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The Marketing Mix - Pricing (Factors that affect pricing decisions…

- - - - Used to work out how many units would need to be sold at different price levels to cover the full cost (variable and fixed costs) of production, distribution and marketing using break-even analysis
      - Determines whether it is worthwhile offering a product
      - -ve if sales fall, prices would need to be raised to compensate and break even which could jeopardise further sales
      - +ve highlights costs and the price required for initial profit
    - - Only taking account of costs that increase as sales go up
      - Used in a service offering where capacity would
        otherwise be unused
      - Offer low prices at times in which they would otherwise operate below capacity and receive some revenue to cover direct costs
      - Good for limited times but fixed costs will have to be covered at some point
        
        Second market discounting
        
        Charging different prices to different markets
        
        Also used when referring to charging different prices in international markets
    - - Adding a percentage for profit to the cost of a product
      - Called 'mark up pricing'
        
        When it is 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 profit
      - +ve perceived to be fair
      - -ve It does not take account of customer demand or what competitors charge
  - - - Companies may chose to charge the 'going rate' - a similar price to competitors
      - When comparing against competitors, Kotler and Armstrong (2016, p. 332) recommend asking the following questions:
        
        What are their [competitors’] current pricing strategies?
        
        How does the company’s market offering compare with competitors’ offerings in terms of customer value?
        
        How strong are current competitors?
      - If a company’s offering is perceived to offer greater value to customers than its competitors, then a higher price may be charged.
        
        If lower, then a company may have to charge a lower price unless it is able to increase the offering’s perceived value
    - - Companies price their services in relation to what they think competitors might charge in their bids
      - Profit has to be balanced against the chances of winning a bid and information that can be obtained about the price of previously successful bids and about competitors
  - - - Demand pricing
        
        Setting a price based on customers’ willingness to buy a company’s offering at various price options
      - Good value pricing
        
        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
      - Value-added pricing
        
        Adding features or services to increase the value of an offering to consumers that differentiates it from competitors
        
        Enables a higher price to be charged
      - Psychological based pricing
        
        Using price to elicit an emotional response
        
        Prestige pricing - signals quality
        
        Odd-even pricing - setting a price that ends in an odd number such as £7.99 rather than £8, to encourage sales
- - - - Pricing different products in a range based on the level of value each offers to buyers
    - - Offering optional products or accessories alongside the principal product
    - - Associated products needed to use the principal product
    - - A process of offsetting the cost of a principal product by finding a way to sell by-products incurred in the principal product’s
        production
      - Allows the principal product’s price to be set more competitively
    - - Selling a set of related products in a bundle at a price lower than if purchased individually
- - - - Does not mean that businesses will chose the cheapest option in B2B buying
      - Businesses will prefer the option that provides them best supports them in lowering their own costs or increasing their revenue
        
        EG reducing their operating costs or increasing the reliability of their equipment through superior servicing or warranty
  - - - A discount offered by a producer for undertaking a particular function eg the provision of storage, transportation, processing, selling and possibly credit
    - - One-off or cumulative discounts for buying in large quantities that reduce the discounter’s costs
    - - Discounts offered to encourage cash payment or payment within a short time period
    - - Discounts offered for buying out of season (similar to second-market pricing)
    - - Price reductions for related actions by the buyer that help the allowance-granter to achieve their goals in some way.
- - - - Simplest approach
      - Asking customers in different segments for feedback on a companies prices or how much they are prepared to pay for it
      - Customers may say that the price is too high, which provides little insight
      - Customers may state intentions that do not accurately reflect behaviour
      - Described as a 'nice to know' but limited in terms of insights to pricing
    - - Asking customers questions that assess changes in their
        sensitivity to price over time
      - Information is plotted on a 'price map' allowing a company to identify the levels at which a price is deemed too high or too low
    - - Presents a customer with a scenario and asks them to make a series of choices relating to the product purchase
      - This approach can be useful in the case of new products for seeing how attributes compare in importance for customer purchasing
      - It does however artificiality limit its usefulness
    - - Rarely used
      - It can be helpful for assessing customers' sensitivity to unit price changes
    - - A company may test customers' perceptions of a products' value
- - - - Companies cannot charge different prices in an unjustified manner
    - - Reduced customer welfare
      - Barriers to trade
      - Effects on competitors or customers