PRICING POLICY

This lesson focuses on

Product

Process

Price

Physical Layout

Marketing Mix
Place

People

Promotion

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Learning Objective

I. Justify recommendation for pricing policy.

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To achieve a pass in LO3.4, we must justify recommendation for pricing policy

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PRICE

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monetary value assigned to a product or service.

Solomon, M., Marshall, G. W. and Stuart, E. W. (2012), Marketing Real People, Real Choices. 7th edition, Prentice Hall: London, p. 298

Price is the

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amount paid in exchange to receive a product or service.

Solomon, M., Marshall, G. W. and Stuart, E. W. (2012), Marketing Real People, Real Choices. 7th edition, Prentice Hall: London, p. 298

Price is the

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PRICING POLICY

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pricing decision or strategy that a firm adopts for a product, service or brand.
Adapted from: Rowley, J. (1997), "Principles of Price and Pricing Policy for the Information Marketplace", Library Review, vol. 46, no. 3, p.185

Pricing policy describes the

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In choosing a pricing policy, the firm determines the objectives it wants to achieve through pricing.

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What objectives would a company want to accomplish through price?

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Organisational Objectives that can be Accomplished Through Price. To gain market share. To stimulate demand. To increase profit margin. To recoup high investment cost. To encourage repeat purchase. To get rid of excess inventory. To attack/defend against the competition. To influence buyer behaviour towards an outcome other than demand. To create a distinct positioning for a product/service. To define/support its business strategy.
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Adapted from Piercy, C. (2005), Strategic Marketing", 8th edition, McGraw-Hill/Irwin pp.272 - 273

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Product prices influenced by Poundlands business strategy.

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Kindle Fire $199

New iPad $499

Whats the justification of the iPads premium pricing when rival products perform similar or even "better" functions?
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The high pricing positions the iPad as a premium brand and reflects the longstanding brand positioning of Apple products.

New iPad $499

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policies are shaped by market

a firms pricing

Besides organisational objectives,

conditions, such as

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The economy. Seasonality. Pricing regulations.

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Market Conditions
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Characteristics of the target market. Perceived value of product. Demand for & supply of the product. Competition.

Characteristics of Target Market

Size of disposable income. Are they financially squeezed? Are they sensitivity to price change? Is price a decisive factor in their buying decision? Are they bargain-hunters? Do they tend to be early or late adopters of products? Is their buying decision driven by brands? Would they incur any switching costs? How much value would they attach to the product? What need would price accomplish for the customer? Etc.

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The pricing objectives & market conditions of the product or service

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determine the pricing policy adopted by the firm.

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Pricing Policies Price-skimming. Penetration pricing. Promotional pricing. Psychological pricing. Product bundle pricing. Dynamic pricing.
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Price Skimming

Setting a high price for a product or service assuming buyers who desire the product will pay for it.
Objectives: To recoup high investment cost. To increase profit margin. To convey high quality or define a products positioning.
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Samsungs 55 inch Curve Oled TV, released June 2013, comes with a price tag of 8,500.
Picture source: eftm.com.au

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iPhone 5C

iPhone 5S

iPhone prices as of 29 September 2013. Source: www.apple.com

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30 minutes

Many had expected Apple to price the iPhone 5C very low to stem market share loss to Samsung, and to expand sales in Asia, Africa and Latin America that are price-sensitive. Justify Apples premium pricing of the iPhone 5C. Has Apple got the pricing right?

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Penetration Pricing

Setting a low price for a product or service to attract new buyers.

Objectives: To stimulate demand. To gain market share. To define a products positioning. To attack or defend against the competition. To respond to price sensitive customers.
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Promotional Pricing

A temporal price reduction.

Objectives: To stimulate demand. To attract new buyers. To free shelf space or get rid of excess inventory. To maximise sales during special events.
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Psychological Pricing

Using price to appeal to consumers assessment of quality, value, or ease the "pain" of buying.
Objectives: To appeal to the customers self-image (sense of worth). To differentiate the product. To signal a high quality image for a product or service. To induce purchase.
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Which pram gives you more value for money? Why?

RedKitepram:

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Bugaboodonkeypram:
Psychological Pricing: Prestige pricing

949
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Which would you rather buy? Six-pack or standard single can? Why?
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Psychological Pricing: Multi-unit pricing

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3 6 = 50p

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Psychological Pricing: Ease the pain of buying.

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Psychological Pricing: Ease the pain of buying.

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Psychological Pricing: Ease the pain of buying.

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Psychological Pricing: Odd-number pricing.

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Product Bundle Pricing

Two or more products or services are packaged together, and sold at a (discount) price.
Objectives: To increase sales. To increase the perceived value of a product or service. To cross-sell a less familiar or underselling product or service.
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Product bundle pricing

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3 6 = 50p

to 59p for the standard single can.

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Six-pack price is 50p per can compared

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KFCs product bundle pricing

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Dynamic Pricing

The price of a product or service changes depending on the type of customer, time and place of buying, payment method and quantity purchased.

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Contexts of Dynamic Pricing

Distribution Channel Customer Segment Dynamic Pricing Age Gender Sales promotion Timing

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Price of a can of coke bought from a vending machine at a train station is different if bought at ASDA supermarket.
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London train fare: commuters pay more for travel during these periods: 6am-9am & 4pm-7pm.
Picture source: commons.wikimedia.org

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Youre travelling from London to Luton by train. The chances are the person next to you paid less for the same journey.
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Free nightclub entry for ladies while guys pay.

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NEXT CLASS
Justify recommendation for distribution method.

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