1. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Essential Marketing Skills by Rix Slides prepared by Joe Rosagrata Pricing Strategies Chapter 7

2. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Essential Marketing Skills by Rix Slides prepared by Joe Rosagrata Price  Price is what we pay for what we get. It is the amount of money needed to acquire a product.  Value is the quantitative measure of the worth of a product in an exchange for something else. So, price is value expressed in monetary terms. 7-1

3. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Essential Marketing Skills by Rix Slides prepared by Joe Rosagrata Pricing objectives  Profit-oriented  To achieve a target return, or to maximise profits.  Sales-oriented  To increase sales volume, or to maintain or increase market share.  Status-quo oriented  To stabilise prices, or to meet competition. 7-2

4. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Essential Marketing Skills by Rix Slides prepared by Joe Rosagrata Price elasticity of demand  The effect that price change has on the number of units sold and the total revenue. 7-3

5. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Essential Marketing Skills by Rix Slides prepared by Joe Rosagrata Price elasticity of demand (cont.)  Demand is elastic when  A reduction in price causes an increase in total revenue.  An increase in price causes a decrease in total revenue.  Demand is inelastic when  A price cut causes total revenue to decline.  A prise rise causes an increase in total revenue. 7-4

6. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Essential Marketing Skills by Rix Slides prepared by Joe Rosagrata Elasticity curve Elastic DemandInelastic Demand 7-5

7. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Essential Marketing Skills by Rix Slides prepared by Joe Rosagrata Price-setting methods  Cost-plus—setting price of unit based on total cost plus desired profit, or  Marginal cost plus desired profit. 7-6

8. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Essential Marketing Skills by Rix Slides prepared by Joe Rosagrata Price-setting methods (cont.)  Demand-based pricing  Value-based pricing. ∆ Includes tangible and intangible attributes ∆ Objective is to determine the level of customer satisfaction a customer wants and what price they are prepared to pay for it. ∆ Also the price firm believes customer will pay.  Demand-based pricing of services. 7-7

9. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Essential Marketing Skills by Rix Slides prepared by Joe Rosagrata Break-even point  The Break-even point (zero profit) BEP (Units) = Total Fixed Costs Price - Variable costs BEP (Dollars) = Fixed Costs Contribution Margin Ratio = Fixed Costs (Price–Variable costs)/ V.costs 7-8

10. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Essential Marketing Skills by Rix Slides prepared by Joe Rosagrata Break-even point (chart) Breakeven point $$$ Units/Quantity Fixed Costs Variable costs Total costs Total revenue BEP Loss Profit 7-9

11. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Essential Marketing Skills by Rix Slides prepared by Joe Rosagrata Competition-based pricing  Firm’s price is influenced by what the competition is charging. 1. Follow the leader (main competitor) 2. Mark-up 3. Above, at or below 7-10

12. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Essential Marketing Skills by Rix Slides prepared by Joe Rosagrata Price-setting process 7-11

13. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Essential Marketing Skills by Rix Slides prepared by Joe Rosagrata Market entry strategies  Market price skimming (referred to as ‘skimming’)—this is where the marketer sets a high price to attract target market.  Normally used to introduce new products to the market that attract the innovator market. 7-12

14. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Essential Marketing Skills by Rix Slides prepared by Joe Rosagrata Market entry strategies (cont.)  Market-penetration pricing— marketer sets low market entry price.  Usually to reach mass markets and discourage competition. 7-13

15. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Essential Marketing Skills by Rix Slides prepared by Joe Rosagrata Freight costs and geographic pricing  Marketer must take into account cost of shipping goods to the buyer.  Alternatives strategies: ∆ Buyer pays freight costs. ∆ Seller bears cost of freight. ∆ Both parties share freight cost. 7-14

16. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Essential Marketing Skills by Rix Slides prepared by Joe Rosagrata Point-of-production pricing  Commonly referred to as F.O.B. (free-on-board).  This is a geographic pricing strategy where seller quotes the selling price at the point of production and buyer selects their own mode of transport at their cost. 7-15

17. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Essential Marketing Skills by Rix Slides prepared by Joe Rosagrata Pricing strategies  Uniform-delivered pricing— geographic based price.  The same price is charged regardless of location.  Usually where transport cost is minimal. 7-16

18. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Essential Marketing Skills by Rix Slides prepared by Joe Rosagrata Pricing strategies (cont.)  Zone-delivered pricing—price varies according to location of seller (distance is usually the key dividing factor).  Freight-absorption pricing—seller may absorb part of the freight cost to offset competition. 7-17

19. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Essential Marketing Skills by Rix Slides prepared by Joe Rosagrata Other pricing strategies  One-price strategy—seller charges one price to all similar customers who buy similar quantities of a product.  Flexible-price strategy—similar customers might pay different price when buying similar quantities. 7-18

20. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Essential Marketing Skills by Rix Slides prepared by Joe Rosagrata Other pricing strategies (cont.)  Price-lining—seller selects a limited number of prices that will be set for products in all store locations.  Odd-pricing—(psychological pricing)  An odd price is set to create a perception of value or prestige, eg $2.99 instead of $3.00 (customer perceives price to be closer to $2.00). 7-19

21. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Essential Marketing Skills by Rix Slides prepared by Joe Rosagrata Other pricing strategies (cont.)  Loss-leader pricing—a promotional pricing strategy where seller sets a very low price, at cost or below cost, to attract target market and entice them to buy other products with loss-leader purchase. 7-20

22. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Essential Marketing Skills by Rix Slides prepared by Joe Rosagrata Other pricing strategies (cont.)  R.R.P. (recommended retail price)— manufacturer recommends a price to seller to assist in maintaining brand equity / image.  Changing price—firm may choose to change price depending on varying circumstances. 7-21