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Price
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the value and amount the consumer must exchange to receive the offering. (money, goods, services)
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Elements of price planning
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1. set pricing objectives
2. estimate demand
3. determine costs
4. examine the pricing environment
5. choose a pricing strategy
6. develop pricing tactics
2. estimate demand
3. determine costs
4. examine the pricing environment
5. choose a pricing strategy
6. develop pricing tactics
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Price objective
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Setting prices for your products that will guarantee you'll make money on each sale
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Pricing Strategies
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boost volume or market share (Ending a price with an odd number to make a customer feel like they're spending much less)
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competitive effect
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alter pricing strategy during first quarter of the year to increase sales during competitor's introduction of a new product
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demand
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desire of the product
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law of demand
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as price goes up, demand goes down
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price of elasticity
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marketers need to know how customers are likely to react to a price change
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Price elasticity equation
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Price Elasticity = percentage change in quantity demanded / percentage change in price
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Inelsatic demand
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A small change in price leads to a proportionally smaller change in quantity demanded
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Price change equation
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(change in CPI/beginning CPI) x 100
$10 to $9 --> percent price change = (1/10)x100=10%
$10 to $9 --> percent price change = (1/10)x100=10%
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demand change equation
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3000 units to 3600 --> (600/3000)x 100 = 20%
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Price elasticity of demand equation
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20%/10%=2 (percentages must be divided)
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Cross-Elasticity of Demand
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Positive: An increase in the price of one will increase demand for the other products are substitutes
Negative: an increase in the price of one will decrease demand for another product are complements
Negative: an increase in the price of one will decrease demand for another product are complements
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Determine costs
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In order to ensure that product price will cover costs, marketers must determine variable costs and fixed costs
Variable costs: A cost that varies with the level of output
Fixed costs: Costs that do not vary with the units produced
Variable costs: A cost that varies with the level of output
Fixed costs: Costs that do not vary with the units produced
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Fixed costs (costs that don't change with volume)
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Saleries, rent, leases, insurance
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Variable costs (tied to volume)
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product material, shipping and delivery costs
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Break-even analysis
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break-even analysis tells marketers how many units must be sold in order to cover all costs
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Break-even point EQ
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total fixed costs/ contribution per unit to fixed costs
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Markup
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the amount added to the cost of merchandise to establish the selling price
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cost based stratiegies
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cost plus is very common, easy to calculate and risk free.
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Cost based strategies do not:
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factor in key considerations such as the nature of the target market and competitors
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Demand-based price strategies
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firm bases selling price on an estimate of volume it can sell in different markets at different prices
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Price segmentation
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the practice of charging different prices to different market segments for the same product
Discounts for elderly, early birds, etc.)
Discounts for elderly, early birds, etc.)
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New Product Pricing
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-New products present unique pricing challenges
-In absence of reliable demand estimates and pricing norms
-Skimming price: high
-Penetration pricing: low
-Trial pricing: limited time
-In absence of reliable demand estimates and pricing norms
-Skimming price: high
-Penetration pricing: low
-Trial pricing: limited time
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Developing Pricing tactics
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Individual: Payment pricing, two-part pricing
Multiple products: Price bundling and captive pricing (making two purchases, one to make the other product work)
Multiple products: Price bundling and captive pricing (making two purchases, one to make the other product work)
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Psychological price setting
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price too high, bad deal
Price too low, mad sus
Price too low, mad sus
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bait and switch - illigal
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A store advertises bargains that do not really exist to lure customers in, in hopes that they will buy more expensive merchandise.
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loss leader pricing - illigal
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the pricing policy of setting prices very low or even below cost to attract customers into a store
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price discrimination - Illigal
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the business practice of selling the same good at different prices to different customers
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price fixing
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two or more companies conspire to keep prices at a certain level
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predetory pricing
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firm sets very low price for purpose of driving rivals out of buisness
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loss leader pricing
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the pricing policy of setting prices very low or even below cost to attract customers into a store
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