Chapter 10 - Summary Principles of Marketing PDF

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Professor Terry Paul- Textbook Chapter 10...

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Pricing 

11/30/2015

Companies should sell value, not price  Selling lesser products at rock bottom prices but in most cases it means persuading customers that paying a higher price for the company’s brand is justified by the greater value they gain

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Price- the amount of money charged for a product or service  Historically price has been more important  Only element in marketing mix that produces revenue, all other 

elements represent costs Most flexible marketing mix element, can be changed quickly unlike product features and channel commitments

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Considerations in Setting Price  Product costs = price floor o No profits below this price

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Competition and external factors o Competitors strategies and prices o Marketing strategy, objectives, and mix o Nature of the market and demand

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Consumer perceptions of value = price ceiling o No demand above this price

Major pricing strategies Customer value-based pricing  Setting price based on buyers’ perceptions of value rather than on 

the seller’s cost Use buyer’s perceptions of value

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Price is considered along with all other marketing mix variables

before the marketing program is set Cost based pricing  Product driven

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Company designs product, sets a price that covers costs plus a

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target profit, then convince buyers that the price justifies purchase If price is too high company must settle for sales and mark downs Setting prices based on the costs of producing, distributing, and

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selling the product plus a fair rate of return for effort and risk Walmart or Southwest airlines Types of Costs o Fixed costs o Variable costs o Total costs Experience curve/learning curve o The drop in the average per unit production cost that comes with accumulated production experience Cost plus pricing o Adding a standard markup to the cost of the product o Doesn’t make sense, and pricing method that ignores demand and competitor prices is not likely to lead to the best price o Still popular because  Sellers are more certain about costs than demand  If all firms use pricing method, prices are similar  Many think cost plus pricing is fair to customers and

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producers Break even pricing- setting price to break even on the costs of making and marketing a product, or setting a price to make a

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target return Value based pricing  Assess customer needs and value perceptions, sets target price, 

targeted value and price drive determine what costs can be incurred Good value pricing- offering just the right combination of quality and service at a fair price o Economic conditions and consumer price perceptions o Less expensive versions of established, brand name products o Everday low pricing – Costco

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Value added pricing- attaching value added features and services to differentiate a company’s offers and charging higher prices

Competition Based Pricing

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Setting prices based on competitors’ strategies, prices, costs, and

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market offerings How does the company’s market offering compare with competitors’ offerings in terms of customer value? o Can charge more or less

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Other Considerations  Overall marketing strategy, objectives and mix  Must decide overall market strategy before setting the price o A companys overall strategy can be built around its price and value story o Trader Joes unique cheap gourmet positioning 

Pricing plays an important role in helping to accomplish company objectives at many levels o Attract new customers or retain existing o Prevent competition from entering market

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Coordinate with product design, distribution, and promotion

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decisions Target costing- pricing that starts with an ideal selling price, then

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targets costs that will ensure the price is met Organizational decisions who should set prices

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The market and demand o Different markets have different type of price relationships o Pure competition- little marketing strategy o Monopolistic competition- a range of prices because sellers can differentiate their offers o Oligopolistic competition- few large sellers, each seller very alert to competitors prices o Pure monopoly- one seller

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Analyzing price demand relationship o Demand curve o Price elasticity- a measure of the sensitivity of demand to changes in price  The less elastic the demand, the more it pays for the seller to raise the price unique or high quality products

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The Economy o Cut prices and offer discounts to help spur short term sales undesirable long term consequences o Many companies add more affordable products to their

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product mixes Other factors o Resellers o Government o Social concerns

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