1. Chapter 4: The pricing model

2. Learning objectives After studying this chapter you should be able to:
Understand what is meant by the pricing model
Discuss the different types of pricing models
Discuss the internal and external factors that influence pricing decisions
Explain the steps that should be followed when developing the prices of new products
Discuss the pricing objectives
Discuss and calculate the different types of basic pricing

3. The pricing model
One of the toughest decisions for any new organization is how to price their products and services.
The implications of these decisions are enormous because it defines the brand image, the funding requirements and the long-term business viability of an organization.
Pricing models:
Product or service is free, revenue from ads and critical masses
Product is free, but you pay for services
Freemium model

4. The pricing model cont…
Cost-based model
Value model
Portfolio pricing
Tiered or volume pricing
Competitive positioning
Feature pricing
Razor blade pricing
Discount pricing
Market pricing

5. Factors that influence pricing decisions
Internal factors
Marketing goals
Use pricing strategies in order to reach various marketing goals.
Costs
If the price is fixed, the organisation should look at its costs to see whether the product is worth stocking or not.
Organisations should use the cost of their products or services as a way of working out the product’s sale prices and demand.
Other decisions an organisation makes

6. Factors that influence pricing decisions cont…
External factors
The nature of the market demand
The amount of a product that a person will buy will largely depend on its price.
Consumer behaviour
Perception of price differneces
Reference prices
Price-quality relationships
Demand band
Price as a statement of value

7. Factors that influence pricing decisions cont…
Competition
In any competitive situation, a seller and buyer can negotiate a sales prices and either the seller or buyer will benefit more.
What suppliers do
Organisations that make or supply things must be aware of prices and needs.
What authorities and government do
Legal environment.
Economic conditions
Inflations and interest rates are most likely the most important variables that organisations should keep in mind.

8. Establish pricing objectives
Before sellers can set the selling price of their merchandise, they must set specific, measureable objectives that correspond to their marketing and enterprise objectives.
Steps in developing the prices if new products
Developing marketing strategy
Make marketing mix decisions
Estimate the demand curve
Calculate cost
Understand environmental factors
Set pricing objectives
Determine pricing

9. Establish pricing objectives cont…
Three categories of pricing objectives
Profit orientated objectives
Profit maximisation, target profitability or net sales.
Price objectives are set so that the best possible profit can be earned.
Sales orientated objectives
Expressed in terms of sales volume or market share.
Sales objectives aim to attract a new or relatively new product and to keep customers support for a fairly long time.
Maintaining the status quo
Objectives directed at meeting or preventing competition or non-price competition.

10. Determining the basic price
Basic pricing strategies used by marketers
Strategy based on cost
Organisations think about all the costs.
Cost-plus pricing
Mark-up pricing
Target-pricing
Break-even pricing
Strategy based on value
Demand-minus pricing
Chain mark-up pricing
Price discrimination

11. Determining the basic price cont…
Strategy based on competition
Going-rate pricing
Leadership pricing
Pricing by competitive bidding

12. Summary
Organisations work in more competitive and fast-changing pricing environments, where price decisions have become more critical.
The various different types of price models used depends on the different types of price models that organisations uses.