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The Nature of Price
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-It's directly related to revenue generation and quantities sold
-Key component to profit equation
-Relatively easy to change
-Key component to profit equation
-Relatively easy to change
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Price as a Signal
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Prices can be either too low (signaling poor quality) or too high (signaling low value).
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Why is Pricing Important?
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-only aspect of marketing mix that directly generates revenue
-price is one of most important factors influencing purchase decisions
-difficult to manage (usually it's an afterthought, but should be strategic)
-price is one of most important factors influencing purchase decisions
-difficult to manage (usually it's an afterthought, but should be strategic)
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What is Price?
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Overall value consumers are willing to exchange or sacrifice to acquire a product, can be monetary (price, tax, shipping) or nonmonetary (time, effort, opportunity costs).
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Demand Curves
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Show how much customers will buy at different prices (assuming all else remains same). Demand increases as price decreases. Usually downward sloping.
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Upward-Sloping Demand Curves
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Often this occurs for prestige products due to perceived quality, status, and exclusivity conveyed by price.
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Price Elasticity
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Sensitivity of customers to price changes in terms of the quantities they will buy. Consumers more sensitive to price increase than decrease (easier to lose customers when increasing price than it is to gain customers by lowering price).
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Elastic
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Sensitive to price change (small change in price creates a large change in units sold). Flatter slope demand curve.
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Inelastic
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Insensitive to price change (large change in price creates a small change in units sold). Steep sloping demand curve.
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Value-Based Pricing
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Setting price based on customers' value of product or service (1. assess customer needs and value perceptions, 2. set target price to match perceived value, 3. determine costs that can be incurred, 4. design product to deliver desired value at target price). Customer driven approach!
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Cost-Based Pricing
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Setting prices based on the costs of producing, distributing, and selling the product (1. design good product, 2. determine product costs, 3. set price based on costs, 4. convince buyers of product's value). Manufacturer driven approach!
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Competition-Based Pricing
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Setting prices based on competitors' strategies, prices, costs, and market offerings. It's typically intended to capture market value. Can be risky (price wars).
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When Setting a Price...
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1. What value do your customers place on your offering? No one cares about your costs!
2. Is there variation in the way customers value your offering?
2. Is there variation in the way customers value your offering?
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