Marketing Management: Price Strategies

Price Definition

• Price is the amount of money charged for a product or service offered to potential customers

Price Elasticity Definition

• Price elasticity measures the relationship between supply and demand of a good and its price.
• Price elasticity shows how much the price of a good affects supply or demand.

Why Price Is Important in Marketing Management

• Price is a key element in the marketing mix
• Price creates a profit for the organisation
• Price is the only element of the marketing mix that creates income
• Price can be adjusted quickly
• Price is a flexible element

The Effect of Pricing Levels

• Incorrect pricing can lead to business closure in the long term
• Price creates the first impression
• Prices must be set to stimulate customer interest
• Price is a vital element of sales promotion
• Price can be used very successfully in promotional strategies
• Price can be used to compete with different brands
• Price can be used to increase overall profitability for the organization
• Price can be used to introduce new products to the market.

Considerations When Setting Prices

• Questions to answer
  • Who is the primary target market? (Demographics and income level)
  • What is the value the consumer places on the product?
  • What is the price sensitivity of consumers?
  • What are the costs involved in producing and distributing the product?
  • What are the prices of current competitors?
  • What are the goals and objectives of the business?
  • What is the price range the business wishes to operate in?

### Price Setting Guidelines

• Legal considerations when setting a price in South Africa
  • Price fixing is illegal
  • Price discrimination is against the law
  • Predatory pricing is not allowed
• Ethical conduct when setting a price
  • Do not mislead consumers with unethical pricing methods
  • Do not take advantage of consumers during times of crisis
• Different types of price setting objectives
  • Survival
  • Profit maximization
  • Market share leadership
  • Product quality leadership

Distribution Channels

• A distribution channel is a series of individuals or firms that participate in the flow of goods and services from the producer to the final consumer.
• Distribution channels for consumer products include:
  • Producer to consumer.
  • Producer to retailer to consumer.
  • Service producer to consumer.
  • Service producer to agent to consumer.
  • Producer to wholesaler to retailer to consumer.
  • Producer to wholesaler-agent to wholesaler to retailer to consumer.

Distribution Channel Design and Planning

• Two major decision areas in distribution management:

  • Formation of intermediaries in the distribution channel.
  • Physical flow of products through the distribution system.

• Channel design alternatives:

  • Number of levels in the channel.
  • Number of intermediaries operating at each level.
  • Types of intermediaries used at each level.

• Distribution alternatives include:

  • Manufacturer's sales force.
  • Manufacturer's representatives.
  • Industrial suppliers.