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  1. 2nd P: Price BUS2010S

  2. Price – Ch. 14 • Only element that produces revenue • Others produce costs • Easiest to adjust • Communicates value proposition Trends • Internet – fixed pricing • Customisation – comparisons • Strategies – potential benefits • Disposable income • Information • Elasticity BUS2010S

  3. Whirlpool’s Duet combo is nearly four times the price of comparable models BUS2010S

  4. Common Pricing Mistakes • Determine costs and take traditional industry margins • Failure to revise price to capitalize on market changes • Setting price independently of the rest of the marketing mix • Failure to vary price by product item, market segment, distribution channels, and purchase occasion BUS2010S

  5. Consumer Psychology and Pricing Reference Prices Price-quality inferences Price endings Price cues BUS2010S

  6. “Fair price” Typical price Last price paid Upper-bound price Lower-bound price Competitor prices Expected future price Usual discounted price Possible Consumer Reference Prices BUS2010S

  7. Steps in Setting Price Select the price objective Determine demand Estimate costs Analyze competitor price mix Select pricing method Select final price BUS2010S

  8. Step 1: Selecting the Pricing Objective • Survival • Short run • Maximum current profit • Knowledge demand • Maximum market share • Kalula,Ocean Basket • Maximum market skimming • Product-quality leadership BUS2010S

  9. Step 2: Determining Demand Price Sensitivity Estimating Demand Curves Price Elasticity of Demand BUS2010S

  10. Inelastic and Elastic Demand BUS2010S

  11. Step 3: Estimating Costs Types of Costs Accumulated Production Activity-Based Cost Accounting Target Costing BUS2010S

  12. Cost Terms and Production • Fixed costs • Variable costs • Total costs • Average cost • Cost at different levels of production BUS2010S

  13. Cost per Unit as a Function of Accumulated Production BUS2010S

  14. Step 3: Estimating Costs Types of Costs Accumulated Production Activity-Based Cost Accounting Target Costing BUS2010S

  15. Break-Even Chart BUS2010S

  16. Step 5: Selecting a Pricing Method • Mark-up pricing: • easy but ignores current demand, perceived value and competition • Target-Return Pricing: • target ROI • Perceived Value Pricing: • value exchange, communication, marketing mix elements e.g. price buyers, value buyers, loyalty buyers • Value Pricing: • low price for high quality -> loyal customers • E.g. IKEA, Mr Price • Going Rate Pricing: • competitors, “follow the leader” • Auction Type Pricing: • e.g. E-bay, etc. BUS2010S

  17. Step 6: Selecting the Final Price • Impact of other marketing activities • Branding, service, quality • Company pricing policies • Gain-and-risk sharing pricing • Impact of price on other parties BUS2010S

  18. Setting Price • Selecting pricing objectives • Position market offering • Survival, maximum current profits, maximum market share, maximum market skimming, product-quality leadership • Determining demand • Normally demand and price – inversely related • but - E.g. perfume • Price sensitivity (high cost or frequent purchase) • Price elasticity : substitutes, notice, habits, justified • Estimating costs • Demand sets a ceiling for what price can be asked, costs set a floor • Fixed and variable costs – total costs • Target costing - reverse BUS2010S

  19. Setting Price cont. • Analysing competitors’ costs, prices, and offers • Evaluate worth of differentiating features • Selecting a pricing method • Selecting final price • Psychological pricing • Indicator for quality • Influence of other Marketing Mix Elements • Brand’s quality and advertising BUS2010S

  20. Quote of the Day “If you want to win anything – a race, your self, your life – you have to go a little beserk” George Sheeham BUS2010S