3. DEFINITION OF PRICING:
PRICE is the one element of the marketing
mix that produces revenue; the other
elements produce costs. Prices are perhaps
the easiest element of the marketing
program to adjust; product features,
channels and even communications take
more time. Price also communicates to the
market the company’s intended value
positioning of its product and brand. A well
–designed and marketed products can
command a price premium and reap big
profits. Ex: Gillette.
5. Selecting the Pricing Objective
•Survival.
•Maximum Current Profit.
•Maximum Market Share.
•Maximum Market Skimming.
•Product-Quality Leadership.
•Other Objectives
6. SURVIVAL
• Company pursue SURVIVAL as their major objective if
they are plagued with over capacity, intense
competition, or changing consumer wants.
• As long as the prices cover variable costs and some
fixed costs the company stay in business.
• Survival is the short run objective in the long run, the
firm must learn how to add value or face extinction.
7. MAXIMUM CURRENT PROFIT
• Many companies try to set a price that will MAXIMIZE
CURRENT PROFITS.
• They estimate the demand and costs associated with
alternative prices and choose the price that produces
maximum current profit, cash flow, rate of return on
investment.
• This strategy assumes that the firm has knowledge of its
demand and cost functions; these are difficult to estimate.
• In focusing current performance the company may ignore
the effects of other marketing mix variables, competitors,
and legal restraints on price.
8. MAXIMUM MARKET SHARE
• Some companies want maximize their market share so
that the higher sales volume will lead to lower units
costs and higher long run profit.
• They fix lowest price assuming that the market is price
sensitive.
• Ex: TEXAS INSTRUMENTS(TI) practised this market-
penetration for years.
• IT followed many strategies to win a large market
share.
9. MAXIMUM MARKET SKIMMING
• Companies unveiling a new technology favour setting
high prices to maximize market skimming.
• Ex: SONY. This firm is a practitioner of market
skimming pricing.
• PHILIPS the Dutch electronic manufacturer and
Japanese competitors.
10. CONDITIONS TO FOLLOW SKIMMING
1) A sufficient number of buyers have a high current
demand.
2) The unit costs of producing a small volume are not so
high that they cancel the advantage of charging what
the traffic will bear.
3) The high initial price does not attract more
competitors to the market.
4) The high price communicates the image of a
superior product.
11. PRODUCT QUALITY LEADERSHIP
• A company always aim to be the PRODUCT QUALITY
leader in the market.
• Many BRANDS strive to be “ affordable luxuries”-
products or services characterised by the high level of
perceived quality, taste, and status with a price just
high enough not to be out of customers’ reach.
• EX: STARBUCKS COFFEE, MERCEDES AND BMW CARS,
CAFÉ COFFEE DAY TAJ LUXURY HOTELS & SO ON.
• These brands have already positioned them as leaders
in quality with premium pricing & a very loyal
customer base.
12. OTHER OBJECTIVES
• Non profit and public organizations may have other
pricing objectives.
13. Survival is a short-run objective for firms to deal with
overcapacity, intense competition, or changing consumer wants.
Maximize current profits emphasis current performance . But
firms may sacrifice long-run performance by ignoring the effects
of other marketing variables, competitors’ reactions, and legal
restraints on price.
Maximum market share utilizes a market-penetration pricing
strategy, in which a higher sales volume will lead to lower unit
costs and higher long-run profit.
Maximum market skimming utilizes a market-skimming pricing
strategy, in which prices start high and slowly drip over time.
This strategy can be fatal if competitors price low.
A firm striving to be a product-quality leader offers brands that
are “affordable luxuries” –products or services characterized by
high levels of perceived quality, taste, and status with a price
just high enough not to be out of consumers’ reach.
Other objectives: Nonprofit and public organizations may have
other pricing objectives.
14. DETERMINING DEMAND
• The first step in determining demand is to understand
what affects price sensitivity.
• Customers are less price sensitive to low cost items or
items they buy frequently.
• They also become price sensitive when there are few
or no substitutes or competitors.
• When they think higher price are justified.
• When they are slow to change their buying habits.
• Companies prefer customers who are less price
sensitive.
16. Demand sets the price ceiling while costs
set the floor. Costs include production,
distribution, and selling expenses, plus a
fair return (profit) to cover effort and risk.
The company wants to charge a price that
covers its cost of producing, distributing,
and selling the product, including a fair
return for its effort and risk. Yet when
companies price products to cover their
full costs, profitability isn’t always the net
result.
19. Fixed costs, also known as overhead, are
costs that do not vary with production level
or sales revenue. Variable costs vary directly
with the level of production. Total costs
consist of the sum of the fixed and variable
costs for any given level of production.
Average cost is the cost per unit at that level
of production; it equals total costs divided by
production.
23. Costs can also change as a result of a
concentrated effort by designers,
engineers, and purchasing agents to
reduce them through target costing.
Market research establishes a new
product’s desired functions and the price
at which it will sell, given its appeal and
competitors’ prices. This price less
desired profit margin leaves the target
cost the marketer must achieve.
Price is the only one of the 4 P’s that produces revenue, all over elements produce costs. Price is also the easiest element of the marketing mix to adjust, and communicates the intended value of the offering.
A firm must consider many factors in setting its pricing policy.31 The chart above summarizes the six steps in the process.
Survival is a short-run objective for firms to deal with overcapacity, intense competition, or changing consumer wants.Maximize current profits emphasis current performance . But firms may sacrifice long-run performance by ignoring the effects of other marketing variables, competitors’ reactions, and legal restraints on price.Maximum market share utilizes a market-penetration pricing strategy, in which a higher sales volume will lead to lower unit costs and higher long-run profit.Maximum market skimming utilizes a market-skimming pricing strategy, in which prices start high and slowly drip over time. This strategy can be fatal if competitors price low.A firm striving to be a product-quality leader offers brands that are “affordable luxuries” –products or services characterized by high levels of perceived quality, taste, and status with a price just high enough not to be out of consumers’ reach.Other objectives: Nonprofit and public organizations may have other pricing objectives.
Demand sets the price ceiling while costs set the floor. Costs include production, distribution, and selling expenses, plus a fair return (profit) to cover effort and risk. The company wants to charge a price that covers its cost of producing, distributing, and selling the product, including a fair return for its effort and risk. Yet when companies price products to cover their full costs, profitability isn’t always the net result.
Fixed costs, also known as overhead, are costs that do not vary with production level or sales revenue. Variable costs vary directly with the level of production. Total costs consist of the sum of the fixed and variable costs for any given level of production. Average cost is the cost per unit at that level of production; it equals total costs divided by production.
Experience curve or learning curve refers to the decline in the average cost with accumulated production experience.
Costs can also change as a result of a concentrated effort by designers, engineers, and purchasing agents to reduce them through target costing. Market research establishes a new product’s desired functions and the price at which it will sell, given its appeal and competitors’ prices. This price less desired profit margin leaves the target cost the marketer must achieve.
