Price and pricing

                                         Price - definition

   The amount of money charged for a product or service, or the sum of the values that
consumers/customers exchange for the benefits of having or using the product or service.



                                               Price

critical marketing mix variable 

„one price for all“ – end of the 19th cent.

(bargaining, negotiation)

q        produces revenue

q          very flexible  element in the marketing

         mix

q          relates directly to microeconomics

       supply versus demand analysis

       breakeven analysis

       price elasticity



                              Factors to Consider When Setting Prices

                           Internal Factors Affecting Pricing  Decisions

                        Marketing objectives that affect  pricing decisions



                       Types of cost factors that   affect pricing decisions



                                           Demand Curves

                                              pricing

= setting the price – three sets of factors:

!    Costs

!    consumer(customer´s ) perception

!    Competitor´s price





Cost-based approach (cost+, BEA, TP)



                    Buyer-based approach (perceived value)



                                 Competition-based approach (going-rate,

                                           sealed –bid)



                               Major considerations in setting price

                                         PRICING OBJECTIVES



                                             BEA and TP

!   Break-Even Analysis and Target Profit Pricing

  l   Break-even charts show total cost and total revenues at different levels of unit volume.

  l   The intersection of the total revenue and total cost curves is the break-even point.

  l   Companies wishing to make a profit must exceed the break-even unit volume.





                           Break-Even Analysis and Target Profit Pricing



                                           Value-Based Pricing

                                        Demand Based Pricing



  q   perceived value

    requires detailed knowledge of buyer behavior and demand elasticity

    only true profit maximizing strategy

    ignores costs and competitors

  demand differential

  price discrimination

  yield maximization pricing     

    sell at multiple prices to multiple segments

    not based on marginal costs of dealing with each

    daily, weekly, or seasonal pricing

    geographic, physical, or electronic barriers



                                     Competition-Based Pricing

                                        PRICING AND PRODUCT

O/    Define the entire product/service offering

O/    What differentiates it ?

O/    What is the perceived value ?

O/    Do specific features add value ?

O/    Quality, support, warranty, etc.



                                      PRICING AND POSITIONING

O/    Pricing reinforces Positioning.



O/    Pricing is a competitive weapon.



O/    Pricing ties together your product offering.



O/    Price from the customer’s viewpoint.



                                       Pricing and Promotion

O/    Pricing is a tool in promoting the product.

O/    Use Pricing to encourage initial trials and maintain customer loyalty.

O/    Use Promotions to test Pricing sensitivities.



                                         Pricing strategies

!    Premium pricing

    !  Uses a high price, but gives a good product/service exchange e.g. Concorde, The Ritz Hotel

!    Penetration pricing

    !  offers low price to gain market share - then increases price

    !  e.g. France Telecom - to attract new corporate clients (or Telewest cable)

!    Economy pricing

    !  placed at ‘no frills’, low price

    !  e.g. Soups, spaghetti, beans - ‘economy’ brands

    

    







!    Optional product-pricing

    !  e.g. optional extras - BMW famously under-equipped

!    Captive product pricing

    !  products that complement others

    !  e.g Gillette razors (low price) and blades (high price)

!    Product-bundle pricing

    !  sellers combine several products at the same price

    !  e.g software, books, CDs.

!    Promotional pricing

    !  BOGOF e.g. toothpaste, soups, etc





!     Price skimming

    !  where prices are high - usually during introduction

    !  e.g new albums or films on release

    !  ultimately prices will reduce to the ‘parity’

!     Psychological pricing

    !  to get a customer to respond on an emotional, rather than rational basis

    !  .e.g 99p not -L-1.01 ‘price point perspective

!     Product line pricing

    !  rationale of a product range

    !  e.g. MARS 32p, Four-pack 99p, Bite-size -L-1.29

!     Pricing variations

    !   ‘off-peak’ pricing, early booking discounts,etc

    !  e.g Grundig offers a ‘cash back’ incentive for expensive goods





!   Geographical pricing

    !  different prices for customers in different parts of the world

    !  e.g.Include shipping costs, or place onPLC

!   Value pricing

    !  usually during difficult economic conditions

    !  e.g. Value menus at McDonalds



                                 How to improve profit performance?

O/      Increase price

O/      Cut Variable Cost

O/      Increase Volume

O/      Cut Fixed Cost



O/      Shift in Supply Curve

  change in cost

  change in expectations of cost

  change in price of other goods sold

  

O/      Shift in Demand Curve

  change in income

  change in price of related goods

  change in price expectations

  change in taste

  

O/      Increase in demand versus increase in quantity demanded



                                     PRICING AND PROFITABILITY

$      Understand the entire cost structure behind your product or service.

$      Target your product line profitability and manage it.

$      Pricing strategy needs to assure long term profitability.

$      Be able to recognize a bad deal and walk away.