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Busi 141 Price Strategies


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PPT detaining Price component of the Marketing Mix. Includes objectives, demand, strategies, tactics and ethical issues.

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Busi 141 Price Strategies

  1. 1. Marketing Mix: Price BUSI-141 Principles of Marketing
  2. 2. 2
  3. 3. Price Topics Covered • Defining Price • 6 Elements in Price Planning • Price Objectives • Product Demand • Examine the Price Environment • Price Strategies and Tactics • Psychological Strategies 3
  4. 4. What is Price? • The consumer’s assignment of value • Amount the consumer must exchange to receive offering or product • Most often perception is Price = Money • Can also be goods, services, favors, votes • Anything the other party considers valuable 4
  5. 5. Six Elements of Price Planning PRICE Objectives Demand Costs Environment Strategy Tactics 5
  6. 6. Develop Price Objectives • Profit • Sales • Market Share • Competitive Effect • Customer Satisfaction • Image Enhancement 6
  7. 7. Develop Price Objectives 7 Sales/Market Share • Develop bundle pricing offers in order to increase market share Image Enhancement • Alter pricing policies to reflect the increased emphasis on the product’s quality image Customer Satisfaction • Alter price levels to match customer expectations Profit • Set prices to allow for an 8% profit margin on all goods sold Competitive Effect • Alter pricing strategy during first quarter of the year to increase sales during competitor’s introduction of a new product.
  8. 8. Demand & Elasticity • Demand refers to customers’ desire for a product - How much are customers willing to pay as the price of the product goes up or down? - If it rains, the demand for umbrellas increases and the demand for tee times on a golf course is a wash. 8
  9. 9. Estimating Demand for Pizza 9
  10. 10. Estimating Demand for Coffee in Buckhannon 10 Population in Buckhannon (US Census Bureau, 2015) 5,650 Average cups per day (Statista, 2016) 598.6 Total annual market demand 3,382,090 Predicted share of the total market (forecasted) 5 percent Estimated annual company demand 169,105 cups Estimated monthly company demand 14,092 Estimated weekly company demand 3,252
  11. 11. Determine the Cost • In order to ensure that product price will cover costs, marketers must determine - Variable Costs: Per-unit costs of production that will fluctuate depending on how many units a firm produces - Fixed Costs: Costs that do not vary with the number of units produced - Break-even: Determine the number of units which must be sold at a given price to cover total costs - Markup: Amount added to the cost of the product to create a price at which the channel member will sell the product 11
  12. 12. Examine the Price Environment The Economy • Business Cycle • Inflation • Economic Growth • Consumer Confidence Competition • Price Wars • Industry Structure Government Regulations • Industry Regs • Product Regs Consumer Trends • Demographics • Culture International Environment • Adapt to Different Practices • Government Regs • Distribution 12
  13. 13. Price Strategies The X and Os • Cost • Demand • Competition • Customer’s Needs • New Product Pricing 13
  14. 14. Price Strategies • Cost-based pricing is very common • Easy to calculate and relatively risk-free • Demand based pricing: firm bases selling price on an estimate of volume it can sell in different markets at different prices • Pricing based on competition • Price leadership strategy • Pricing based on customer needs • Value or Every Day Low Pricing (EDLP) 14
  15. 15. Price Strategies • New products present unique pricing challenges! • In absence of reliable demand estimates and pricing norms, common pricing tactics include: - Skimming price - Penetration pricing - Trial pricing 15
  16. 16. Price Tactics • Pricing for individual products • Two-part pricing • Payment pricing • Pricing for multiple products • Price bundling • Captive pricing • Distribution-based pricing for end-users 16
  17. 17. Price Tactics with Channel Members • When setting prices for channel members, marketers may also apply tactics such as: - Trade or functional discounts - Quantity discounts - Cash discounts - Seasonal discounts 17
  18. 18. Psychology Issues when Setting Prices • Buyers form expectations of what is fair or customary prices for goods and services • Price too high = Bad deal • Price too low = Suspect quality • Customary price perceptions are influenced by: • Internal reference prices: A set price or price range consumers have in mind when evaluating a product’s price • Price-quality inferences : When consumers use price as a cue to infer product quality 18
  19. 19. Psychological Strategies • Odd-Even Pricing • Price Lining • Prestige Pricing
  20. 20. Legal and Ethical Issues for B2C • Bait-and-switch • Advertise very low-priced item to lure customer to store (bait) • Arriving customers find product is out of stock and are offered more expensive item (switch) • Loss leader pricing • Use very low prices to get customers into the store • Making up the “loss” through sale of other products
  21. 21. Legal and Ethical Issues for B2B • Illegal price discrimination: Firms sell product to channel members at different prices in a way that “lessens competition” • Price fixing: Two or more companies conspire to keep prices at a certain level • Predatory pricing: Firm sets very low price for purpose of driving rival out of business
  22. 22. Ethical Practice • The popular ride-sharing service Uber employs a surge pricing model For example, price increases during bad weather or on New Year’s Eve Practice angers some customers, but company maintains it is essential to ensure driver availability 23 • If you were advising Uber’s executives, would you encourage them to end the surge pricing strategy to prevent the company from losing angry customers?
  23. 23. 24 Presentations will be on Thursday and next Tuesday (Dress appropriately) Upload PPT to Blackboard before next class Self-Assessment #2 will be Thursday, March 2