Prin Marketing – Chapter 9 Pricing

the amount of money charged for a product or a service.

•Determines a firm’s market share and profitability

•Produces revenue

- If a product’s price exceeds its value, they won’t buy it.

- If the company prices the product below its costs, profits will suffer.

- the right pricing strategy is the one that delivers both values to the customer and profits to the company.

- setting price based on buyers' perceptions of value rather than on the seller's cost

•Price is considered before the marketing program is set.

Offering just the right combination of quality and good service at a fair price.

- Involves introducing less expensive versions of established, brand name products or new lower-price lines

setting prices based on the costs of producing, distributing, and selling the product plus a fair rate of return for effort and risk.

+ fixed costs- are costs that do not vary with production or sales level.

+ variable costs - vary directly with the level of production

+ total costs - are the sum of the fixed and variable costs for any given level of production

•Internal factors

–Overall marketing strategy, objectives, and mix

–Organizational considerations

•External factors

–Market and demand

–Economy

–Impact on other parties in its environment

•Pricing decisions must coordinate with packaging, promotion, and distribution decisions.

•Positioning may be based on price.

–Target costing starts with an ideal selling price, then targets costs that ensure the price is met.

•Nonprice positions can be created to differentiate the marketing offer.

•Price Elasticity - Measure of the sensitivity of demand to changes in price

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

–Elastic demand: Demand changes greatly with a small change in price.

Factors impacting pricing strategies

•Boom or recession

•Inflation

•Interest rates

Responses to the frugality of post recession consumers

•Cut prices and offer discounts

•Develop more affordable items

•Redefine value propositions

•Product line pricing – steps between products determines pricing

•Optional-product pricing – price accessories separately

•Captive-product pricing – products required for the main product

•By-product pricing – by-products help make price competitive

•Product bundle pricing – bundles of products leads to price reduction

•Discount pricing - a straight reduction in price on purchases

•Allowance pricing - promotional money paid to retailers for an agreement to feature the manufacturer’s products

•Segmented pricing - Selling a product or service at two or more prices, where the difference in prices is not based on differences in costs

•Psychological Pricing - Considers the psychology of prices and not simply the economics

- Reference Prices- which are the prices that buyers carry in their minds and refer to when looking at a given product

•Dynamic pricing: Adjusting prices continually to meet the characteristics and needs of individual customers and situations

–Prevalent online where the Internet introduces a new age of fluid pricing