Marketing Chapter 12
Meaning of Price setting:
Pricing Decision: Factors to keep in mind
1) Perceived Value: How much is the buyer willing to pay for the product or service?
2) Cost of the product: What are the fixed and variable costs? Loss leaders
3) Company and marketing strategy: Is the pricing strategy consistent with corporate and
marketing objectives?
4) Competition: How will price affect competition and consumer demand?
5) Product Mix: How will the price affect sales of our products and services? Complementary
products
6) Resellers: Will the profit margin support the intermediaries’ marketing efforts?
7) Legislation and ethics: Do our pricing decisions meet legal and ethical standards? Cartels
,Price mechanism
Price affects both demand and supply: if the price is high, there is relatively little demand, but
because of the profit, plenty of supply.
This, in turn, increases competition.
It also creates a downward pressure on prices, as a result of which more consumers will buy the
product.
The demand will therefore go up.
For companies the price decrease (due to the competition) will lead to lower margins and
eventually to a reduction in market supply.
Demand curve
What is the difference between a movement along and a shift of the demand curve?
The demand curve shows how many products customers will buy at various prices.
A movement along the demand curve shows how much demand increases as price decreases,
and vice versa.
A shift of the demand curve is caused by more fundamental market forces, such as changes in
competition, consumer tastes or income. (ice cream)
Main forces underlying shifst in demand are changes in:
- Consumer tastes
- Income
- Market size
- Availability of substitutes
Introductory price
What are the options in new product pricing?
Two pricing strategies for an entirely new product:
Price skimming strategy: Introduce an innovative product at a high price,
gradually lowering it
to attract more price sensitive buyers.
Penetration price strategy: Launch a new product at a very low price
in a price-sensitive mass market
to quickly gain a large market share.
, Pricing
Objectives
How do specific and general pricing objectives differ? Pricing objectives describe what a firm wants to
achieve through its pricing strategy.
General (or derived) pricing objectives:
- derived straight from corporate and marketing objectives
- expressed in general criteria, such as sales volume, profitability, market share, brand loyalty
- in effect… marketing objectives
Specific pricing objectives:
- reflect a direct, measurable relationship with price
- expressed in terms of customers’ price perception, such as a desired change in price awareness
or price acceptance
1. Price perception: how do consumers view or experience a price setting (too high/low)?
2. Price awareness: the degree of consumer knowledge about the price of alternative products
3. Price acceptance: do consumers think the charged price is reasonable?
4. Price threshold: the highest and lowest prices a consumer is willing to pay
5. Price sensitivity: the extent to which consumers will react to small price changes.
Meaning of Price setting:
Pricing Decision: Factors to keep in mind
1) Perceived Value: How much is the buyer willing to pay for the product or service?
2) Cost of the product: What are the fixed and variable costs? Loss leaders
3) Company and marketing strategy: Is the pricing strategy consistent with corporate and
marketing objectives?
4) Competition: How will price affect competition and consumer demand?
5) Product Mix: How will the price affect sales of our products and services? Complementary
products
6) Resellers: Will the profit margin support the intermediaries’ marketing efforts?
7) Legislation and ethics: Do our pricing decisions meet legal and ethical standards? Cartels
,Price mechanism
Price affects both demand and supply: if the price is high, there is relatively little demand, but
because of the profit, plenty of supply.
This, in turn, increases competition.
It also creates a downward pressure on prices, as a result of which more consumers will buy the
product.
The demand will therefore go up.
For companies the price decrease (due to the competition) will lead to lower margins and
eventually to a reduction in market supply.
Demand curve
What is the difference between a movement along and a shift of the demand curve?
The demand curve shows how many products customers will buy at various prices.
A movement along the demand curve shows how much demand increases as price decreases,
and vice versa.
A shift of the demand curve is caused by more fundamental market forces, such as changes in
competition, consumer tastes or income. (ice cream)
Main forces underlying shifst in demand are changes in:
- Consumer tastes
- Income
- Market size
- Availability of substitutes
Introductory price
What are the options in new product pricing?
Two pricing strategies for an entirely new product:
Price skimming strategy: Introduce an innovative product at a high price,
gradually lowering it
to attract more price sensitive buyers.
Penetration price strategy: Launch a new product at a very low price
in a price-sensitive mass market
to quickly gain a large market share.
, Pricing
Objectives
How do specific and general pricing objectives differ? Pricing objectives describe what a firm wants to
achieve through its pricing strategy.
General (or derived) pricing objectives:
- derived straight from corporate and marketing objectives
- expressed in general criteria, such as sales volume, profitability, market share, brand loyalty
- in effect… marketing objectives
Specific pricing objectives:
- reflect a direct, measurable relationship with price
- expressed in terms of customers’ price perception, such as a desired change in price awareness
or price acceptance
1. Price perception: how do consumers view or experience a price setting (too high/low)?
2. Price awareness: the degree of consumer knowledge about the price of alternative products
3. Price acceptance: do consumers think the charged price is reasonable?
4. Price threshold: the highest and lowest prices a consumer is willing to pay
5. Price sensitivity: the extent to which consumers will react to small price changes.
