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THE MARKETING MIX - PRICING (Factors affecting pricing decisions…
THE MARKETING MIX - PRICING
Pricing - the cost of an exchange in return for an offering
Types of Pricing
Cost-based pricing
Uses break even analysis to determine #units that need to be sold to cover costs
direct + variable costs, fixed costs/overheads
Accounting for costs that increase with sales is
direct cost pricing
or
marginal cost pricing
Cost-plus pricing
is adding a % for profit to the cost paid for a product -
mark-up pricing
Competitor-based pricing
Pricing is set in relation to competitors. Similar prices are the
going rate prices
How does offering compare with competitors offering in terms of value? Greater = higher price. Lower = lower price
How strong are current competitors?
What are competitors current pricing strategies?
Competitive bidding
is when org's price products based on what competitors may charge in their bids
Customer-based pricing
Setting prices based on the value offering has to customers
Demand pricing
- based on customers professed willingness to buy with various price options
Good-value pricing
- Setting a fair price based on quality against price e.g. budget versions at budget price
Value-added pricing
- adding features/services to increase value of offering
Psychological-based pricing
- using prices to elicit a response e.g. £7.99 instead of £8
Factors affecting pricing decisions
Negotiating margins
product line pricing
Political factors
Explicability
Price-quality relationships
Channel member effects/expectations
Marketing Strategy
Org objectives
Pricing objectives
Buyers price perceptions
Legal/Regulatory issues
Marketing objectives
Marketing mix
Who sets prices
Market demand
Economy
Social concerns
Costs
Competitions
Value Perceptions
Product Mix Pricing
Product Line Pricing
- pricing diff products based on level of value each offers to buyers
Optional-product Pricing
- Offering optional products or accessories alongside principal product
Captive-product Pricing
- Associated products needed to use principal product
By-product Pricing
- Process of offsetting cost of principal product by finding a way to sell byproducts of production e.g. cacacha (byproduct of rum)
Product Bundle Pricing
- Selling related products as a bundle for a lower price than selling individually
Pricing in business markets
Concept of EVC (economic value to customer) is important
Trade/Functional Discounts
- discount for undertaking a particular function (storage, transport etc)
Quantity Discounts
- discounts for bulk buying
Cash Discounts
- discounts to encourage cash payments or withing a short timeframe
Seasonal Discounts
- discounts for buying out of season
Allowances
- discounts for certain actions
Approaches for Informing Pricing Decisions
General Survey
- asking customers in diff segments for feedback
Van Westendorp Survey / Price Sensitivity Analysis
- asking customers about sensitivity to price changes over time
Conjoint Analysis
- presents customer with scenarios and make choices relating to product purchases
Elasticity Modelling
- Assesses sensitivity to price change
Experimentation
- tests customers perceptions of products value
Ethical Considerations
(some pricing methods raise concerns such as...)
Dynamic Pricing
- assessing needs/characteristics of customers and adjusting prices accordingly
Segmented Pricing
- charging diff prices based on diffs in customers, products or locations
(sometimes this is ok - students/senior discount, sometimes this is illegal)
Super-sized Pricing
- pricing used to entice customers into buying more than they need by offering more at a lower unit price