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The assignment of value. The amount a consumer must exchange to receive a product.
Includes: goods/services, favors, or anything of value to the other party
Opportunity costs must also be considered
Something we have to give up to obtain something else
Price affects the other aspects of the marketing mix--THEY ALL WORK TOGETHER |
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1.+/- the sticker price
2. +/- the quantity provided
3.+/- the quality provided
4. change the terms of the sale |
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-Profit: set a desired profit margin
-Competitive effect: trying to reduce the effectiveness of our competitor’s marketing
-Customer Satisfaction: goal is to use pricing to keep customers for the long term
-Image Enhancement: use pricing to promote product quality
-Sales/Market Share: want to max sales or increase our market share |
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-Costs Involved
-Demand for Product
-Revenue
-Overall Environment |
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| : An increase in price can actually increase quantity demanded up until a certain point. Provides further status for buyer. |
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At any given price, demand is greater or less than it was before the shift
Causes: Incresed advertising, product improvements, weather (ex. Umbrellas, movie theatre) |
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| %change QD/ %change Price |
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| changes in price = large effect on amount demanded. Normally non necessities, or when close substitutes are available |
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| changes in price have little/no effect on the amount demanded. Normally necessities. |
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| Cross Elasticity of Demand |
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Changes in the prices of other products affect a product’s demand
-If products are substitutes: an increase in the price of one will increase demand for the other.
Ex. Strawberries and bananas, store vs. Nat'l brands
-If one product is essential for use of second: an increase in the price of one decreases demand for the other.
Ex. Increase of gas prices, lower demand for tires. |
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costs that are tied to the # of units produced
Ex. Raw materials |
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costs that remain constant no matter how much you produce
Ex. rent |
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| Combined fixed and variable costs for a given level of production. |
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| Marginal analysis (w/o graph) |
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Looks at MC & MR
MC: increase in total cost from producing one additional unit
MR: increase in total revenue from selling one additional unit
GOAL: at what price will you max. profits. This is when MC=MR |
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Part of evaluating the pricing environment in price planning
- look at business cycle, economic growth, and consumer confidence |
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during this period, consumers are more price sensitive. Looking for lower prices.
Part of evaluating the pricing environment in price planning |
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accustomed to price increases during this period
Part of evaluating the pricing environment in price planning |
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| Competition (as part of price planning) |
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Definition
Part of evaluating the pricing environment in price planning
- marketers need to recognize how their competitors are going to react to price changes.
-Need to be very careful of Price Wars:2 companies are trying to beat each other by offering a lower price. Both companies end up losing |
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Regulations can enforce prices b/c they impact cost (ex. min wage)
Gov’t can freeze or regulate prices. (ex. Interest rates)
part of Evaluating Pricing Environment |
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part of Evaluating Pricing Environment
-look at cultural and demographic trends
Cultural- what ppl are spending their money on (going green)
Demographic- population trends (ex. Pop. Is getting older) |
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| The international environment |
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part of Evaluating Pricing Environment
-the exchange rate has a large impact on price and how much you can make. |
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| Pricing Strategies based on cost |
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Definition
Pro: simple to calculate & relatively risk-free. Con: does not consider other factors.
Cost-plus pricing: company adds total cost and adds a markup. (most common, jewelry industry) |
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| Pricing Strategies based on demand |
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Definition
use estimates of how much we can sell at each price.
Target costing: identify the quality customers need and the price they’re willing to pay and then you create the product.
Idea: keep costs at certain level to match the price
Yield management pricing: manage capacity by charging different prices to different customers. (ex. Airlines) |
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| Pricing Strategies based on the competition |
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Definition
-can price Near, At, Specifically go Above, or Below
-Whichever you choose will impact your mkt position
-Price Leadership Strategy: seen in oligopolistic industry, where the dominant company sets the price and competitors either fall in line or drop out. |
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| Pricing Strategies based on customers' needs |
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-Known as Value Pricing (EDLP) everyday low prices
-Pricing takes into consideration customers and their justified prices while also considering competitiors |
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| Types of New Product Pricing |
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Definition
1.Skimming Pricing
2.Penetration Pricing
3.Trial Pricing |
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-a company sets a very high initial price with plans to lower it in the future.
-Idea is to skim off layers of market.
-Each sale is more profitable, but less sales. Usually electronics |
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| a company sets a low price. Gain large market share quickly. |
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| set a low price for a limited time period. Reduces consumer risk, so more willing to purchase |
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| Pricing for Individual Products |
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Two-part pricing- separate types of payment to purchase a product. Ex. Country club
Payment pricing- breaking up the cost of a product over time |
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| Pricing for Multiple Products |
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Price bundling- cost of the combined items is less than if each were purchased individually. Ex. Desktop computer or Value meal from fast food restaurant.
Captive pricing- pricing of 2 products that only work when used together. Ex. Printers & Ink Cartridges, Razors & Razor blades |
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| Developing Pricing Tactics (B2B) |
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Discounting for channel members
-Trade or functional discounts: A set % discount for each channel level. Ex. Retailers price is 10% off of suggested retail
-Quantity discounts: Encourages larger purchases
-Cash discounts: Used to encourage prompt payment
-Seasonal discounts: Price reductions during certain times of the year. |
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| Internet Pricing Strategies |
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Dynamic Pricing
Online Auctions
Freenomics |
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An internet pricing strategy
- allows an internet seller to easily adjust their price. Idea: lets sellers respond quickly to market place changes |
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| bidding to determine price |
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| encourages giving products away for free. Idea: by giving products away for free you can increase profits. Comcast: gave away 9mil dvrs b/c of subscription fees and encouraged friends to buy as well |
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| Psychological Issues in Pricing |
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-Buyers expectations: customers have a fair price they believe should be charged for a product
-Internal Reference Prices: the set price range consumers have in mind for a product. Actual price: Higher>>not worth it. Too far below>>lower quality, cheap. People have diff internal reference prices
-Price-Quality Inferences: We will use price as a cue for quality when we can actually examine the product. |
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| Psychological Pricing Strategies |
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Definition
-Odd-Even Pricing- prices that end in cents lead to increased sales.
-Price Lining- items in a product line sell at different price points. Ex. Car wash options.
-Prestige Pricing- An increase in the price can actually increase demand. |
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| Legal and Ethical Issues in B2C Pricing |
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-Bait and Switch: retailer offers a product at a very low price, then when the consumer comes in, they sell them a higher priced item.
-Loss-Leader pricing: When a retailer offers a product at or below cost to get consumers into the store. Hoping that they will purchase other products. Ex. Grocery stores using soda pop. |
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| Legal and Ethical Issues in B2B Pricing |
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Definition
-Price Discrimination: to make sure that companies do not sell the same product to different resellers at different prices if it lessens competition.
-Price-Fixing: when 2 or more companies conspire to keep prices at a certain level. Can be horizontal (companies at same level) or vertical (when a manufacturer tries to force a retailer to charge a certain price.
-Predatory Pricing: A company sets a very low price for the purpose of driving competitors out of business. |
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Demand Curve Graphs for
Normal and Prestige Products |
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| Break Even Analysis Graph |
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| Pyschological Pricing Overview |
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