Marketing Mix Pricing - University of Botswana

WEEK 7 Marketing mix-Pricing PRICING WEEK7  PRICING Pricing - Factors influencing pricing strategies - Traditional pricing methods (Cost based, Value based & Competition based) - New product pricing (Market skimming& Market penetration) - Product mix pricing - Price adjustment...

WEEK 7 Marketing mix-Pricing PRICING WEEK7  PRICING Pricing - Factors influencing pricing strategies - Traditional pricing methods (Cost based, Value based & Competition based) - New product pricing (Market skimming& Market penetration) - Product mix pricing - Price adjustment strategies  PRICING Price : The amount of money charged for a product or service or the sum of the values that consumers exchange for the benefits of having or using the product or service. Price is the only element in the marketing mix that produces revenue; all other elements represent costs. PRICING  Factors affecting pricing decisions (1) Marketing objectives : Before setting price, the company must decide on its strategy for the product (market positioning). Other general objectives include: -Survival: A company may set prices low to prevent competition from entering the market -Profit maximization: the firm may estimate what demand and costs will be at different prices and choose the price that will produce maximum current profit  Factors affecting pricing decisions -Market share leadership: To become a market share leader, the firm sets prices as low as possible. -Product quality leadership This normally calls for charging a high price to cover higher performance quality and the high cost of Research and production (R&D).  Factors affecting pricing decisions (2) Marketing mix strategy : Price is one of the marketing mix tools that a company uses to achieve its marketing objectives. Price decisions must be coordinated with product design , distribution , and promotion decisions to form a consistent and effective marketing program.  Factors affecting pricing decisions (3) Costs : Costs set the floor for the price that the company can charge. The company wants to charge a price that both covers all its costs for producing ,distributing and selling the product and delivers a fair rate of return for its effort and risk.  Factors affecting pricing decisions 3 Types of Costs : Fixed costs: costs that do not vary with production or sales level. Variable costs: costs that vary directly with the level of production. Total costs : The sum of the fixed costs and variable costs for a given level of production  Factors affecting pricing decisions (4) The market and demand Whereas costs set the lower limit of prices, the market and demand set the upper limit (ceiling). Buyers balance the price of a product against the benefits of owning it.  Factors affecting pricing decisions (5) Competitors’ costs and prices. In setting its prices, the company must consider competitors’ prices and competitor reactions to the company’s own pricing moves (6) Other external factors : Economic conditions Government factor Social concerns  Pricing Approaches – Cost based Cost plus pricing : It is adding a standard mark-up to the cost of the product. It is the simplest pricing method. This method is fair to both buyers and sellers.  Pricing Approaches – Cost based Cost plus pricing : It is adding a standard mark-up to the cost of the product. It is the simplest pricing method. This method is fair to both buyers and sellers.  Pricing Approaches – value based Value- added pricing - Value added pricing uses buyers’ perceptions of value , not the seller’s costs as the key to pricing. Rather than matching completion, companies add quality, services and other features to differentiate themselves and support their high price  Value based vs Cost based Value- based pricing. Value based pricing uses buyers’ perceptions of value , not the seller’s costs as the key to pricing.  Pricing Approaches – Competition based Competition based pricing : It is going –rate pricing, in which a firm bases its price largely on competitor’s prices , with less attention paid to its own costs or to demand. The firm might charge the same as ,more than ,or less than its major competitors.  New Product Pricing Strategies Conditions for market skimming i. The product’s quality and image must support its high price. ii. the costs of producing a smaller volume cannot be so high that they cancel the advantage of charging more. iii. Competitors should not be able to enter the market easily and undercut the high price  New Product Pricing Strategies Conditions for market penetration i. The market must be highly price sensitive so that a low price produces more market growth ii. Production and distribution costs must fall as sales volume increases. iii. The low price must help keep out the competition, and the penetration -price must maintain its low- price position otherwise, the price advantage may be only temporary  Product Mix Pricing Strategies The strategy for setting a product’s price often has to be changed when the product is part of a product mix. Product mix - also known as product assortment or product portfolio, refers to the complete set of products and/or services offered by a firm. A product mix consists of product lines, which are associated items that consumers tend to use together or think of as similar products or services.  Product Mix Pricing Strategies The strategy for setting a product’s price often has to be changed when the product is part of a product mix.  Product Mix Pricing Strategies Product line pricing - Setting the price steps between various products in a product line based on cost differences between the products, customer evaluations of different features and competitors’ prices  Product Mix Pricing Strategies Optional-product pricing - Offering to price optional or accessory products along with their main product Captive-product pricing - Setting a price for products that must be used along with a main  Product Mix Pricing Strategies By-product pricing - Setting a price for byproducts in order to make the main product’s price more competitive. Product bundle pricing - Combining several products and offering the bundle at a reduced price. Price bundling can promote the sales of products consumers might not otherwise buy , but the  Price Adjustment Strategies 1. Discount and allowance pricing – Most companies adjust their basic price to reward customers for certain responses such as early payments of bills, volume purchases and offseason buying. Discounts - A straight reduction in price on purchases during a stated period of time such as cash discount , quantity discount ,trade discount and seasonal discount. Allowance - Promotional money paid by manufacturers to retailers in return for an  Price Adjustment Strategies 2. Segmented pricing Selling a product or service at two or more prices , where the difference in price is not based on differences in costs – but rather on customer segments - Based on a customer segment ie students, senior citizens, gender - Location based pricing ie Gaborone prices vs Jwaneng prices - Time based pricing ie end of day pricing for pies  Price Adjustment Strategies 3. Psychological pricing A pricing approach that considers the psychology of prices and not simply the economics ; the price is used to say something about the product. High prices to assume better quality, low prices assuming lower quality. - Another aspect of psychological pricing is reference prices—prices that buyers carry in their minds and refer to when looking at a given product  Price Adjustment Strategies 4. Promotional pricing Temporarily pricing products below the list price and sometimes even below cost to increase short-run sales. This can be applied : - Special events i.e. opening specials - Limited time offers  Price Adjustment Strategies 5. International pricing Companies that market their products internationally must decide what prices to charge in different countries in which they operate , in order to reflect local market conditions.