FACTORS TO CONSIDER WHENSETTING PRICES• Marketing Objectives • survival especially in marginal businesses • Current Profit Maximisation – focus on short term results over long term performance • Market-share leadership – affects price when company seeks to dominate the market • Product Quality Leadership – tends to push prices higher – often a nicher strategy • Other objectives – • low pricing to keep out competitors, • social pricing in not-for-profit organisations
MARKETING MIX STRATEGY• Price must reflect overall marketing mix strategy• Price must support the overall positioning strategy targeted by the marketing mix
The role of cost in pricing• Costs determines the bottom level of price• Types of cost: • Fixed costs e.g. electricity • Variable costs e.g. petrol • Costs at different levels of production – break-even and economies of scale • cost as a function of production experience – the learning curve
The Market & Demand• Pricing in different market situations: • Pure competition many buyers & sellers, no one is more powerful - going rate is the rule • Monopolistic Competition – many buyers & sellers trading over a range of prices, products differentiated by quality, features, styles • Oligopolistic competition – few sellers each responding to the other, barriers to entry prevent new competition. • Pure monopoly – single seller, sometimes regulated, high barriers of entry
Consumer Perception of Price &Value• Consumers ultimately decide prices• Marketers must combine creative judgement and technical expertise with an awareness of buyer’s motivation to set prices• Marketers must be aware of demand curves – relationship between price and demand
Competitor’s Prices and Offers• Some companies have a policy to match competitors prices• Others respond with increased service or performance
General Pricing approaches• Cost Based • Cost-Plus – standard mark-up • Break-even analysis and Target Profit Pricing –• Value Based Pricing • Buyer’s perception of value, not seller’s costs non-price variables in the marketing mix are used to build up buyer’s perception of the product
General Pricing approaches (cont)• Competition Based Pricing • Economic Value Pricing cost that extend beyond base price eg industry purchaser might look at installation, maintenance, training, consumables costs • Going-Rate Pricing – based on competitors prices
Relationship Pricing• Special Relationship Working with customers to reduce time and costs whilst improving quality. Working closely together to plan operations to facilitate ‘just-in-time’ operations.• Enrichment Working with customers to enhance their operations, possibly through re-engineering processes then sharing increased profits resulting from cost savings• Shared Risk & Reward Forming strategic alliances to enhance customer operations with shared risk & reward.
New Product Pricing Strategies• Innovative New Product • Market-Skimming – setting a high price to gain maximum revenue from the segments willing to pay high prices • Market Penetration – setting a lower price to gain maximum market share
Pricing an Imitative product• Must determine strategy against current players to position product on quality and price e.g. Ipad imitation
Product/Service Mix Pricing• Product/service line pricing • Setting steps between product and service line items• Optional product/service pricing • Pricing optional or accessory products sold with main product/service• Captive product/service pricing • Pricing products and services that must be used with the main product /services
Product/Service Mix Pricing (cont)• By-product Pricing • Pricing low-value by-products or services to get rid of them e.g. Timber mill selling offcuts as firewood• Product/service-bundle pricing • Pricing bundles of products or services sold together e.g. Bags of potatoes,fruit.
Price Adjustment Strategies• Discount Pricing and allowances • Reduced prices to reward customer responses such as paying early or to promote the product • Discounts can be cash, quantity, functional, seasonal • Allowances might be : trade-in, Promotional• Segmented Pricing • Adjusting prices to take into account differences in customers, locations & products e.g. Wealthier suburbs hair salon charges more than less wealthy suburbs’ salon.• Psychological Pricing • Adjusting prices for psychological effect E.g. $2.98 seen as cheaper than $3.00.
Price Adjustment Strategies (cont)• Promotional Pricing • Temporarily reducing prices to increase short-run sales• Value pricing • Adjusting prices to offer the right combination of quality and service at a fair price• Geographical Pricing • Adjusting prices to the geographical location of customers can use FOB (free on board) pricing (charge more to transport goods to remote areas), Uniform delivery pricing, Zone pricing, Base-point pricing, freight absorption• International Pricing • adjusting prices for international markets
Conclusion• Logistics management requires great trade-offs between functional units• Management must focus on communication and strategic objectives to ensure co-operation• Distribution can often be that part of the mix which irritates the customer the most e.g. failed deliveries, damaged goods, wrong orders ....