Chapter 26 : Price
PRICING CONSIDERATIONS AND APPROACHES
“Price is the sum of the values that consumer exchange for the benefits of having or using the product.
Only element to produce revenues
Most flexible element
Could be Fixed or Dynamic
Demand (Elastic / Inelastic)
Common Pricing Mistakes
1). Pricing is too cost-oriented.
2). Prices are not revised often enough to reflect market changes.
3). Prices do not take into account the other elements of the marketing mix.
4). Prices are not varied for different products, market segments, and purchase occasions.
Internal Factors Affecting Pricing Decisions
1. Marketing objectives
2. Marketing mix strategies
4. Organizational considerations
1. Marketing objectives:
• Current profit maximization
• Market share leadership
• Product quality leadership
• Other objectives
To prevent competitors
To keep loyalty and support of reseller
To avoid govt. intervention
To create excitement or draw attention of new customers
To help the sale of other product in product line
2. Marketing mix strategy:
Price decisions must be coordinated with product design, place, and promotion decisions to form a consistent and effective
Companies often make their pricing decisions first and then base other marketing-mix decisions on the prices that they want to
Target costing is positioning of product on price and then tailoring other marketing decisions to the price they want to charge.
But remember that consumers rarely buy on price alone.
Set the floor for the price that the company can charge. (price below this is not acceptable)
Companies want to charge a price that covers all its costs for producing, distributing, and selling the product, and provides a fair
rate of return for its effort and risk.
To price wisely, management needs to know how its costs vary with levels of production.
The experience curve (or the learning curve) indicates that average cost drops with accumulated production experience
4. Organizational considerations.
Management must decide within the organization who should set prices.
Small companies: CEO or top management
Large companies: Divisional or product line managers
Some companies have pricing departments