Please enable JavaScript.
Coggle requires JavaScript to display documents.
B207 Reading 9: The Marketing Mix – Pricing - Coggle Diagram
B207 Reading 9: The Marketing Mix – Pricing
1. Defining Price and its Role
Definition of Price:
Broadly, the cost of exchange in return for an offering.
Unique Function:
Price is the only element of the marketing mix that generates revenue; all others are costs.
Role in Exchange:
It is a powerful element, acting as an absolute decision criterion on whether an exchange is viable.
Communication Device
: Pricing can signal inferred quality, exclusivity, or expertise. Pricing promotions are easily manipulated to encourage purchasing.
2. Main Approaches to Pricing
There are three main approaches to setting a price:
Cost-Based Pricing:
Price is driven by the cost of the product.
Total Cost Approach / Break-Even Analysis: Calculates how many units must be sold at different prices to cover full costs (direct and fixed).
Direct/Marginal Cost Pricing: Accounts only for costs that increase with sales. Used when capacity would otherwise be unused (e.g., lower prices for services during off-peak times).
Cost-Plus/Mark-up Pricing: Adding a percentage for profit to the cost. Popular as it's perceived as fair, but a weakness is it ignores demand and competition.
Competitor-Based Pricing:
Price is set in relation to competitors.
Going-Rate Pricing:
Charging a similar price to competitors if there is little differentiation
Competitive Bidding:
Pricing services in relation to what competitors are expected to charge in their bids.
Customer-Based Pricing (Customer-Value-Based/Market-Orientated):
Setting the price based on the offering's value to customers. Requires determining customer value early, before the product is designed.
Demand Pricing:
Based on customers' professed willingness to buy at various prices.
Good-Value Pricing:
Balancing quality against a fair price (e.g., budget versions at lower prices or higher quality at reasonable prices).
Value-Added Pricing:
Adding features or services to increase value and differentiate, enabling a higher price.
Psychological-Based Pricing:
Using price to elicit an emotional response (e.g., prestige pricing to signal quality; odd-even pricing like £7.99).
3. Factors Affecting Pricing Decisions
Pricing requires consideration of a wide range of factors.
Core Factors (Most frequent)
: Costs, Competition, and Value Perceptions.
Internal Factors:
Organisational objectives, marketing objectives, marketing strategy, product line pricing, the marketing mix, and who in the organisation sets prices (e.g., top management, finance managers).
External Factors (from the Macro/Micro Environment - STEEPLE):
Market demand, the economy, political factors, legal and regulatory issues, and social concerns.
4. Product Mix Pricing
Pricing when a product is part of a mix; aims to maximise profit across the overall product mix.
Product Line Pricing:
Pricing different products in a range based on the value level each offers to buyers (e.g., different variants of a car).
Optional-Product Pricing:
Offering optional products or accessories alongside the principal product (e.g., screen protectors with a mobile phone).
Captive-Product Pricing
: Pricing for associated products needed to use the principal product (e.g., replacement ink cartridges for a printer).
By-Product Pricing:
Selling by-products (waste) to offset the cost of the principal product, allowing for a more competitive principal price.
Product Bundle Pricing:
Selling a set of related products together at a price lower than if purchased individually (e.g., a meal deal).
Business Markets (B2B):
Focus on Economic Value to the Customer (EVC), which is concerned with saving costs and increasing revenue.
5. Discounts and Ethical Considerations
Discounts (Often for Intermediaries):
Trade/Functional discounts (for performing services like storage), Quantity discounts (for buying in bulk), Cash discounts (for quick payment), Seasonal discounts, and Allowances (price reductions for related actions like advertising support).
Ethical Concerns
: Some pricing forms may be viewed as discriminatory or lacking transparency.
Dynamic Pricing:
Tailoring the price offered based on individual buyer characteristics and data (e.g., internet retailers adjusting price based on customer data).
Segmented Pricing:
Charging different prices based on differences in customers, products, or locations (e.g., student/senior discounts). Some forms of price discrimination are illegal (e.g., EU's Services Directive prohibits unjustified discrimination based on nationality).
Super-sized Pricing:
Enticing consumers to buy more than they need at a low unit price; has ethical implications related to increased consumption, health, and wastage.