The Marketing Mix - Pricing (Factors that affect pricing decisions (The…
The Marketing Mix - Pricing
Price is, broadly speaking, the cost of exchange in return for an offering.
Cost based pricing:
Taking account of costs that increase as sales go up is called
direct cost pricing
marginal cost pricing
(Jobber and Ellis-Chadwick, 2013)
involves charging different prices to different markets, e.g. service offering where capacity would otherwise be unused - theatres reduce price nearer to show to fill seats or charging of different prices in international markets where local competition (rather than capacity considerations) makes it necessary (Blythe, 2006)l
Cost-plus pricing -
adding a percentage for profit to the cost of a product
used by retailers to set a price by adding a ‘mark-up’ or margin to the price they paid for their stock of the product to obtain a profi
full or total cost approach
used to work out how many units would need to be sold at different price levels to cover the full cost (direct or variable costs and fixed costs or overheads) of production, distribution and marketing
if sales fall, prices would need to be raised to compensate and break even
pricing is set in relation to competitors. A company may choose to charge a similar price to competitors (referred to as
’ by Jobber and Ellis-Chadwick, 2013)
Many companies, however, prefer to try to differentiate themselves from competitors and use
to ask when comparing against competitors, Kotler and Armstrong (2016, p. 332)
How does the company’s market offering compare with competitors’ offerings in terms of customer value?
. How strong are current competitors?
. What are their [competitors’] current pricing strategies?
Customer-based pricing / ‘customer-value-based pricing’ / ‘market-orientated pricing’
involves setting the price of an offering on its value to customers.
– This is setting a price based on customers’ professed willingness to buy a company’s offering at various price options (Blythe, 2006)
– This is adding features or services to increase the value of an offering to consumers that differentiates it from competitors and enables a higher price to be charged (Kotler and Armstrong, 2016).
– This involves setting a fair price based on a balance of quality against price; this might mean offering budget versions at a lower price, ‘the same quality for less’, or higher-quality versions at a reasonable price (Kotler and Armstrong, 2016, p. 327).
– This involves using price to elicit an emotional response, for example using prestige pricing to signal quality or odd-even pricing (setting a price that ends in an odd number such as £7.99 rather than £8) to encourage lower price perceptions (Blythe, 2006).
Factors that affect pricing decisions
The most frequently mentioned factors are cost, competition and value perceptions
Objectives (organisational, marketing and pricing objectives) and marketing strategy
The marketing mix, other products (represented by product line pricing)
Buyers' perceptions of price
Elements of the macro and micro environment (STEEPLE factors)
Who sets and influences prices in the organisation (Kotler and Armstrong, 2016)
Product Mix Pricing: When a product is part of a product mix, pricing has to take into account the differing costs, competition and demand among the products and arrive at prices that maximise profit across the overall product mix (Kotler and Armstrong, 2016)
Product line pricing
. By-product pricing
Product bundle pricing