1. Unit 3 - The Marketing Mix
Price Element

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

3. 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.

4. 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

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

6. 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

7. 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 $ $ $

8. 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

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

10. 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)

11. 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

12. 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

13. 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)

14. 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

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

16. 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.

17. 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

18. 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

19. 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)

21. Establishing Prices Ways to set prices Cost plus profit
Psychological pricing

22. 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

23. 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)

24. 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)

25. 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