PRICE Dhanu$h, Zane, Meg
Price • Price refers to the amount of money a customer is prepared to offer in exchange for a product. • There are many difficulties selecting the right price. E.g. Price too high could result in a loss of sales. • In any market business will attempt to gain some control over the price by differentiating their products
Pricing Methods • A businesses pricing decisions are influenced by a variety of internal and external factors. • The businesses’ marketing objectives and cost of production provide an indication of what it should charge for its products • Business must consider the amount of competition, government regulations, location of the product on its life cycle and the level of economic activity
Cost based (mark up) pricing • It is a pricing method derived from the cost of producing or purchasing a product and adding a mark-up • Mark-up is a pre determined amount, usually a expressed as a percentage that the business adds to the cost of product to determine its basic price • The formula: Cost + (Cost x Mark-up percentage) = Price
Market Based Pricing • Market-Based Pricing is a method of setting prices according to the interactions between the levels of supply and demand – Whatever the market is prepared to pay. • E.g. If a 100 buyers attend an art auction but there is only one specific painting, the price would rise. Alternatively, if there is a surplus of the product the price will fall.
Competition Based Pricing • Competition Based Pricing is where the price covers cost ( cost of raw materials and the cost of operating the business) and is comparable to the competitor’s price. • Price leader – a major business in an industry, whose pricing decisions heavily influence the pricing decisions of its competitors. • Competition based is pricing is often used when there is a high degree of competition from business selling similar products • Below that of competitors • Equal to that of competitors • Above that of competitors
Pricing strategies • Once the basic price has been set using the preferred pricing methods the business then fine tunes this price in line with its pricing strategy. • The extent to which a business uses any of the following strategies depends primarily on: • Marketing objectives • The life cycle of the product • The market for the product • The degree of product differentiation • The level of economic activity
Price skimming • Price skimming occurs when a business charges the highest possible price for the product during the introduction stage of its lifecycle. • Some consumers are willing to pay a higher price for a products novelty features because of the prestige or status that ownership gives. • The objective is to recover the costs of research and development as quickly as possible. • Price skimming as apple discovered is not always successful as they dropped their price of the 8GB iPhone by $200 within the first 12 weeks of introduction.
Price penetration • Price penetration occurs when a business charges the lowest price possible for a product or service so as to achieve a large market share. • The strategy aims to quickly achieve a large market share for a product. • The objective is to sell a large number of products during the early stage of the live cycle, and thus discourage competitors from entering the market or taking market share from existing businesses.
Loss leader • A loss leader is a product sold at or below the cost price. • For a special promotion this may be used to attract customers to the shop. • Although the business makes the loss on this product it hopes that customers will buy other products as well. • This pricing strategy is often used when the business is over stocked or the product is slow to sell, wants to increase the traffic flow in the expectation of gaining new customers or wants to build a reputation of having low prices.
Price points • Price points is selling products at certain predetermined prices. • Used mainly by retailers especially clothing stalls and boutiques. • Using this market pricing strategy makes it easier for the customer to find the type of product they need. • Also makes it easier for the business to encourage the customer to trade up to a more expensive model.
Price and quality interaction • Normally products of higher quality are sold at a greater price. • This is due to the higher manufacturing cost involved in producing them. • Prestige or premium pricing is a pricing strategy where a higher price to give the product an aura of quality and status.
Case $tudy • CARTIER • The renowned luxury jeweler and watch manufacturer attracts quality and prestige conscious customers. The business prides itself on its renowned history of including royalty and celebrities among its main customers. Cartier’s products are sold at PRESTIGE prices
QUE$TIONS • Distinguish between a pricing method and a pricing strategy • Recommend a strategy and a pricing method for Cartier, Justify your answer.