marketing principles

BUS106 Marketing

Principles

Marketing Mix: Price

Lecture 7

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This Topic’s Big Idea

“Price can relate to anything that

you perceive as having a value, not

just money”

Learning Objectives

1. Discuss the importance of pricing decisions to the economy and organisation.

2. Demonstrate how the product life cycle, competition, distribution and promotion strategies, customer demands, the internet and extranets and perceptions of quality can affect price.

3. Identify the legal and ethical constraints on pricing decisions.

4. Explain how discounts, geographic pricing and other special pricing tactics can be used to fine- tune the base price.

The Importance in Price

Price: what is given in an exchange for a

good or service

Revenue: the price charged to customers

multiplied by the number of units sold

Profit: revenue minus expenses

To earn a profit: managers must choose a

price that isn’t too high or too low

The Importance of Price

When a product is

priced too high,

customers are more

likely to seek second-

hand goods as a

cheaper alternative.

Profit-oriented

pricing objectives

The demand

determinant of price

Elasticity of demand

Elasticity of demand

This principle underlies the Australian

Government’s policy on pricing of cigarettes.

By making the price of cigarettes too high,

the hope is people will reduce consumption

or quit.

Equilibrium price for

gourmet biscuits

Factors that

affect elasticity

The cost

determinant of price

Loss-leader pricing: companies set prices below cost to attract consumers into their stores

Variable costs: varies with changes in the level of output

Fixed cost: doesn’t change as output is increased or decreased

Mark-up pricing: the cost of buying the product from the producer, for expenses not otherwise accounted for, plus amounts of profit

Other

determinants of price • Stages in the product

life cycle

• The competition

• Distribution strategy

• The impact of the electronic environment

• Promotion strategy

• Demands of large customers

• The relationship of price to quality

Factors that affect price

Watch Me:

https://www.youtube.com/watch?v =RtUKuO0cSoQ

Steps in setting the right price

on a product

Choose a price strategy

A basic, long-term pricing framework, which establishes the initial price for a product and the intended direction for price movements

over the product life cycle

Price strategies:

price skimming

Price strategies:

price anchoring

Price strategies:

penetration pricing

The legality and ethics of

setting a price in Australia

Competition and Consumer Act 2010 protects

the consumer and helps companies understand

their responsibilities in dealing the consumer.

Price fixing: agreement between organisations

on the price they will charge for a product

Price discrimination: in certain circumstances

acceptable

Predatory pricing: charging a very low price to

drive competitors out of business or the market

Unfair Trade

Watch Me: https://www.youtube.com/watch?v=tfNqBP900L8&index=97&list=PLcn

P8uT1FzoXfKYE-8VWEO5L-cyiFnQat

Warning: recommended for mature audience only. May include drug

reference, adult language, sex reference, cultural humor.

Nurofen Migraine Pain, digital image, viewed 6th of July, 2015,

http://www.johnvenes.co.uk/nurofen-migraine-tablets-6x12-s.html

Other Legal & Ethical

Price Considerations Price Fixing

Watch Me:

https://www.youtube.com/watc h?v=ZjgyaVS6ukg

Price Discrimination

Watch Me:

https://www.youtube.com/watc h?v=WjTxv0lehGk Warning: recommended for mature audience only. May include drug reference, adult language, sex reference, cultural humor.

Tactics for fine-tuning

the base price

The general price level at which the company expects to sell the

good or service

Discounts, allowances,

rebates and value pricing

Quantity

discounts

A price reduction

offered to buyers

who purchase

multiple units or

above a specified

dollar amount

Cash

discounts

A price reduction

offered to a

consumer, an

industrial user or a

marketing

intermediary in return

for prompt payment

of a bill

Discounts, allowances,

rebates and value pricing (Cont.)

Functional

discount

Also known as a

trade discount; a

discount to

wholesalers and

retailers for

performing channel

functions

Seasonal

discount

A price reduction for

buying merchandise

out of season. Helps

to shift out-of-season

stock and ensures a

steady production

schedule year-round.

Discounts, allowances,

rebates and value pricing (Cont.)

Promotional

allowances

Payment to a dealer

for promoting the

manufacturer’s

products

Rebates

Cash refund given for

the purchase of a

product during a

specific period

Value-based pricing

A price that is set at a level that the customers perceive to be a good price compared to the

price of other options

Geographic pricing

Geographic pricing (Cont.)

Special pricing tactics

Professional service pricing

A surgeon may perform a heart operation and

charge a flat fee of $10 000. The operation itself

may require only four hours, resulting in an

apparent $2500 hourly rate. The surgeon justifies

the fee because of the lengthy education and required to learn the

complex procedures of heart surgery.

Special pricing tactics

Special pricing tactics

Next Week

Marketing Mix: Place.