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Price:
Is the amount of money charged for a product or service it is the sum of all the
values that consumers up in order to gain the benefits of having or using a
product or service.
Price:
Is the only element in the marketing mix that produce revenue; all other
elements represent costs.
Figure 10.1
Value – based : uses the buyers perceptions of value, not the sellers cost, as the
key to pricing. Price is considered before the marketing program is se.
Note that :
" good value " is not the same as " low price"
1) good value pricing: offers the right combination of quality and good
service to fair price.
Exiting brands are being redesigned to offer more quality for a given price or
the same quality for less price.
Everyday low pricing ( EDLP): involves charging a constant everyday low price
with few or no temporary price discounts
Value added pricing: attaches value added features and services to differentiate
offers, support higher prices, and build pricing power.
Pricing power : is the ability to escape price competition and to justify higher
prices and margins without losing market share.
Set price
Design a Determine Convince buyers of
based on
good product product costs products value
cost
The right way like every thing else in marketing good pricing stars with the
customer
Cost – based pricing : involves setting prices based on the costs for producing,
distributing, and selling the product plus a fair rate of return for its effort and
risk.
Types of costs:
Fixed costs Variable costs Total costs
1) fixed costs: are the costs that do not vary with production or sales level
rent.
Interest.
Heat.
excutive salaries.
2) variable costs: are the costs that vary directly with the level of production.
They are called variable because their total varies with the number of
units produced.
packaging.
Raw materials.
3) total costs : are the costs that result from the sum of the fixed costs and
variable costs for any given level of production.
Figure 10.3 : cost per unit at different levels of product per period
C
C
SRAC
SRAV
LRAC
Q Q
1000 1000 2000 3000
b. cost behavior over different size
a. cost behavior in a fixed size plant plants
Costs as a function of production experience
experience for learning curve is when average cost falls s production increases
because fixed costs are speared over more units.
(figure 10.4)
$10
$8
$6
$4
$2
100000 200000 400000 800000
Accumulated production
Cuts, finally, while the company Is building volume under one technology,
a competitor may find a lower – cost technology that lets it start at prices
lower than those of the market leader who still operates on the ld
experience curve.
Cost plus pricing adds a standard markup to the cost of the product
benefits. Advantages:
Is the price at which total costs are equal to total revenue and there is no profit.
Is the price at which the firm will break even or make the profit its seeking.
Target pricing uses the concept of a break even chart that shows the total
cost and total revenue expected at different sales volume levels figure 10.5
shows a break even chart.
(figure 10.5) break even point chart for Deterring target price
At B.E.p, here 30000 units
TR = TC
1200
Total cost
1000
8000
600
Fixed cost
400
200
40 30 20 10
0 Sales volume in units (thousands)
50
10.4 other internal and external considerations affecting price decisions
Considerations:
Customer perceptions of value set the upper limit for prices, and costs set the
lower limit.
Companies must consider internal and external factors when setting prices.
target costing : starts with an ideal selling price based on consumer value
consideration and then targets costs that will ensure that the price is met.
Price is only one of the marketing mix tools that a company uses to achieve
its marketing objectives.
Same marketers even position their, products on high prices featuring hig
prices as part of their product's appeal.
Organizational considerations:
these include:
In small compares, price are often set by the top management rather than
by the marketing or sales departments.
Per competition
Monopolistic competition
oligopolistic competition
Pure monopoly
Pure competition:
The market consists of many buyers and sellers trading in a uniform commodity.
No single buyer or sellers has much effect on the going market price.
Monopolistic competition: the market consists of many buyers and sellers who
trade over a range of prices rather than a single market price a range of prices
occurs because sellers can differentiation their offers to buyers.
Oligopolistic competition: the market consists of a few sellers who are highly
sensitive to each other's pricing and marketing strategies.
There are few sellers because it is difficult for new sellers to enter the market.
Pure monopoly: the market consists of one seller. The seller may be a
government monopoly, a private regulated monopoly or a privet nonregulated
monopoly.
The relationship between the price charged and the resulting demand level is
shown In the demand curve.
The demand curve: shows the number of units the market will buy in a given
period at different prices.
For prestige ( luxury) goods, higher prices can equal higher demand when
consumers perceive higher prices are higher quality.
In the case of prestige goods, the demand curve sometimes slops upward.
Consumers think that higher prices mean more quality.
Inelastic demand: occurs when demand hardly changes when there is a small
change in price.
Elastic demand: occurs when demand changes greatly for a small change in
price.
Strength of competitors.
Economic conditions
Government
Social concerns
Costs of producing the product in small volume show / not cancel the
advantage of higher prices.
By – product Product
Pricing Bundle
Pricing
1) product line pricing : takes into account the cost differences between
products in the line, customer evaluation of their features, and
competitors' prices.
fixed fee.
customer.
Product form.
Locations.
Watching the market cannot exceed the extra revenue obtained from the
price difference.
Must be legal.
Reference prices are prices that buyers carry in their mind and refer to when
looking at a given product.
4) promotional pricing : is when prices are temporarily priced below list pric
or cost to increase demand .
loss leaders.
Special event pricing.
Cash rebates.
Longer warrantees.
Free maintenance.
If it used more frequently and copied by competitors, it can create deal. Prone
customers who will wait for promotions and avoid buying at regular prices.
Zone pricing.
Fob – origin ( free on board ) pricing : means that the goods are delivered to the
carrier and the title and responsibility passes to the customer.
Uniformed delivered pricing: means the company charges the same price plus
freight to all customers, regardless of location.
Zone pricing: means that the company sets up two or more zones where
customers within a given zone pay a single total price.
Basing – point pricing: means the seller designates some city as a basing point
and charges all customers the freight cost from that city to the customer.
Freight – absorption pricing: means the seller absorbs all or paint of the actual
freight changes as an incentive to attract business in competitive markets.
* economic condition.
* competitive conditions
* infrastructure.
* excess capacity
cost inflation
increased demand
lack of supply
company greed
price cuts :
Quality issues.
Questions:
Solutions: