PricePrice is the sum of all the values that consumers exchange for the benefits of having or using the product or service.“Rent, tuition, fees, fares, tools, rates, premiums, honoraria, bribes, dues, bids, assessments, retainers, salaries, wages, commissions, taxes…”Why is it dangerous?
PRICING OBJECTIVES~PROFIT OBJECTIVE PROFIT MAXIMIZATION TARGET RETURN~SALES OBJECTIVE GROWTH IN SALES GROWTH IN MKT SHARE SURVIVAL-MINIMUM SALES~COMPETITION OBJECTIVE TO MEET OR PREVENT COMPETITION TO DESTROY COMPETITION~DEVELOPMENT OBJECTIVE -EXPANDING EXISTING MARKETS (NON- USERS TO USERS) -PRODUCT DEVELOPMENT
SELECTING THE PRICE OBJECTIVESurvivalMaximum Current ProfitMaximum Current RevenueMaximum Sales GrowthMaximum Market SkimmingProduct-Quality Leadership
Internal Factors Affecting Pricing Decisions: Marketing Objectives Survival Low Prices to Cover Variable Costs and Some Fixed Costs to Stay in Business. Current Profit Maximization Choose the Price that Produces theMarketing Maximum Current Profit, Etc.Objectives Market Share Leadership Low as Possible Prices to Become the Market Share Leader. Product Quality Leadership High Prices to Cover Higher Performance Quality and R & D.
Types of Cost Factors that Affect Pricing Decisions Fixed Costs Variable Costs (Overhead) Costs that don’t Costs that do vary vary with sales or directly with sales or production levels. production levels. Executive Salaries, Rent Commissions, Raw materials Total Costs Sum of the Fixed and Variable Costs for a Given Level of Production
DETERMINING DEMAND1. Unique value effect. Buyers are less price-sensitive when the product is more unique.2. Substitute awareness effect. Buyers are less price-sensitive when they are less aware of substitutes.3. Difficult comparison effect. Buyers are less price-sensitive when they cannot easily compare the quality of substitutes.
6. Shared cost effect. Buyers are less price-sensitive when part of the cost is borne by another party.7. Sunk investment effect. Buyers are less price-sensitive when the product is used in conjunction with assets previously bought.8. Price-quality effect. Buyers are less price-sensitive when the product is assumed to have more
METHODS OF PRICINGCost Plus Pricing: This method is prevalent in urbanmarkets, but it suits the rural marketmore, because a company has to incur thecost of the product, distributionexpenses, and also add a small profitmargin.Value Pricing:It means assigning a low price tag for aproduct and providing the benefits oflow-cost mass production to the
Cost-Based Pricing Certainty About Costs Simplest Pricing Ethical Method Factors Pricing is Situational Simplified Cost-Plus Pricing Unexpected is an Approach That Adds aPrice Competition Standard Markup to the Cost of the Attitudes Ignores CurrentIs Minimized Demand & Product of Competition OthersMuch Fairer toBuyers & Sellers
1)Variable cost pricing: Marginal or incremental cost of producing goods charged Sell products abroad at lower net prices than the domestic market Used when a Co. has high fixed cost and unused production2) Full cost Pricing: Total fixed cost + variable cost High variable cost relative to fixed cost Price= Total cost +profit
Competition-Based Pricing Setting Prices Going-Rate Company Sets Prices Based on What Competitors Are Charging. ? Sealed-Bid Company Sets Prices Based on ? What They Think Competitors Will Charge.
Pricing StrategiesCompanies face many problems in setting their prices. Standard pricing methods such as uniform pricing, standard markup of costs everywhere, or charging what the market will bear ignores cost differentials and local market conditions. 11/3/2012 International MKTG 14 Pricing Strategy
Pricing StrategiesPremium pricing Uses a high price, but gives a good product/service exchange e.g. Honda, The Ritz HotelPenetration pricing offers low price to gain market share - then increases price e.g. Vodafone- to attract new corporate clientsEconomy pricing placed at ‘no frills’, low price e.g. Soups, spaghetti, Perk - ‘economy’ brands
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 £1.01 ‘price point perspective Product line pricing rationale of a product range Detergents Pricing variations ‘off-peak’ pricing, early booking discounts, etc e.g Maruti offers a ‘cash back’ incentive for Wagon R
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 e.g. toothpaste, soups, etc