Presentation on theme: "PRICE Price is only one of the factors that affects a buyer’s purchasing decision. It is an important indicator of quality and image and provides customers."— Presentation transcript:
1PRICEPrice is only one of the factors that affects a buyer’s purchasing decision.It is an important indicator of quality and image and provides customers with a way of making a judgement about value for moneyImportance of price can vary tremendously depending on the product.Price is the only part of the marketing mix that will make a producer money – Product, Place and Distribution all cost a firm.
2DECISIONS REGARDING PRICE Decisions need to be made when:A price needs to be set for the first time, eg when a new product is launched on the market.it becomes necessary to adjust price of an existing product according to its stage in the product life cycle or what competitors are charging
3FACTORS AFFECTING PRICING DECISIONS When setting price there are a number of factors to consider:The organisaiton’s objectives - eg maximise salesThe marketing mix - price must complement the other elements of the mixCosts - must set a price which covers costs the cost of productionCompetition- price may be determined by other sellersConsumer perceptions- too low a price may raise suspicions re qualityLegal constraints – some markets are regulated by government; eg the government wants unleaded petrol to be cheaper than leaded.
4PRICING STRATEGIESWhere a company can choose to set the price of a product there are a number of pricing strategies or policies it might choose from.These strategies can be either long term or short term
5LONG TERM PRICING STRATEGIES Companies can adopt different pricing strategies fordifferent products and different market conditions:Low Price Strategy:price is set lower than the competition:consumers react positively to lower prices so sales increasecompetition in the market is highlittle brand loyalty exist in the marketEg: supermarkets attract high volume sales of DVDs and computer games by charging lower than market pricesHigh Price Strategy: (can be either long or short term)Long term pricing strategy adopted by firms offering highquality premium goods:Image is very importantHigh Brand loyaltyChoice of distribution channel will reflect high price.
6LONG TERM PRICING STRATEGIES Cont’d Market Price Strategyprice is set broadly in-line with competitors.Used where price competition does not benefit any of the producersIs successful where there are few large companies and very little difference between competitors’ products.Eg: Petrol companiesDiscrimination or Demand-oriented Pricing Strategy(can also be short term)different prices are charged to different groups of consumersfor the same product.Eg: BT charges higher rates for telephone calls at certain times of the day.Train tickets for the same journey vary in price depending on the time of day
7Price Task 1Describe long term pricing strategies an organisation might use when setting the price of a product ( 4 marks)
8SolutionHigh price – Price set is considered to be expensive. This is a pricing strategyadopted by firms offering high quality premium goods. High price is appropriatewhere image is very important and there is high Brand loyalty.Low Price - where price is set lower than the competition.Appropriate where competition in the market is high asconsumers are likely to react positively to lower prices so salesincrease.Market price – Price is set at roughly the same level as the competition. Thisis used where price competition does not benefit any of the producers. It issuccessful where there are few large companies and very little differencebetween competitors’ products.Demand-orientated price - Different prices are charged to different groupsof consumers for the same product. Used to target the same product todifferent market segments.
9Short Term Pricing Strategies Penetration Pricing Used when introducing a new product to an established marketwhere competition is high.When launched, the product is priced much lower than theCompetition:Encourages customers to establish the habit of buying the productHelps the business to gain market share quicklyRetailers and wholesalers are likely to purchase large quantitiesWhen product becomes established firm will raise prices in line with competition
10Short Term Pricing Strategies Destroyer Pricing An established product is priced well belowthat of competitors.Idea is to eliminate the competitionprices are set artificially low and firm will sustain lossesOnce competition is eliminated prices will riseMay be considered anti-competitive by Government and could result in legal action.
11Short term pricing Strategies SkimmingUsing a high price initially for a new product where there is little or nocompetition.Consumers are willing to pay for the novelty value of the productStatus in ownership of the product (plasma screens, play station 3, iphone)Price reduces when competition enters the market or technology overtakesPromotional PricingUsed to boost sales temporarilyLower (sale) prices; loss leaders; BOGOFsLoss leaders attract customers into the store who may then purchase normal priced items
12Price Task 2Describe short term pricing strategies an organisation might use when setting the price of a product (4 marks)Explain short term pricing strategies an organisation might use when setting the price of a product (4 marks)
13SolutionSkimming – new product launched at a high price where there is little or no competition. Once the first segment of consumers is saturated the price goes down. For example, PlayStationDestroyer pricing- used for existing products. Price is lowered to an artificially low level in order to eliminate competition. It generally leads to short term loses but with a view to future benefits. One competition has been eliminated prices will rise again.Penetration pricing – Involves setting a low price on a new product to enter an existing market where there is likely to be strong competition. This may result in initial losses but can overcome brand loyalty. Prices rise again when product becomes established.`Promotional Pricing – prices are lowered for a short period of time in the hope that customers will purchase increased quantities of the product. It is usually used in order to inject fresh life into an existing product. Loss leaders attract customers into the store who may then purchase normal priced items.
14Price and the Marketing Mix Prices may vary in the short term to achieve certain marketing objectives, but in the long run pricing decisions are seldom taken in isolation from the other factors in the marketing mixAlterations in price will frequently be accompanied by changes in promotion, advertising, packaging and ever distribution channel
15Examples What are the names given to the following types of pricing? 1. A night club charging £20 for entry after midnight and £15 before2. A kilt manufacturer charging for a tailor-made kilt3. A market stall holder charging 5p less for apples than a neighbouring stall holder
16AnswersA night club charging £20 for entry after midnight and £15 before - Discriminatory pricingA kilt manufacturer charging for a tailor-made kilt – high/premium pricingA market stall holder charging 5p less for apples than a neighbouring stall holder - competitive pricing or destroyer pricing