Questions to answer1. What is the price you pay for your apartment?-rent2. What is the price you pay for your education?-tuition3. What is the price you pay to your doctor or dentist?-a fee4. What is the price you pay to the airline, taxi and bus companies?-a fare5. What is the price you pay for the local services?-a rate
Questions to answer6.What is the price you pay for the money you borrow?-charges and interest7. What is the price you pay for driving your car on a motorway?-a toll. What is the price you pay to the company that insures you?-premium9. What is the price you pay to the guest speaker?-an honorarium10. What is the price paid to the government official to help some character steal?
Questions to answer8-a bribe11. What is the price collected by the trade union?-dues12. What is the price you pay to your regular lawyer to cover his/her services?-a retainer13. What is the price of an executive?-a salary14. What is the price of a salesperson?-a commission15. What is the price of a worker?-a wage
The role and perception of price Price is the value that is placed on something. Price is any common currency of value to both buyer and seller. Price directly generates the revenues, serves as a communicator, a bargaining tool and a competitive weapon.
The customer’s perspective Price represents the value they attach to whatever is being exchanged. In assessing price, the customer is looking specifically at the expected benefits of the products:
The seller’s perspective Profit = Total revenue – Total cost Total revenue = Quantity sold * Unit price Total cost = Production cost + Marketing cost + Selling cost
Psychological effects of price Low price = negative statement about the product’s quality. A sudden reduction in price of an established product = quality has been compromised. High price might actually attract customers.
External influences on pricing 1. Customers and consumers 2. Demand and price elasticity 3. Channels of distribution 4. Competitors 5. Legal and regulatory framework
External influences on pricing1. Customers and consumers What the market will tolerate The bigger the area, the more discretion the marketer has in COSTS setting price.
External influences on pricing2. Demand and price elasticity Demand determinants Changing consumer taste and needs Recession Competitors’ products and price Price elasticity of demand Sales respond to price variations: elastic. Sales stable after price change: inelastic.
External influences on pricing3. Channels of distribution
External influences on pricing4. Competitors: Monopoly: only 1 supplier - rare Oligopoly: a small number of powerful providers dominate the market. Monopolistic competition: competitors, each with differentiated product. Perfect competition: competitors, each with products undistinguishable - rare
External influences on pricing5. Legal and regulatory framework: Watchdog bodies
Internal influences on pricing1. Organisational objectives2. Marketing objectives3. Costs
Internal influences on pricing1. Organisational objectives Corporate strategy: target volume sales, target value sales, target growth, target profit figures Market leader or niche New entrant or established Can be both short-term and long-term
Internal influences on pricing2. Marketing objectives Focus on specific target markets and the position desired with them. Depends on product’s life cycle: Intro. stage: lower price - invite trial Growth & early maturity: raise price Late maturity & decline: price reduction
Internal influences on pricing3. Costs Total costs include: Operating and Servicing costs A product’s selling price generally represents: Its total cost (unit cost plus overheads), & Profit or “risk reward”
The process of price settingPricing Demand Pricing policies Setting the Pricing tacticsobjectives assessment & strategies price range & adjustments
1. Pricing objectives Financial objectives: short/long-term Sales and marketing objectives Market share and positioning Volume sales Status quo: preserve the status quo – happy with current situation Price war (undercutting), price matching, improve product / service / communication Survival
2. Demand assessment Marketers need to assess demand levels for a product at any given price. This involves a great deal of managerial skills as there are many variables.
3. Pricing policies and strategies New product pricing strategies Price skimming: high price, then lower Penetration pricing: low price, then high up Product mix pricing strategies: A product range starts with basic products, then price steps up with additional features Managing price changes: Price are not static because of competitive pressure, Cost inflation, new opportunities
4. Setting the price range The cost-volume-profit relationship Fixed costs Variable costs Marginal costs Total costs Setting the price range Cost-based method Demand-based method Competition-based method
The cost-volume-profitrelationship Fixed costs: do not vary with output in the short term (salaries, rent, etc.) Variable costs: vary according to the quantity produced (raw materials, etc.) Marginal costs: change that occurs to total cost if 1 more unit is added Total costs: all the cost incurred Breakeven analysis: the point at which total revenue = total cost
A. Cost-based methods Mark-up price = costs + profit (giá cộng lời vào vốn) Cost-plus pricing = costs + fix % (định giá có lãi) Experience curve pricing (định giá theo đường cong kinh nghiệm)
B. Demand-based pricing When demand is strong, the price goes up; when it is weak, the price goes down. Need a good understanding of the nature and elasticity of demand. Psychological pricing: customer-based Rely on the consumer’s emotive responses, subjective assessments and feelings. Applicable to higher involvement products.
C. Competition-based pricing Depends on: The structure of the market The product’s perceived value in the market Can be: Cost-leader with price-oriented approach Price-follower bases on the going-rate for the product
5. Pricing tactics and adjustments Price can vary to reflect specific customer needs, the market position. Marketers should set up a framework for pricing discretion. Special adjustments can be made for short-term promotional purposes Discounts, allowances, trade-in Zoned pricing: single, multiple zones