NATURE AND IMPORTANCE OF PRICE The Many Names of Price - ??? Hotel Doctor Insurance apartment What Is Price?Price? To the seller... Price is revenue and profit source To the seller... Price is revenue and profit source To the consumer... Price is what you give up to get what you want To the consumer... Price is what you give up to get what you want

THE PRICING EQUATION FOR CONSUMERS PRICE = LIST PRICE - INCENTIVES & ALLOWANCES + EXTRA FEES

THE PROFIT EQUATION FOR SELLERS Profit = Total revenue - Total cost or Profit = ( Unit price × Quantity sold ) −Total cost

THE PROFIT EQUATION FOR SELLERS Profit = Total revenue - Total cost or Profit = ( Unit price × Quantity sold ) −Total cost

The Nature and Role of Price in The Organisation Definition of Price: …..price is the amount of money charged for a product or service. …..price is the sum of the values that consumers exchange for the benefits of having or using the product of service (Kotler & Armstrong, 1993). Role of Price (important to marketing decisions) 1.Price influences the quantity of a product purchased by a customer/consumer, as price reflects the benefits that customers perceive they will obtain from the product. Customers consider price of a product relative to that of competitive offerings. 2.Price influences whether the sale of a product will be profitable to a marketer or reseller. 3.Price communicates the value positioning of the product/service. 4.Price is the only element in the marketing mix that brings in the revenues – all the rest are costs.

The Nature and Role of Price in The Organisation Price Decisions # Price is the only one of the marketing mix tools that the company uses to achieve its marketing objectives. # Price decisions must be coordinated with product design, distribution, and promotion decisions to form a consistent and effective marketing programme (cross function teams in price setting). # decisions made for other marketing mix variables may affect pricing decision, e.g. producers using many resellers who are margins into their prices. # decision to develop a high-quality position will mean that the seller must charge a higher price to cover higher costs.

The Importance of Price in the Economy # Pricing is considered by many to be the key within the capitalist system of the free economy. (Students – required to master the different pricing regimes under all the different economic/market structures – to examined on this) # Market price influences wages, rent, interest, profits, etc. (factors pf production – labour, property, capital, entrepreneurship) # Price is a regulator of the economic system – it influences the allocation of factors of production (high wages attract labour, high interest rates attract capital, etc) # Price allocates scarce resources what will produced (supply) who will get the goods and services (demand).

Importance of price to in an organisation Pricing…… A company must set its price in relation to the value delivered and perceived by the customer Higher price Lower perceived value Company misses potential profits Lower price Lower perceived value Company fails harvest potential profits Price = Cost + Price Value = Perceived benefits/price

Importance of price to in an organisation Pricing policy (factors)  Selecting the pricing objective  Determining demand  Estimating costs  Analyzing competitors – costs, prices, offers  Selecting a pricing method  Selecting the final price The Pricing objective The company first decides where its wants to position its market offering. The objective could be:-  Survival  Maximize current profit  Maximize market share  Maximize market skimming  Product – quality leadership

THE MOST COMMON MISTAKES INDENTIFIED IN HANDLING PRICING  Pricing that is too cost oriented  Prices that are not revised often enough to reflect market changes  Pricing that does not take the rest of the marketing mix into account  Prices that are not varied enough for different products and market segments WAYS TO SELECT BASE PRICE LEVELS Demand oriented – focus on consumer preference Cost oriented – focus on business’s expenses Profit oriented – focus on profit Competition oriented – focus on the marketplace players

THE ROLE OF PRICING IN THE MARKETING MIX  Pricing plays a strategic role in organization's marketing effort i.e. combat competition, to differentiate from similar products, to create niche market.  Strategic choices about target markets, products and distributions, set guide for both price and promotion strategies  The quality of products and features, type of distribution channel, end-users served, and intermediaries functions – help establish and form price range Responsibility for Pricing Decisions 1.Marketing managers – in many organizations 2.Chief Executive officer – manufacturing and construction companies 3.Marketing executives – consumer products and services 4.Chief executive and top management – price determination for large purchases 5.Non-marketing executives – industrial product companies NB. Pricing decisions, as with other mix decisions, must be coordinated with other decisions in the marketing programme. Operations, engineering and finance executives, finance executives, should participate in strategic pricing decisions. If an aspect of the marketing mix is mismanaged dire consequences ensue

THE ROLE OF PRICING IN THE MARKETING MIX 1. Product Strategy # Pricing decision for single product generally simple and straight forward # Not simple for a line or mix of products # Example :- popular strategy is to price a printer, at competitive levels and set a higher margins for supplies such as cartridges. Same principle applied to motor vehicles which are priced in a way to sell them, but make profit over time with spares which are highly priced. # Prices for product in a line do not necessarily correspond to the cost # Example :- prices in supermarkets are based on a total mix strategy rather than individual item pricing. #Consumers tend to associate a high price with high quality, and low price with low quality (Is this ALWAYS TRUE????) # Quality and features of product affect price strategy i.e. high quality ->high price=> prestige position in market place => satisfy management’s profit performance requirements

THE ROLE OF PRICING IN THE MARKETING MIX 2. Distribution Strategy # Pricing influenced by the type of channel most suitable for the product, the distribution intensity required, and channel configuration. # when setting price consider the needs and motivation of intermediaries # Pricing in vertically coordinated channels total channel considerations more than in conventional channels => intensive distribution is likely to call for more competitive pricing than does selective or exclusive distribution. # Consideration in pricing strategy is the role and influence of various channel members # a firm that manages the channel usually plays key role in pricing for the entire channel, subject to legal constraints and restrictions

THE ROLE OF PRICING IN THE MARKETING MIX 3. Promotion Strategy # Pricing of products and services influence promotional strategy of an organization. # High quality, high priced products are advertised in media that by association, complement or endorse the image of product (inappropriate media lower image of product) # Selection of advertising media determined by the target audience to be reached which may necessitate the use of price in the advertisement (e.g. PEP stores would insert the price of goods in advertisements – pamphlets – that are aimed at their target market. A company manufacturing jewellery inversely would decline to place prices on adverts, would rather quote prices individually to create a more exclusive image. (exclusive and expensive suggested by no price tag on product)