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Outline:
I. Price
II. Factors to Consider when Setting Prices
a. Internal Factors Influencing Pricing Decisions
b. External Factors Affecting Pricing Decisions
c. Competitors’ Prices and Offers
d. Other External Elements
III. General Pricing Approaches
a. Cost-Based Pricing
b. Break-Even Analysis and Target Profit Pricing
c. Value-Based Pricing
d. Competition-Based Pricing
IV. Pricing Strategies
a. New Product Pricing Strategies
b. Existing-Product Pricing Strategies
c. Psychological Pricing
d. Promotional Pricing
V. Other Pricing Considerations
a. Price Spread Effect
b. Price Points
VI. Price Changes
a. Initiating Price Changes
b. Initiating Price Cuts
c. Initiating Price Increases
d. Buyer Reactions to Price Changes
e. Competitor Reactions to Price Changes
f. Trade Ally Reactions to Price Changes
g. Responding to Price Changes
I. Price
- It is the only marketing mix element that produces revenue.
- It is the amount of money charged for a good or service.
- It is the sum of the values consumers exchange for the benefits of having
or using the product or service.
Pricing
- It is the least understood of the marketing variables.
- Changes are often a quick fix made without proper analysis.
1. Marketing Objectives
Objectives:
*Survival
Market Targeting *Current Profit
Maximization Pricing
*Market-Share
Market Positioning Leadership
*Brand Equity Growth
*Product-Quality
The firm’s pricing objectives must be identified in order to determine the optimal pricing.
Common objectives include the following:
*Survival
- in situations such as market decline and overcapacity, the goal may be to select
a price that will cover costs and permit the firm to remain in the market. In this case,
survival may take priority over profits, so this objective is considered temporary.
*Market-Share Leadership
- set low price to gain large market share (market penetration)
- companies with this objective believe that gaining the largest market share will
eventually lead to low costs and high long-rung profits.
Brand equity – is the summation of all associations that consumer have with a brand –
including communication, product benefits, emotional benefits and experiential benefits.
*Product-Quality Leadership
- use price to signal high quality in an attempt to position the product as the
quality leader.
*Other Objectives
- create barriers to entry, temporarily create excitement for a new product, to
stabilize market, etc.
Objectives: Product
*Survival
Market Targeting *Current Profit
Maximization Pricing
*Market-Share
Market Positioning Leadership
*Brand Equity Growth Place
*Product-Quality
Promotion
Price must be coordinated with product design, distribution, and promotion decisions to
form a consistent and effective marketing program.
3. Costs
- Sets the floor for the price a company can charge for its product.
- Price should cover its costs for producing, distributing, and promoting the
product; and it should be high enough to deliver a fair rate of return to
investors.
Effective low-cost producers achieve cost savings through efficiency rather than cutting
quality.
4. Organizational Considerations
- Who sets the price?
Small companies: CEO or top management
Large companies: Divisional or product line managers
- Pricing negotiation is common in industrial settings where pricing
departments may be created.
Cross selling – when the company promotes and sells other products to the
guests.