Marketing I: Strand 4 PRICING

Transcription

1 Marketing I: Strand 4 PRICING

2 Price The value of money placed on a good or service. Key to pricing is product value! Value (anticipated satisfaction) directly affects how much a customer is willing to pay for an item Ex: Bicycle Price a product high enough for a profit, but not so high that it exceeds the VALUE customers place on the product. Trek - $ Huffy - $79.87

3 Price comes in many forms Dentist s fee Amount paid for shoes Bus fare Rent Interest on a loan Tuition Wages

4 Importance of Price Establishes image Maintains competitive edge Determines profits

5 Pricing Pricing Determine how much to charge for goods and services in order to make a profit Pricing decisions are based on costs and what competitors charge for the same product or service. To determine price, marketers must also determine how much customers are willing to pay. -Marketing Essentials

6 Goals of Pricing Profit You sell trash cans at $8 each. Your cost to make them is $6.50 Profit $8 - $6.50 = Meeting the Competition Following the industry leader Calculating the average industry price Gaining Market Share Market Share: a firm s percentage of the total sales volume in a given market

7 What is the market share/position for the following cookie brands?

8 Break-even Point Break Even Point the point at which sales revenue equals the costs and expenses of making and distributing a product. After this point is reached, businesses begin to make a profit on the product. -Marketing Essentials

9 Markup The difference between the price of an item and its cost Retail Price.. $14 Cost $10 Markup..40% ($4) Must be high enough to cover expenses

10 Supply & Demand Supply The amount of goods producers are willing to make and sell. Demand The amount of goods consumers are willing and able to buy. Law of Demand As the price of a good or service increases, the quantity demanded will decrease. Law of Supply As the price of a good or service increases the quantity supplied will increase.

11 Pricing Techniques Techniques often create an illusion for customers Odd-even: setting prices so that they end in either and even or an odd number. Odd numbers convey a bargain image ($.79, $9.95, $699) Even numbers convey a quality image ($10, $50, $100) Prestige: setting prices higher than average to suggest status Multiple-Unit: pricing that suggests a bargain Ex: 3 for $.99 rather than $.33 each Quantity: offered to buyers who purchase a larger quantity

12 Pricing Techniques Bundle: including complementary products in a single package and selling it a single price Ex: Computer companies including software, etc., Travel agencies including hotel, airfare, etc. Promotional: Loss-leader or Special-event Loss-leader: offering a popular item at a reduced rate in order to boost store traffic Special-event: reducing prices based on a specific happening. Ex: back-toschool sale, President s Day, etc.

13 Pricing Techniques Everyday Low Prices (EDLP): Setting pricing consistently low with no intention of raising them Ex: Wal-Mart Price Lining: requires a store to offer all merchandise in a category at certain prices Ex: selling blouses for $25, $35, and $50 Customers can easily see low, middle, and high

14 Pricing Techniques Discounts: Sellers may offer a reduction in the usual price. Cash (B2B): offered to encourage buyers to pay their bills quickly Ex: 2/10 net 30 = 2% discount if paid within 10 days or all due within 30 days Seasonal: offered to buyers who will purchase outside of the customary buying season Either well in advance of a season or just after Ex. Discounted Ski Passes in Sept.

15 Steps for Setting Prices Establish Pricing Objectives Increase sales volume? Prestigious image? Increase market share?

16 Steps for Setting Prices Study Costs Can you make a profit? Can you reduce costs without affecting quality or image?

17 Steps for Setting Prices Estimate Demand What do customers expect to pay? Prices usually are directly related to demand.

18 Effect price has on demand Elastic demand: When a change in price creates a change in demand. Ex. Steak- People will buy more if $3 a pound vs $9 a pound. Inelastic demand: When a change in price has little or no effect on demand. Ex. Bread-

19 Steps for Setting Prices Study Competition

20 Steps for Setting Prices Decide on a Pricing Strategy Price higher than the competition because your product is superior. Price lower, then raise it once your product is accepted.

21 Steps for Setting Prices Set Price Monitor and evaluate its effectiveness as conditions in the market change.