Marketing Mix Price PDF

MARKETING MIX PRICE At the end of the lesson, I can: 1. describe the marketing mix specifically price in relation to the business opportunity. 2. share personal experiences with the product through oral recitation. 3. participate actively in the class discussion by answering questions....

MARKETING MIX PRICE At the end of the lesson, I can: 1. describe the marketing mix specifically price in relation to the business opportunity. 2. share personal experiences with the product through oral recitation. 3. participate actively in the class discussion by answering questions. Pre-Assessment Why pricing strategy is important in business? What is Price?  The amount of money charged for a product or service;  The sum of the values that customers exchange for the benefits of having or using the product or service  The only element in the marketing mix that produces revenue; all other elements represent costs Revenue = Price x Quantity Profit = TR - TC Price has many names: Rent Interes Tuition t Fare Salary Commissio n Activity Sharing of Pricing Strategy Profit-Oriented Objectives Sales-Oriented Objectives Status-Quo Oriented Objectives 1. To achieve the target 1. To increase sales 1. To stabilize prices return on investment or volume 2. To meet competition on net sales For example, the company 3. To avoid competition Example: 21% ROI required may seek to increase its by a company sales by 20% annually 2. To maximize profit 2. To maintain or increase market share Example: the company’s market grew from 30% last year to 40% this year Major Pricing Strategies 1. Cost-based pricing 2. Customer value-based pricing 3. Competition based-pricing Cost based pricing (Cost Plus Pricing) A. Price/unit = direct costs + overhead costs + profit margin where Direct costs = materials + labor; Overhead costs = a share of indirect costs; Profit margin = a fair amount of return B. Price= Total cost/units + profit margin Cost Plus Pricing TC = P100,000.00 Units = 1,000 units Profit margin 25% Price = TC/units + profit margin = 100,000/1000 + 25% = 100 + 25 = P125.00 Competition pricing Setting prices that match those rival products on the market. If competitors are pricing their products at a lower price, then it’s up to the company to either price their goods at a higher or lower price, all depending on what they want to achieve. PRICING STRATEGIES FOR NEW PRODUCTS Pricing strategies for new products Market Penetration Pricing Strategy Generally used by new entrants to a market already dominated by one or several companies. Sets a low initial price in order to penetrate the market quickly and deeply to attract a large number of buyers quickly to gain market share Pricing strategies for new products Market Skimming Pricing Strategy Strategy for setting a high price for a new product to skim maximum revenues, often used by pioneers in a particular product category. Day 2: Assessment Have you experience buying same product with different prices? Why do you think prices vary? PRICE ADJUSTMENT STRATEGIES 1. describe how companies adjust their prices to take into account different types of customers. 2. recognize the need of pricing strategies by citing its importance to the businesses. 3. participate actively in the class discussion by answering questions. Why do companies adjust their basic prices?  Price Adjustment Strategies  Discount and allowance pricing  Promotional Pricing  Segmented pricing  Customer-based, product form, location-based and time-based  Psychological Pricing  Geographical Pricing  International Pricing Price Adjustment Strategies 1. Discount and Allowance ▫Discount – a straight reduction in price on purchases during a stated period of time or of larger quantities ▫Allowance – promotional money paid by manufacturers to retailers in return for an agreement to feature the manufacturer’s products in some way. Price Adjustment Strategies 2. Promotional Pricing ▫ Temporarily pricing products below the list price, and sometimes even below cost to increase short- run sales Segmented Pricing 1. Customer- Based ▫ customer-segment pricing, different customers pay different prices for the same product or service. Price Adjustment Strategies 3. Segmented Pricing ▫ Selling a product or service at two or more prices, where the difference in prices is not based of differences in costs. Segmented Pricing 2. Product-form pricing ▫ different versions/variants of the product are priced differently ▫ products came from the same source Segmented Pricing 3. Location-based pricing ▫ a firm charges different prices for different locations, although the cost of offering each location is the same. 4. Time-based pricing ▫ Companies utilizing time –based pricing consider a certain time frame in setting price. ▫ the firm varies its price by the season, the month, the day or even the hour Price Adjustment Strategies 4. Psychological Pricing ▫ Price is used to say something about the product ▫ Pricing that buyers carry in their minds and refer to when they look at a given product ▫ Appeals to customers ideas regarding affordability and value Price Adjustment Strategies 5. Geographical Pricing ▫ Involves setting price differently in different locations. ▫ The difference in price might be based on the shipping cost, the taxes each location charges, or the amount people in the location are willing to pay. Common Pricing Strategies 7. International pricing. international markets considering market conditions, and the of cost price depends on many factors: ▫ laws and regulations ▫ exchange-rate fluctuations ▫ physical distribution ▫ consumer’s preferences Business Plan What pricing strategies are you going to employ for your proposed products?  Public Policy and Marketing Price fixing? Predatory Pricing Selling below cost with the Agreement between intention of punishing a business competitors competitor or gaining higher or between long-run profits by putting manufacturers, competitors out of business wholesalers, and The predator is willing to sell retailers to raise, fix, or their product in very low cost otherwise maintain for a period of time in hope that prices. their rivals either go bust or stop selling that product. Price adjustment decision 1.When to increase Prices  Even If the cost of production has increased, adjust the price only after considering relevant  If the demand for the product has increased  If research shows that the market is not price sensitive to the product Price adjustment decision 2. When to Reduce Prices  if the product is facing the threat of decline, the price must be reduced to attract laggards and other budget.  If the reaction of the competing companies to a price decrease is not evident, prices may be reduced.  If the situations above do not apply to the product, its price must be maintained.