BSBMKG502B – Establish and adjust the marketing mix

Presentation One

PriceSecond of the Four P’s

Product (and service)PricePromotionPlace(ment)

PRICING

and setting prices

FACTORS TO CONSIDER WHEN SETTING PRICES• Marketing Objectives

• survival especially in marginal businesses• Current Profit Maximisation – focus on short term results

over long term performance• Market-share leadership – affects price when company

seeks to dominate the market• Product Quality Leadership – tends to push prices

higher – often a nicher strategy• Other objectives –

• low pricing to keep out competitors,• social pricing in not-for-profit organisations

MARKETING MIX STRATEGY

• Price must reflect overall marketing mix strategy• Price must support the overall positioning strategy

targeted by the marketing mix

The role of cost in pricing• Costs determines the bottom level of price• Types of cost:

• Fixed costs e.g. electricity• Variable costs e.g. petrol• Costs at different levels of production – break-even and

economies of scale• cost as a function of production experience – the learning curve

The Market & Demand• Pricing in different market situations:

• Pure competition many buyers & sellers, no one is more powerful - going rate is the rule

• Monopolistic Competition – many buyers & sellers trading over a range of prices, products differentiated by quality, features, styles

• Oligopolistic competition – few sellers each responding to the other, barriers to entry prevent new competition.

• Pure monopoly – single seller, sometimes regulated, high barriers of entry

Consumer Perception of Price & Value• Consumers ultimately decide prices• Marketers must combine creative judgement and

technical expertise with an awareness of buyer’s motivation to set prices

• Marketers must be aware of demand curves – relationship between price and demand

Competitor’s Prices and Offers• Some companies have a policy to match competitors

prices• Others respond with increased service or performance

General Pricing approaches• Cost Based

• Cost-Plus – standard mark-up• Break-even analysis and Target Profit Pricing –

• Value Based Pricing• Buyer’s perception of value, not seller’s costs non-price

variables in the marketing mix are used to build up buyer’s perception of the product

General Pricing approaches (cont)• Competition Based Pricing

• Economic Value Pricing cost that extend beyond base price eg industry purchaser might look at installation, maintenance, training, consumables costs

• Going-Rate Pricing – based on competitors prices

Relationship Pricing• Special Relationship Working with customers to reduce time and costs whilst improving quality. Working closely together to plan operations to facilitate ‘just-in-time’ operations.

• Enrichment Working with customers to enhance their operations, possibly through re-engineering processes then sharing increased profits resulting from cost savings

• Shared Risk & Reward Forming strategic alliances to enhance customer operations with shared risk & reward.

New Product Pricing Strategies• Innovative New Product

• Market-Skimming – setting a high price to gain maximum revenue from the segments willing to pay high prices

• Market Penetration – setting a lower price to gain maximum market share

Pricing an Imitative product• Must determine strategy against current players to

position product on quality and price e.g. Ipad imitation

Product/Service Mix Pricing

• Product/service line pricing• Setting steps between product and service line items

• Optional product/service pricing• Pricing optional or accessory products sold with main

product/service

• Captive product/service pricing• Pricing products and services that must be used with the

main product /services

Product/Service Mix Pricing (cont)• By-product Pricing

• Pricing low-value by-products or services to get rid of them e.g. Timber mill selling offcuts as firewood

• Product/service-bundle pricing• Pricing bundles of products or services sold together e.g. Bags

of potatoes,fruit.

Price Adjustment Strategies

• Discount Pricing and allowances• Reduced prices to reward customer responses such as

paying early or to promote the product• Discounts can be cash, quantity, functional, seasonal• Allowances might be : trade-in, Promotional

• Segmented Pricing• Adjusting prices to take into account differences in

customers, locations & products e.g. Wealthier suburbs hair salon charges more than less wealthy suburbs’ salon.

• Psychological Pricing• Adjusting prices for psychological effectE.g. $2.98 seen as cheaper than $3.00.

Price Adjustment Strategies (cont)

• Promotional Pricing• Temporarily reducing prices to increase short-run sales

• Value pricing• Adjusting prices to offer the right combination of quality

and service at a fair price

• Geographical Pricing• Adjusting prices to the geographical location of

customers can use FOB (free on board) pricing (charge more to transport goods to remote areas), Uniform delivery pricing, Zone pricing, Base-point pricing, freight absorption

• International Pricing• adjusting prices for international markets

Conclusion• Logistics management requires great trade-offs between functional units

• Management must focus on communication and strategic objectives to ensure co-operation

• Distribution can often be that part of the mix which irritates the customer the most e.g. failed deliveries, damaged goods, wrong orders ....