Presentation on theme: "+ Pricing The Marketing Mix PRICE. Introduction The prices a company sets for its product and services must: 1) gain acceptance with the target customers."— Presentation transcript:
Pricing Strategy Price is defined as: “The amount in money for which something is offered for sale.” A Pricing Strategy is defined as: A plan which determines the best (at the time of making) pricing decision.
Pricing Strategy When setting prices we must consider: The price that the competition charges. The cost of providing the product or service. The company’s market position e.g. is it a market leader? The type and nature of demand e.g. if an increase or a decrease in price will affect amounts purchased. The market segments (or target market) we are seeking to attract.
Pricing Strategy Key Formulas Profits = Total Revenues – Total Costs Profits = (Prices x Quantities sold) – Total Costs OR Total Cost= Fixed costs + Variable Costs
Price Examples CompanyPriceQuantity Sold Total Costs Profit A$6200$400 B$4400$1000 C$4300$1700
Fixed & Variable Costs FIXED COSTS $ amount is the same monthly regardless of volume of Sales or Production Examples: Mortgage Rent Equipment/computer costs Utilities (sometimes) Salaries Property taxes
Fixed & Variable Costs VARIABLE COSTS $ amount differs depending on level of volume of the sales or production of the product/service Examples: Raw materials Gas & electricity Supplies Commissions Labour wages
Cost-Plus Pricing Selling Price = Unit Cost + Markup = FC + VC + Markup Markup % = Selling Price – Unit Cost X 100 Unit Cost Margin = Selling Price – Unit Cost The adding of a Markup to the cost ensures a profit
Quantity Discount Quantity discounts: Deductions from a seller’s list price that are offered to encourage customers to buy in bulk eg. Buy a particular resort package – children fly free
Cash Discounts A deduction granted to buyers for paying by cash or within a specified time. They are usually calculated on a net amount due after first deducting trade and quantity discounts from the base price.
Price Lining Involves selecting a limited number of prices at which a business will sell related products. A shoe shop which will sell several styles of shoes at $69.95 and another group at $89.95.
Loss Leader Pricing Selected products or services sold at cost or less To attract customers who will make other purchases too This hopefully will more than compensate for the losses on “leader”
Follow the Competition Price equal to or just below the competition Watch costs relative to price to ensure profit.
Penetration Pricing New product or service priced significantly below competition To win market share If sales volume is large, profit can be high.
Skimming When no or limited competition High price set Watch for competitors moving in!!
Super Sizing Adding a low cost to a product to increase its selling price and profitability. Eg. Supersize Fries at McDonalds It costs very little for McDonalds to add on the extra fries but they can charge more.