Transcript Price Setting

Chapter 10
Pricing Strategies
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata
10–1
Price
• Price is what we pay for what we get! It is the
amount of money needed to acquire a product.
• Value is the quantitative measure of the worth of a
product in an exchange for something else. So,
price is value expressed in money terms.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata
10–2
Price setting process
Insert Fig 10.1 page 293
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata
10–3
Pricing objectives
• Profit-oriented:
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To achieve a target return, or to maximise profits.
• Sales-oriented:
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To increase sales volume, or to maintain or increase
market share.
• Status-quo oriented:
–
To stabilise prices, or to meet competition.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata
10–4
Factors influencing price setting
• The extent of demand.
• Determining the expected price
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Expected price—the price at which customers consciously
or unconsciously value a product.
Inverse demand—the higher the price the greater the unit
sales (demand).
• Estimated sales at various prices
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Conduct survey of buyer intentions.
Conduct test-market experiments.
Use computerised models.
Get sales estimates from seller.
Sales team forecasting.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata
10–5
The inverse demand curve
Insert Fig 10.2 page 297
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata
10–6
Price elasticity of demand
•
•
•
The effect that price change has on the number of units sold
and the total revenue.
Demand is elastic when:
– A reduction in price causes an increase in total revenue.
– An increase in price causes a decrease in total revenue.
Demand is inelastic when:
– A price cut causes total revenue to decline.
– A prise rise causes an increase in total revenue.
–
Refer to Figure 10.3, page 298.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata
10–7
Other parts of the marketing mix
• Product
• Stage of life cycle.
• Terms of sale.
• The product’s end use.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata
10–8
Other parts of the marketing mix
• Distribution channels
• Factory pricing for various customer types through
intermediaries, e.g. direct to wholesale or direct to
customer.
• Direct to customer without intermediaries.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata
10–9
Other parts of the marketing mix
• Promotion
• Type of channel used.
• Promotional responsibilities determine price for
product from supplier.
• Local to tie in with national advertising.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata
10–10
Product cost
• These are various:
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Producer’s cost.
Fixed cost.
Variable cost.
Total cost.
Marginal cost.
• Refer to Figure 10.4, page 302.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata
10–11
Price-setting methods
• Cost-plus—setting price of unit based on total cost
plus desired profit; or
• Marginal cost plus desired profit.
• Demand-based pricing (goods or services).
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Value-based pricing
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Includes tangible and intangible attributes.
Objective is to determine the level of satisfaction a customer
wants and what price they are prepared to pay for it.
Also the price the firm believes a customer will pay.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata
10–12
Break-even point
•
The break-even point (zero profit):
BEP (Units) =
Total Fixed Costs ($)
Selling price per unit – average variable cost per unit
BEP (Dollars) = Fixed costs
Contribution margin ratio
=
Fixed Costs
(Price–variable costs)/ V. costs
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata
10–13
Break-even point (chart)
• Insert Fig 10.6 page 306
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata
10–14
Competition-based pricing
•
Firm’s price is influenced by what the competition is
charging.
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Pricing to meet competition
Firm finds out what the market price is and, after allowing for
mark-ups and intermediaries, it arrives at its own selling price.
•
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Pricing below the competition level
Pricing below competition, commonly used by discount
retailers.
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Pricing above competition
Pricing above competition, usually only when the product is
distinctive or the seller has acquired prestige.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata
10–15
Market entry strategies
• Market skimming pricing—involves setting a
relatively high initial price.
• The price is set at the highest possible level
that interested consumers will pay for the new
product.
• It can help to establish a high-quality image for
the new product.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata
10–16
Market entry strategies
• Market-penetration pricing—a relatively low initial
price is set for a new product.
• Usually in order to reach mass markets.
•
Also to discourage competition.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata
10–17
Discounts and allowances
• Quantity discounts
• Discounts based on the size of the purchase.
• Trade discounts
• Reductions from list price offered to buyers as
payment for the marketing functions that they
will perform.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata
10–18
Discounts and allowances
• Cash discounts
• Deductions given to buyers for paying
their bills within a specified time.
• Promotional discounts
• Reductions granted by a seller in payment
for promotional services performed by
buyers.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata
10–19
Legal and ethical pricing
•
Trade Practices Act 1974 (Cwlth)
•
Price discrimination
Section 49 of the Act prohibits discrimination in either price or
non-price terms of trade (including advertising and marketing
assistance, allowances, rebates and so on), if this
discrimination could substantially injure competition.
•
•
•
Price fixing
Collusion between competitors to fix or control prices is illegal
under the Act.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata
10–20
Legal and ethical pricing
• Re-sale price maintenance
• This occurs where the supplier stipulates or
controls the resale price charged by the purchaser.
• Misleading or deceptive pricing
• Misleading or deceptive advertising of the price of
a product is illegal under the general prohibition in
section 52 of the Trade Practices Act.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata
10–21
Legal and ethical pricing
• Freight costs and geographic pricing
• Marketers need to take into account costs involved
in shipping goods to buyers.
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Alternatives strategies:
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Buyer pays freight costs.
Seller bears cost of freight.
Both parties share freight cost.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata
10–22
Legal and ethical pricing
• Point-of-production pricing
• Commonly known as FOB (free on board) and
referring to export sales where the seller paid to
have goods loaded on board ship and the buyer
paid for the cost of freight, ex-factory or factory
gate pricing.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata
10–23
Legal and ethical pricing
• Uniform-delivered pricing
• The same delivered price is quoted to all buyers
regardless of their locations.
• Usually where transport cost is minimal.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata
10–24
Legal and ethical pricing
• Zone-delivered pricing
• Divides a seller’s market into a limited number of
broad geographic zones, and then a uniform
delivered price is set within each zone.
• Freight-absorption pricing
• Seller might absorb part of the freight cost to offset
competition.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata
10–25
Other pricing strategies
• Flexible price strategy
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Similar customers might pay a different price when buying
similar quantities.
• Price lining
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Involves selecting a limited number of prices at which a
business will set related products.
• Odd-pricing (psychological pricing)
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A strategy used by retailers for setting prices at uneven
(or odd) amounts, e.g. $2.99 instead of $3.00.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata
10–26
Other pricing strategies
• Loss-leader pricing
• A promotional pricing strategy where the seller
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•
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sets a very low price, at cost or below cost, to
attract customers.
RRP (recommended retail price)
Manufacturer recommends a price to seller to
assist in maintaining brand equity / image.
Changing price
Firm may choose to change price depending
on varying circumstances.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata
10–27