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Price
“The exchange value of a good or service in the marketplace.”
Value is based on:
Tangible and intangible benefits
Consumers’ perceptions of a brand
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2. Copyright © 2007 Pearson Education Canada
Importance of Price
An organization must establish fair and competitive prices while generating adequate revenues and profit.
Low prices (perceived value) attracts customers
WAL-MART
High prices (perceived value) attracts customers
Harry Rosen
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3. Factors Influencing Price
Consumers
Nature of Market
Channel Members
Costs
Profit Objectives
Price
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Nature of Market
The market structure and the degree of competition in the market influence priding strategy.
Monopoly
Oligopoly
Monopolistic Competition
Pure Competition
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Nature of Market
Single seller sets price, usually subject to regulatory approval.
Monopoly
A few large sellers follow each other on price. If one goes up the others follow.
Oligopoly
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Nature of Market
Among similar competing brands the market leader sets the price; others establish competitive or lower prices
Monopolistic
Competition
Pure
Competition
The market supply and demand sets the price.
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7. Consumer Demand and Price
Principle:
Consumers purchase greater quantity at lower prices
The effect of a price change on demand must be factored into pricing strategy.
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Elasticity of Demand
Price Elasticity of Demand:
Measures the effect of a price change on the quantity purchased.
Small change in price; large change in volume
Elastic
Change in price does not have significant impact on volume
Inelastic
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9. Channel Members Influence Price
Mfg.
Wholesaler
Retailer
Consumer
Adequate Margin
Fair Treatment
Special Deals
Impact of Increases
Organizations want distributors to charge prices that agree with the brand’s overall marketing strategy.
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Costs Influence Price
All production, marketing and transportation costs must be factored into the price decision.
Cost of Goods
Marketing
Transportation
Other Costs
Profit
Margin
Price + =
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Costs Influence Price
All attributed costs and the desired profit margin influence the price charged. Costs can be controlled by:
Improving operational efficiency
Using less expensive materials
Shrinking size
Relocating manufacturing facilities
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Pricing Objectives
Objectives
Sales
Profit
ROI
Objectives are:
Stated quantitatively
Influenced by competitors
Influenced by cost increases from suppliers
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Competitive Pricing
Pricing decisions help establish a desired competitive position in the marketplace
Above competition
Equal to competition
Below competition
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Pricing Methods
Full Cost
Pricing
Demand Based
Pricing
Competitive
Pricing
Total costs plus profit determines price
What consumers will pay determines price
Position relative to competitors determines price
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Break-Even Analysis
A break-even analysis shows how many units must be sold to exactly break even, given fixed and variable costs, and a price.
Above the BEP, the firm makes a profit.
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Demand Based Pricing
The reaction of customers at retail determines the price to be charged.
Backward Pricing
Forward Pricing
A mark-up is added at each level of the channel.
Working back from the retail price, the manufacturing cost is determined.
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Pricing and the Law
Price Claims that Mislead
Improper Use of MSLP
Double Ticketing / Bar Code Violations
Bait and Switch
Predatory Pricing
Price Fixing
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Bartering
Exchanging goods and services for other goods and services rather than for money. It is a reciprocal agreement among participants.
Barter Exchange Operations
Corporate Barter Companies
Barter company takes a commission on the “buy” and “sell.”
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Online Auctions
An auction is a method of sale whereby an object for sale is secured by the highest bidder.
B2B
Lowest price bid often wins
B2C
Consumers compete against each other to drive up price of item.
C2C
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