Unit 3 - The Marketing Mix Price Element

Price Price is one of the Four Ps of the marketing mix. Price is the amount of money exchanged for a product. (Continued)

Marketers use price to communicate the value of products. often considered the dollar amount on a price tag Marketers use price to communicate the value of products.

Types of Prices List price established price, as on a price tag or in a catalogue; does not include any discounts Market price actual price paid after discounts or coupon deductions MSRP manufacturer’s suggested retail price retailer may or may not use MSRP

Factors That Affect Price Company goals Expenses Customer response Competition Economic conditions Product life cycle Supply and demand

Company Goals Prices must be consistent with the company’s goals and its image. Example company has a bargain image prices should be as low as possible company has a luxury image prices should be at upper limits

Income – Expenses = Profit Price of product must at least cover the cost of goods and operating expenses. If expenses and costs can be reduced, profit will increase Income – Expenses = Profit $ $ $

Customer Response Customers might not buy your product if the price is too high or too low. Customers sometimes use price to judge the quality of a product. low price = bad quality high price = better quality

Competition A business should always be aware of its competitors’ prices and may decide to match prices reduce prices increase prices (Continued)

Economic Conditions The business cycle affects prices. During expansion: prices rise most people have jobs and money to spend demand rises and prices rise During recession: prices fall many people lose jobs and have less money to spend demand falls and prices fall (Continued)

Economic Conditions Business cycles do not affect all products in the same way. Example: prices of luxury items tend to be stable because business cycles have less impact on the wealthy

Product Life Cycle Pricing is often influenced by the product’s stage in the product life cycle. New product: priced high so manufacturer can recover costs of development, or priced low to get people to try the product Growth stage: price falls because there are many competitors in this stage Maturity and decline stages: prices are lowered to increase sales

Supply and Demand Price, supply, and demand affect each other in complex ways. Law of demand when prices fall, demand will rise when prices rise, demand will fall Law of supply when prices are high, supply will rise when prices fall, supply will fall (Continued)

Pricing Objectives Pricing objectives what a marketer wants to achieve through pricing Four common pricing objectives Maximize profit Maximize sales Increase market share Return on investment

Maximize Profit Strategy: charge the highest price customers are willing to pay.

Maximize Sales Strategy: offer the lowest price possible to get the largest number of customers. used for new products to attract customers away from competition After building customer loyalty, prices may gradually increase.

Increase Market Share Strategy: lower prices or offer premiums to get more customers. used to lure customers away from competitors’ products Similar to maximizing sales strategy. Ch13

Return on Investment Strategy: price products so that they earn a certain return on the investment. Return on investment a ratio that tells you how much you earned as a percentage of the investment you made return is another term for profit Profit = Simple ROI Investment

Break-Even Point Break-even point point at which the revenue from sales equals costs once you reach the break-even point, any additional revenue is profit (Continued)

Establishing Prices Ways to set prices Cost plus profit Psychological pricing

Cost Plus Profit Price = Cost + Profit Simplest way to set price take cost of producing the product add amount of desired profit Example: selling cookies cost of dough for each cookie = $0.25 you want $0.50 profit on each cookie price each cookie at $0.75

Psychological Pricing set of pricing techniques used to create an image of a product and to entice customers to buy odd pricing even pricing promotional pricing prestige pricing price lining (Continued)

Psychological Pricing Odd pricing prices end in an odd number convey a bargain Even pricing prices end in zero or an even number convey an image of quality Promotional pricing prices are lowered for sales (Continued)

Psychological Pricing Prestige pricing prices are set high convey an image of status and high quality Price lining prices are set at different levels to indicate different quality levels or number of options for the same type of product