Week 7 Notes – Marketing
What is Price?
- Sum of all the values that consumers exchange for the benefits of having or using
the good or service.
What price is and what it is not!
Price vs. Cost
- Marketers do not make decisions about costs, they make decisions about
- The practice of charging different prices depending on individual customers
- Internet and web-purchasing provides the technological capability
- Sites like eBay even add the ability to negotiate price to dynamics pricing
Factors that Affect Pricing Decisions
- Marketing Objectives
- Marketing Mix Strategy
- Organizational Considerations
- Nature of the market and demand
- Other Environmental Factors (economy, resellers, government, social
Fixed vs. Variable – Your Call
- Product packaging (variable)
- VP of marketing’s salary (fixed)
- Cost of 3 month billboard campaign (fixed)
- Annual advertising budget (fixed)
- Cost of the parts that go into manufacturing the marketer’s product.
A way of measuring how sensitive the market is to price changes
- Inelastic: minimal change in demand as price increases
- Elastic: significant drop in demand in price increases Pricing In Different Markets
Pure Competition: many buyers and sellers where each has a little effect on the
going market price.
Monopolistic Competition: Many buyers and sellers who trade over a range of
Oligopolistic Competition: few sellers and sensitive to each other’s
Pure Monopoly: Market consists of a single seller
General Pricing Strategies
- Cost-plus pricing
- Break-even analysis
- Target profit pricing
- Consumer perceptions of value
- What competitors are charging
Market skimming Pricing
- High price to reap maximum profit from early adopter segments
- Strategy must be supported by product quality, production costs, and
competitors’ difficulty in entertainment market.
Market Penetration Pricing
- Low price to gain maximum market share
- Market must be price sensitive, costs must fall with rising volume, and price
must discourage competition.
Product Mix Pricing Strategies
- Product Line – pricing levels to deliver value to different segments.
- Optional Products – separate options available for the main product
- Product Bundles – combinations of products, for a reduced price
- Captive Products – needed to make main products usable.
- Byproducts – created from the manufacture of the main product
Discounts and Allowances
- Seasonal Allowances
Selling a goo or service at two or more prices, where the differences in prices are not
based on differences on costs.
- Location Pricing
- Time pricing
- Considers the psychology of prices and not simply the economics
- Consumers usually perceive higher-priced products as having higher quality
- Consumers use price less when they can judge quality of a product
Temporarily pricing products below list price and sometimes even below list price
and sometimes even below cost to create buying excitement and urgency.
- FOB – origin pricing
- Uniform-delivered pricing
- Zone pricing
- Basing-point pricing