MKT 100 Study Guide - Marketing Mix, Conspicuous Consumption, Demand Curve
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25 Apr 2012
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Week 11 Summary: Price Management
Marketing Mix – 4 P’s
Product
Price
Place
Promotion
What About Price?
What is a good price to the marketer?
“As close to the maximum a customer should pay”
Product life cycle = PLC
Price needs To…
• achieve the financial goals of the company –profitability
• fit the environment – will customers buy at that price?
• support the product’s positioning
• be consistent with other variables of the marketing mix
Price Elasticity and Demand
ELASTIC – As the price decreases the demand increases
Price Elasticity and Demand
• Availability of substitutes – the more substitutes available, the greater the elasticity.
• Degree of Necessity or Luxury – Luxury products have higher elasticity than necessities. Habit
forming products can become “necessities”.
• Proportion of Income – Products that represent a higher proportion of a consumers’ income will
have greater elasticity.
• Timing – a one day sale will have different results than a permanent price decrease for a longer
period of time.
• Price Points – decreasing from $2.00 to $1.99 will have more elasticity than from $1.98 to $1.97.
• Price Sensitivity is higher in developing markets
• Price sensitivity is higher when competitors feature price in the public
• Price sensitivity is high when a new seller enters the market at a low price
• Price sensitivity is high when there is a recession (with inflation unwinding and sales starting to
decline, supermarkets are set to get down and dirty in a bid to keep consumers shopping
• Price sensitivity is high when cost of searching for a lower price decreases
Sensitive Price Points
Substitute Price Points -six pack of Coke costs $2.99, six pack of Pepsi costs $2.89 – shoppers who are
indifferent switch big time.
Perceptual Price Points - e.g. 99 cents, $19,995. Sometimes effective
Price Skimming
is the strategy of establishing a high initial price for a product with a view to “skimming the cream off
the market” at the upper end of the demand curve.
Prestige Pricing
Prestige products are used in social settings and are conspicuously consumed.
Penetration Pricing
Enter low to establish economies of scale and awareness.
After building quality and awareness you increase price. E.g., 1983 hyundai entered Canada, expected
5000 imported pony models, and had imported pony models
Low margin penetration price on a product knowing you will be able to make higher margins and profits
on a product knowing you will be able to make higher margins and profits on after-market sales. E.g.,
printer versus the ink cartridges
% of shoppers who find price acceptable
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
$1.00 $1.50 $2.00 $2.50
Price
% of Shoppers