commercial online social networks where people congregate to socialize and share content. Key benefits are that it is personal, interactive, immediate, and cost-effective.

   • Mobile Marketing: Marketing messages, promotions, and other content delivered to on-the-go consumers through mobile devices. It is used to stimulate immediate buying or make shopping easier.

8. Traditional Direct Marketing Forms

   • Face-to-Face Selling: Personal interaction between a salesperson and a client.

   • Telemarketing: Using the telephone to sell directly to consumers and business customers.

   • Direct-Response Television (DRTV) Marketing: Includes informercials and interactive television (iTV) advertising that allows viewers to use their remotes or phones to buy items directly.

9. Kiosk Marketing

   • Definition: Information and ordering machines placed in high-traffic locations such as stores, airports, and hotels.

   • Usage: Used as self-service kiosks (like those found at Redbox or airline check-ins) to provide convenience and efficiency to the consumer.

10. Direct Mail Marketing and Its Benefits

    • Definition: Sending an offer, announcement, reminder, or other item directly to a person at a particular address (physical or digital).

    • Benefits:

      • High target-market selectivity.

      • Can be personalized to the individual.

      • Offers flexibility.

      • Provides easy measurement of results.