Marketing Management

MGT 2306Lesson 6

Lesson 6 objectives

• Describe & write out the definition of PRICE

• List and explain the types of Price and the marketing mix

• Apply the various types of pricing strategies to real-life situations

What is price? (harga)

• the amount charged for a product or service

or the sum of values consumers exchange for the benefits of having or using the product or service

The many names of “price”

• Rent (Sewa)• Fee (bayaran)• Rate (kadar)• Commission• Assessment

(penilaian)• Tuition• Fare (tambang)• Toll

• Premium• Retainer (baki)• Bribe (rasuah)• Salary (gaji)• Wage (upah)• Interest (faedah)• Tax (cukai)

Price & the marketing mix

• The only element to produce revenues

(satu-satunya yang boleh menghasilkan

pendapatan)• Most flexible (luwes) element• Can be changed quickly (senang ubah)• You may start a price competition with it

(boleh mula perang harga di pasaran)• You may also make common mistakes using it

Pricing for new products

• Innovative or imitative? (barang inovatif atau tiruan)

• Innovativea) market skimming

b) market penetration

• Imitative – strategies based on range of price and

quality

Pricing Strategy

Penetration Pricing:

Here the organisation sets a low price to increase sales and market share. Once market share has been captured the firm may well then increase their price.

Example:

Astro sets a low price to get subscribers then increases the price as their customer base increases.

Pricing StrategySkimming pricing:

The organisation sets an initial high price and then slowly lowers the price to make the product available to a wider market. The objective is to skim profits of the market layer by layer.

Example:

Samsung mobile phones: premium at launch and lowest price near the end of its life cycle.

Pricing for Imitative (‘me too’) Products

– quality (high - medium - low)– price (high - medium - low)

Matrix – 9 strategies• for example• high price, high quality (premium strategy)• low price, medium quality (good value

strategy)• low price, low quality (economy strategy)

Example

Low price, low quality Low Price, Medium Quality

Product Mix pricing strategies(Strategi harga produk campuran)

i) Product line pricing

ii) Optional-Product pricing

iii) Captive-product pricing

iv) By-product pricing

v) Bundle pricing

vi) Competition pricing

vii) Premium pricing

viii) Cost-based pricing

Pricing StrategyProduct Line Pricing:Pricing different products within the same product range at different price points.

Example:

Samsung offering different smartphones with different features at different prices. The greater the features and the benefit obtained the greater the consumer will pay. This form of price discrimination assists the company in maximising turnover and profits.

Pricing Strategy

Optional pricing:The organisation sells optional extras along with the product to maximise its turnover.

Example:

Tune Hotel, Dominos Pizza. You

pay for a standard pizza but if you

order additional cheese toppings,

cheese sticks or pepsi, you have

to pay more.

Pricing Strategy

Captive product pricing:Pricing products that must be used with the main product. High margins are often most set for supplies.

Example:

Canon sells an ink jet printer for only RM150, but an ink cartridge costs a whopping RM91. Customers have no choice but to buy the ink cartridge when they run out of it.

Pricing Strategy

By-product pricing:Pricing low-value products to get rid of them

- example : Free samples sold separately

- Premiums of obsolete items

Pricing Strategy

Bundle Pricing:The organisation bundles a group of products at a reduced price. Common methods are buy one and get one free promotions (BOGOF).

Example:

This strategy is very popular with supermarkets who often offer BOGOF strategies.

Pricing Strategy

Competition pricing:

Setting a price in comparison with competitors. A company has three options and these are to price lower, price the same or price higher.

Example:

Some firms offer a price matching what their competitors are offering.

Pricing Strategy

Premium pricing:The price set is high to reflect the exclusiveness of the product.

Example:

iPhone, first class airline services, Porsche, Gucci, Starbucks, hotel resorts

Pricing Strategy

Cost Based Pricing:The firms takes into account the cost of production and distribution, they then decide on a mark up which they would like for profit to come to their final pricing decision.

Example:

If a piece of curry-puff costs them RM0.20 and they want to make a profit of RM0.10, then they will sell the curry puff for RM0.30

Quiz time!

Question 1

• Nur Sarahani is a student who stays at the International Student Village hostel with three of her friends. She is asked to pay RM200 each month for her room.

What is she paying for?

Question 2

• Malek owns a 2-storey house in Kota Tinggi. He receives a notice from Majlis Daerah Kota Tinggi telling him to pay RM370.00 for his house which is worth RM240,000 if he sells it.

• What is Malek paying for?

Question 3

• Syed works for his friend Adam only on weekends. Adam runs a car wash. Syed is paid RM10 an hour.

• What is this payment which Adam is giving Syed?

Question 4

• Kamaliah decides to open a small warung to sell nasi ayam goreng. For a start, she will sell each plate of nasi ayam goreng at RM2.50.

• If her business is good, she will slowly raise the price of the nasi ayam goreng to RM3.00

• What is the price strategy used by Kamaliah?

Question 5

• David and Karen want to book a hotel in Kuala Lumpur for 2 nights. They look up Booking.com and found a room which costs RM120.00 a night. They check with Asiarooms.com and found a room which costs RM125.00 a night and finally they confirmed a room with Agoda.com for RM118.00 a night.

• All three booking agents are using what type of pricing strategy?

Question 6

• Mohd Nazri runs a stall selling Nasi Ayam Penyet.• Everytime a customer orders a plate of Nasi Ayam

penyet from Nazri, Nazri will ask if the customer wants extras like bergedil (RM0.80), tempe (RM0.50), Tahu goreng (RM0.30) and sup ekor (RM3.00).

• What do you call extras like these that Nazri is offering?

Question 7

• Eddy bought a carton of AXEL 7 motor oil for RM300.

• Affendi owns a motor shop and he wants to buy Eddy’s motor oil.

• Eddy wants to make RM90 profit from the sale of motor oil to Affendi

• What price will Eddy charge Affendi?• What kind of pricing strategy is Eddy using?

Question 8

• Chinese New Year is now over. Jeffri still has alot of “kuih bangkit” left and he wants to get rid of them.

• He starts a promotion by telling all his customers that if they buy one box of pineapple cookie from him, he will give them one free box of “kuih bangkit”.

• Customers like his offer and soon, his kuih bangkit is all sold off.

• What kind of pricing strategy is Jeff using?

Continue next week...

Price adjustment strategies

• Discounts and allowances• Segmented pricing• Psychological pricing• Promotional pricing• Geographic pricing• International pricing

Discounts and allowances

• Reduction to the list price for:– Cash discount - early payment – Quantity discount - larger quantity

purchased– Seasonal discount - purchasing out of

season– Functional discount - performing a function

(ie returns or delivery)– Promotional allowance

Segmented pricing

• Adjust price based on differences:– customer group– product form (bottle, soft-pack)– place - location – Time (masa perayaan,

musim beli belah)

The seller here will consider the psychology of price and the positioning of price within the market place.

Example:

The seller charges 99 sen instead of RM1 or RM199 instead of RM200. Buyers will still say they purchased their product under RM200, even thought it was a ringgit away.

Psychological Pricing

Promotional Pricing

• temporary price reductions to increase sales– loss leader – special event pricing – mark downs to clear obsolete stock

• cash rebates • interest free credit

Geographical Pricing

• FOB - free on board– Company pays freight

• Uniform delivered pricing– same freight charged to all locations

• Zone pricing– freight cost varies across zones

• International pricing– pricing reflects conditions and expectations

in different world markets

A plate of noodles

Indonesia : 3000 Rupiah

HongKong: HK$15

Singapore : S$3.00

Malaysia : RM4.00

Japan:¥700

USA:US$6.00

RM6

RM7.00RM0.95 RM21.6

RM18

International Pricing• Prices charged in a specific country depend

on many factors:– Economic conditions (keadaan ekonomi)– Competitive situation (peringkat persaingan)– Laws/regulations (rang undang-undang)– Distribution system (pengagihan)– Consumer perceptions– Cost considerations