Marketing Mix: PriceBUSI-141 Principles of Marketing

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Price Topics Covered

• Defining Price

• 6 Elements in Price Planning

• Price Objectives

• Product Demand

• Examine the Price Environment

• Price Strategies and Tactics

• Psychological Strategies

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What is Price?

• The consumer’s assignment of value

• Amount the consumer must exchange to receive offering or product

• Most often perception is Price = Money

• Can also be goods, services, favors, votes

• Anything the other party considers valuable

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Six Elements of Price Planning

PRICE

Objectives

Demand

Costs

Environment

Strategy

Tactics

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Develop Price Objectives

• Profit

• Sales

• Market Share

• Competitive Effect

• Customer Satisfaction

• Image Enhancement

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Develop Price Objectives

Sales/Market Share• Develop bundle

pricing offers in order to increase market share

Image Enhancement• Alter pricing

policies to reflect the increased emphasis on the product’s quality image

Customer Satisfaction• Alter price levels to

match customer expectations

Profit• Set prices to allow

for an 8% profit margin on all goods sold

Competitive Effect• Alter pricing

strategy during first quarter of the year to increase sales during competitor’s introduction of a new product.

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Demand & Elasticity

• Demand refers to customers’ desire for a product­ How much are customers

willing to pay as the price of the product goes up or down?

­ If it rains, the demand for umbrellas increases and the demand for tee times on a golf course is a wash.

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Estimating Demand for Pizza

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Estimating Demand for Coffee in Buckhannon

Population in Buckhannon (US Census Bureau, 2015) 5,650Average cups per day (Statista, 2016) 598.6Total annual market demand 3,382,090Predicted share of the total market (forecasted) 5 percentEstimated annual company demand 169,105 cupsEstimated monthly company demand 14,092Estimated weekly company demand 3,252

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Determine the Cost

• In order to ensure that product price will cover costs, marketers must determine­ Variable Costs: Per-unit costs of production that will fluctuate

depending on how many units a firm produces­ Fixed Costs: Costs that do not vary with the number of units

produced­ Break-even: Determine the number of units which must be sold

at a given price to cover total costs­ Markup: Amount added to the cost of the product to create a

price at which the channel member will sell the product

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Examine the Price Environment

The Economy

• Business Cycle• Inflation• Economic

Growth• Consumer

Confidence

Competition

• Price Wars• Industry

Structure

Government Regulations

• Industry Regs• Product Regs

Consumer Trends

• Demographics• Culture

International Environment

• Adapt to Different Practices

• Government Regs

• Distribution

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Price Strategies

The X and Os• Cost

• Demand

• Competition

• Customer’s Needs

• New Product Pricing

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Price Strategies

• Cost-based pricing is very common• Easy to calculate and relatively risk-free

• Demand based pricing: firm bases selling price on an estimate of volume it can sell in different markets at different prices

• Pricing based on competition• Price leadership strategy

• Pricing based on customer needs• Value or Every Day Low Pricing (EDLP)

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Price Strategies

• New products present unique pricing challenges!

• In absence of reliable demand estimates and pricing norms, common pricing tactics include:­ Skimming price

­ Penetration pricing

­ Trial pricing

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Price Tactics

• Pricing for individual products• Two-part pricing• Payment pricing

• Pricing for multiple products• Price bundling• Captive pricing

• Distribution-based pricing for end-users

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Price Tactics with Channel Members

• When setting prices for channel members, marketers may also apply tactics such as:­ Trade or functional discounts ­ Quantity discounts­ Cash discounts­ Seasonal discounts

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Psychology Issues when Setting Prices

• Buyers form expectations of what is fair or customary prices for goods and services• Price too high = Bad deal• Price too low = Suspect quality

• Customary price perceptions are influenced by:• Internal reference prices: A set price or price range consumers have

in mind when evaluating a product’s price• Price-quality inferences : When consumers use price as a cue to

infer product quality

Psychological Strategies

• Odd-Even Pricing

• Price Lining

• Prestige Pricing

Legal and Ethical Issues for B2C

• Bait-and-switch• Advertise very low-priced item to lure customer to store (bait)• Arriving customers find product is out of stock and are offered more

expensive item (switch)

• Loss leader pricing• Use very low prices to get customers into the store• Making up the “loss” through sale of other products

Legal and Ethical Issues for B2B

• Illegal price discrimination: Firms sell product to channel members at different prices in a way that “lessens competition”

• Price fixing: Two or more companies conspire to keep prices at a certain level

• Predatory pricing: Firm sets very low price for purpose of driving rival out of business

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Ethical Practice

• The popular ride-sharing service Uber employs a surge pricing model

For example, price increases during bad weather or on New Year’s Eve

Practice angers some customers, but company maintains it is essential to ensure driver availability

• If you were advising Uber’s executives, would you encourage them to end the surge pricing strategy to prevent the company from losing angry customers?

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Presentations will be on Thursday and next Tuesday

(Dress appropriately)Upload PPT to Blackboard

before next class

Self-Assessment #2 will be Thursday, March 2