Chapter 10 - Pricing
What Price Should I Charge?
: Price is the value the is exchanged for products and services in a marketing transaction : Value = perceived benefits/perceived price
Elements of Price Planning
1. Set pricing objectives . profit : sales - Market share - Competitive effect - Consumer satisfaction - Image enhancement 2. Estimate demand - Shifts in demand - Price elasticity of demand 3. Determine costs - Variable costs - Fixed costs - Break-even analysis . Markups and margins 4. Examine the pricing environment - The economy : The competition Government regulation Consumer trends . The international environment 5. Choose a pricing strategy . Based on cost Based on demand Based on the competition Based on customers' needs - New-product pricing 6. Develop pricing tactics - For individual products - For multiple products - Distribution-based tactics
. Discounting for channel members
Pricing Objectives
: Sales or Market Share - Develop bundle pricing offers in order to increase market share o e.g. slaes promotions, pricing discounts Profit : Set prices to allow for an 8% profit margin on all goods sold : Image Enhancement - Alter pricing policies to reflect the increased emphasis on the product's quality image : Competitive Effect : Alter pricing strategy during first quarter of the year to increase sales during competitor's introduction of a new product Customer Satisfaction : Alter price levels to match customer expectations
Getting to the Right Price
: It is very rare for someone to agree to buy something without knowing the price . Non-monetary costs are also of great significance for marketers : Price planning follows a sequence of steps that begins with setting pricing objectives
Costs. Demand, Revenue, and the Pricing Environment
- In order to set the right price, marketers must understand quantitative and qualitative factors that can influence pricing strategy success Once objectives are set, marketers begin the actual process of setting the price of a brand. This requires estimations of demand, costs, revenues, and an understanding of the pricing environment.
Estimate Demand
: Demand refers to customers' (with the ability to pay) desire for a product - How much are customers willing to pay as the price of the product goes up or down? Economists use demand curves to illustrated the effect of price on quantity of a product demanded The law of demand: as price goes up, quantity demanded goes down
Demand Curves for Normal and Prestige Products
Price S
Price S
Demand
P700
Demand increases as price decreases
600 P2500
60 P250 40 P30 20 10
Demand increases as price decreases
400
P3 300 200
Demand decreases as price decreases
Demand
100
0
20 40 60 80 100 Quantity Qz Q, Demanded
0
20 40 60 80 Quantity Q1 Q Demanded
Normal Products
Prestige Products
Price Elasticity of Demand
: Price elasticity is the percentage change in unit sales that results from a percentage change in price Elastic demand is when changes in price have large effects on the amount demand