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Pricing decisions (Factors affecting pricing decisions (Costs (selling…
Pricing decisions
Factors affecting pricing decisions
Costs
selling below cost may not be a good long term solution
set price floor
reducing cost in an increasing trend for price sensitive market
Marketing mix variables
place - premium priced products use selective or exclusive distribution - lower priced use intensive distribution
promotion - premium prices less promoted - personal selling is more common for higher priced products
product - high quality = high price
Types of pricing objectives
increase market share - set price lower compared to competing brands, temporary price reductions
raise cash quickly - temporary price reductions
Customer interpretation/response to price
what the price means/what it communicates to customers
whether the price will move customers closer to the purchase and enhance customer satisfaction
Organisational and marketing objectives
should be set consistent with the goal and mission
compatible with marketing objectives - survival, profit maximisation, etc
Customer perceptions of product
price conscious - striving to pay low prices
prestige sensitive - drawn to products that signify status and prominence
value conscious - concerned about price and quality
Demand
normal vs prestige products
Stages for establishing price
Evaluation of competitor's prices
in competitive situations, prices must be kept the same as, or lower than competitors
prices can be designed as slightly above competitors to give product an exclusive image, or below to create a low cost image
Selection of a basis for pricing
value based = based on levels of benefits offered
competition based = influenced primarily by competitor's prices
cost based = adding a dollar amount/percentage to the cost of a product. cost plus (adding to seller's cost), markup (adding a predetermined percentage of product cost)
Assessment of target market's evaluation of price
importance of price depends on type of product, target market and purchase situation
price also depends on perception of value
Selection of pricing strategy
new product = price skimming (charging highest possible price that buyers who desire product most will pay), penetration pricing (setting price below competitors to penetrate market and gain a significant market share quickly)
product line = establishing and adjusting prices of multiple products in a line
differential = charging different prices to different buyers
psychological = attempts to influence a customer's perception of price
professional - set by those with skill/experience
price discounting = trade, quantity, cash, seasonal discounts, etc
Development of pricing objectives
goals that describe what a company wants to achieve through pricing
form basis of other decisions in stages, be consistent with marketing objectives
Determination of specific price
use of systematic approach
consider environmental forces and marketer's understanding
Profit = total revenue - total costs
Price = the value exchanged for a product in a marketing transaction
Total revenue = price x quantity sold