Marketing Management Chapter 8 PDF

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COPYRIGHT PERMISSION FORM - CP241/LDP1 LEGAL SERVICES: COPYRIGHT 2024 LECTURER MS L DU PREEZ DEPARTMENT AGRICULTURAL MANAGEMENT COURSE SGM 3002 ELECTRONIC 45 CODE COPIES ONLY TITLE Marketing Management: PERMISSION PRASA Permission (JUTA) RECEIVED Permission is restricted to the unadjusted power points included by the Publisher in this prescribed book © Some rights reserved. This time-limited emergency licence (Covid-19) permits non- commercial use, distribution, and reproduction in any medium, provided the original author and source are credited in the customary fashion and provided re- used snippets link back to the original available from the publisher. The moral rights of the author have been asserted. M. HANSFORD COPYRIGHT OFFICER 1 10/2/2024 Add a footer Chapter 8  Objectives After studying this chapter, you should be able to: Define the concept of price Explain how price is linked to the marketing concept Explain why price is important in marketing management Discuss what price means for consumers Explain the different price setting guidelines briefly Discuss the legal considerations when setting a price in South Africa Discuss the ethical conduct that should be considered when setting a price Explain the different types of price setting objectives 3 10/2/2024 Add a footer  Elasticity Supply and demand shifts 4 10/2/2024 Add a footer  A perspective on the concept ‘price’ Definition: Price refers to the amount of money charged for a product or service that is offered to potential customers in the market. A perspective on the concept ‘price elasticity’ Definition: Price elasticity is used to measure the relationship between the supply and demand of a product and the price charged for it. Price elasticity measures to what extent this applies to a specific product or service, and looks at how much the price of a product or service affects supply or demand. 5 10/2/2024 Add a footer  Why is price important in marketing management? Price and the marketing mix In the marketing mix, pricing is a key element, since it creates a profit for the organisation. Price is the only element of the marketing mix that creates an income for the business. Price supports the other elements of the traditional marketing mix. Price can be adjusted quite fast and is therefore quite a flexible element of the marketing mix. 6 10/2/2024 Add a footer  The effect of pricing levels If the setting of prices is done incorrectly, it can lead to the closure of the business in the long term. Price creates a first impression The price of a product or service must be set in such a way that it will stimulate the consumer’s interest. Price is a vital element of sales promotion Considering that price is a flexible element of the marketing mix, it can be used very successfully in promotional strategies. Pricing and marketing strategy Price can be used in different ways as a competitive tool: Comparing different brands Competitive instrument Increasing overall profitability Introduce a new product or service to the market 7 10/2/2024 Add a footer  When an organisation decides on the right price, it should answer the following questions: Who is the primary target market (demographics and income levels of the possible customers)? What is the market position of the organisation? (Does the organisation operate as a monopoly, as a business starting up, or as a competitor?) What are the perceptions of customers about competing brands and products? What is the total cost to deliver the product to the market? What are the sales and profit projections of the organisation? 8 10/2/2024 Add a footer  Price What does price mean for consumers? Yield value: highest amount the consumer is willing to pay to use the need satisfaction provided by the product. Replacement value: the amount consumers must pay to obtain a product. Consumer surplus: The extra need-satisfaction consumers get. What does price mean for business organisations? Price takers: No effect on the decision about the prices they charge, External things fix the price: MTN from a vendor. People eating at take away Price makers: They have control over the decision of the prices they charge. For example, a cafeteria can put whatever prices they like on their products - chocolates, cool drinks etc. milk buyer, retailers, 9 10/2/2024 Add a footer  Pricing guidelines The benefits the customer receives when they use the products or service The important criteria that customers consider when making a purchasing decision on products or services (such as quality, branding, convenience, reliability, delivery options available) The value perception of a customer in terms of the benefits offered by the product or service The offerings of competitors Prevailing economic conditions. 10 10/2/2024 Add a footer  Legal considerations when setting a price in SA Price Discrimination Regulations and Buyer Power Regulations 2018 Competition Amendment Bill 2018 Competition Act 89 of 1998 Ethical issues when setting a price in SA Price fixing Price discrimination Deceptive pricing - https://www.news24.com/Fin24/asa-takealot-guilty-of- misleading-ad-20180215 Predatory pricing – keeping low and then increasing price https://www.hg.org/legal-articles/fixing-price-fixing-south-africa-20554 11 10/2/2024 Add a footer  Marketers have to consider the following factors before they set prices: Choosing the best pricing technique - A supplier needs to consider which pricing technique is the most suitable for the type of product or service to be supplied to the market. 1. Cost-plus where you calculate your cost of production and add a % mark-up. (Fruit and Veg) Price = total fixed costs+total variable costs+projected profits / units produced 2. Mark-up pricing is the organisation set prices by calculating product costs per unit and then deciding the mark-up percentages that it needs to cover selling costs and profits. (Woolworths) Price = cost of goods/(100-mark %/100) 3. Target pricing is when the business sets a price to obtain a targeted ROI for a set amount of products it produces. Price = investment costs x target return on investment % /standard volume 12 10/2/2024 Add a footer  Pricing strategies for new products The market-skimming pricing strategy A market-skimming strategy involves the use of a high introductory price with the intention to attract a customer base who has a prominent desire for the product as well as the financial means to purchase the product. The price is then reduced over time to attract new customer segments to the product. (DVD players, airfryers, The market penetration pricing strategy A company uses a market penetration pricing strategy if it sets prices quite low when introducing a product or service to the market for the first time. (rusks, chips) 13 10/2/2024 Add a footer  Basic pricing strategies Marketers have to consider the following factors before they set prices: Choosing the best pricing technique - A supplier needs to consider which pricing technique is the most suitable for the type of product or service to be supplied to the market. 1. Cost-plus where you calculate your cost of production and add a % mark-up. (Fruit and Veg) Price = total fixed costs+total variable costs+projected profits / units produced 2. Mark-up pricing is the organisation set prices by calculating product costs per unit and then deciding the mark-up percentages that it needs to cover selling costs and profits. (Woolworths) Price = cost of goods/(100-mark %/100) 3. Target pricing is when the business sets a price to obtain a targeted ROI for a set amount of products it produces. Price = investment costs x target return on investment % /standard volume 14  Pricing in Agriculture How is price determined for agricultural commodities?? 15 10/2/2024 Add a footer  Price elasticity of demand and supply 16 The determination of market equilibrium (potatoes: monthly) E e 100 Supply D SURPLUS d 80 Price (Rand per kg) (330 000) Cc 60 b SHORTAGE B 40 (300 000) a A 20 Demand 0 0 100 200 300 400 500 600 700 800 fig Quantity (tonnes: 000s) Shifts in demand & supply and effects on equilibrium When only demand or only supply changes, then it is possible to predict equilibrium prices and equilibrium quantities When both demand and supply change simultaneously, impossible to predict precisely Theory: allow only one variable to change at a time (ceteris paribus……) Elasticity Defining elasticity the responsiveness of quantity demanded and quantity supplied due to changes in price or changes in income of the consumer This will impact Total Revenue of the business (TR=PxQ) NB: change in price cannot be directly compared with change in quantity demanded or supplied : Size of change (P & Q) depends on original P or Q.  Elasticities are measured relatively or proportionately. percentage change in Q demanded Ed = percentage change in Price  ELASTICITY Types of elasticity of demand Price elasticity of demand the change in quantity demanded due to a change in price Cross-elasticity of demand the change in quantity demanded of one product due to a change in price of another product. Complementary products – Products that go together (change in the price of printers and the change in demand of printer cartilage or change in the price of lettuce and the change in demand for cucumber or other salad tomatoes) Substitute products – change in beef and the change in the demand for chicken. Change in the price of Rama and the change in the demand for Stork butter. Income elasticity of demand the change in quantity demanded due to a change in income of consumer Higher income will lead to higher demand for luxury products (new cars, travel, beef, eating out or takeaways)  Movement along the curve = only if Price change Change in Quantity demanded only changes when price of the product itself changes. 21 Elastic Elasticity of demand. Consumers are sensitive and thus a small change in price = big change in demand. Demand curve a bit flatter than below Inelastic Elasticity of demand. Consumers are Insensitive and thus a small change in price = small change in demand. Demand curve a steeper than elastic elasticity of demand curve  Elasticity of demand Calculate the elasticity of demand coefficient? = %change in demand / %change in Price The answer is always negative, but you work with an absolute value >1 is elastic demand =1 unit elastic