PRICING PRODUCTS PRICING CONSIDERATIONS &APPROACHES

PRICE The amount of money charged for a product or service The amount of money charged for a product or service The sum of the values that consumers exchange for the benefits of having or using a product or service The sum of the values that consumers exchange for the benefits of having or using a product or service

BEWARE Too quick to reduce prices to get a sale Too quick to reduce prices to get a sale Rather than convince buyers that the products are worth a higher price Rather than convince buyers that the products are worth a higher price Pricing that is too cost oriented Pricing that is too cost oriented Rather than customer oriented Rather than customer oriented Pricing that is inconsistent with or does not take the rest of the marketing mix into account. Pricing that is inconsistent with or does not take the rest of the marketing mix into account.

INTERNAL FACTORS Pricing strategy is largely determined by decisions on market positioning Pricing strategy is largely determined by decisions on market positioning Marketing mix-target costing Marketing mix-target costing Survival Survival Current profit maximisation Current profit maximisation Market share leadership Market share leadership Product quality leadership Product quality leadership

PRICING OPTIONS Set prices low to prevent competition from entering the market Set prices low to prevent competition from entering the market Set prices at competitors level to stabilise the market Set prices at competitors level to stabilise the market Set prices to keep loyalty and support of resellers Set prices to keep loyalty and support of resellers Set prices at a level to avoid government intervention Set prices at a level to avoid government intervention Reduce prices temporarily (sale) to draw more customers Reduce prices temporarily (sale) to draw more customers

COSTS Fixed costs Fixed costs Variable costs Variable costs Costs as a function of production experience Costs as a function of production experience Organisational considerations Organisational considerations

EXTERNAL FACTORS Relationship between price and demand for the product. Relationship between price and demand for the product. Costs set the lower limit; market and demand set the upper limit. Costs set the lower limit; market and demand set the upper limit. Competition-pure, monopolistic, oligopolistic, pure monopoly. Competition-pure, monopolistic, oligopolistic, pure monopoly. Competitors’ costs, prices and offers. Competitors’ costs, prices and offers. Consumer perceptions of price and value. Consumer perceptions of price and value.

OTHER EXTERNAL FACTORS Economic conditions- boom, recession, inflation, interest rates. Economic conditions- boom, recession, inflation, interest rates. Resellers- fair profit. Resellers- fair profit. Government Government Social concerns Social concerns

PRICING APPROACHES Cost based: cost plus, breakeven, target profit pricing. Cost based: cost plus, breakeven, target profit pricing. Value based pricing Value based pricing Value pricing Value pricing Value-added marketing Value-added marketing Competition based pricing Competition based pricing

PRICE ELASTICITY OF DEMAND = % change in quantity demanded % change in price = % change in quantity demanded % change in price The less elastic the demand, the more it pays for the seller to raise the price The less elastic the demand, the more it pays for the seller to raise the price If demand is elastic sellers will consider lowering their prices to generate more total revenue. If demand is elastic sellers will consider lowering their prices to generate more total revenue.