BUS106 Marketing

Principles
Marketing Mix: Price
Lecture 7
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 This Topic’s Big Idea

“Price can relate to anything that

you perceive as having a value, not
just money”
 Learning Objectives
1. Discuss the importance of pricing decisions to the
economy and organisation.
2. Demonstrate how the product life cycle,
competition, distribution and promotion
strategies, customer demands, the internet and
extranets and perceptions of quality can affect
price.
3. Identify the legal and ethical constraints on
pricing decisions.
4. Explain how discounts, geographic pricing and
other special pricing tactics can be used to fine-
tune the base price.
 The Importance in Price
Price: what is given in an exchange for a
good or service
Revenue: the price charged to customers
multiplied by the number of units sold
Profit: revenue minus expenses
To earn a profit: managers must choose a
price that isn’t too high or too low
 The Importance of Price

When a product is
priced too high,
customers are more
likely to seek second-
hand goods as a
cheaper alternative.
 Profit-oriented
pricing objectives
 The demand
determinant of price
Elasticity of demand
 Elasticity of demand
This principle underlies the Australian
Government’s policy on pricing of cigarettes.
By making the price of cigarettes too high,
the hope is people will reduce consumption
or quit.
Equilibrium price for
gourmet biscuits
 Factors that
affect elasticity
 The cost
determinant of price
Loss-leader pricing: companies set prices
below cost to attract consumers into their
stores
Variable costs: varies with changes in the
level of output
Fixed cost: doesn’t change as output is
increased or decreased
Mark-up pricing: the cost of buying the
product from the producer, for expenses not
otherwise accounted for, plus amounts of profit
 Other
determinants of price
• Stages in the product Factors that affect price
life cycle
• The competition
• Distribution strategy
• The impact of the
electronic environment
• Promotion strategy
• Demands of large
customers Watch Me:
• The relationship of https://www.youtube.com/watch?v
price to quality =RtUKuO0cSoQ
Steps in setting the right price
on a product
Choose a price strategy

A basic, long-term pricing framework, which

establishes the initial price for a product and
the intended direction for price movements
over the product life cycle
Price strategies:
price skimming
Price strategies:
price anchoring
 Price strategies:
penetration pricing
 The legality and ethics of
setting a price in Australia
Competition and Consumer Act 2010 protects
the consumer and helps companies understand
their responsibilities in dealing the consumer.
Price fixing: agreement between organisations
on the price they will charge for a product
Price discrimination: in certain circumstances
acceptable
Predatory pricing: charging a very low price to
drive competitors out of business or the market
 Unfair Trade
Watch Me:
https://www.youtube.com/watch?v=tfNqBP900L8&index=97&list=PLcn
P8uT1FzoXfKYE-8VWEO5L-cyiFnQat
Warning: recommended for mature audience only. May include drug
reference, adult language, sex reference, cultural humor.

Nurofen Migraine Pain, digital image, viewed 6th of July, 2015,

http://www.johnvenes.co.uk/nurofen-migraine-tablets-6x12-s.html
 Other Legal & Ethical
Price Considerations
Price Fixing Price Discrimination

Watch Me: Watch Me:

https://www.youtube.com/watc https://www.youtube.com/watc
h?v=ZjgyaVS6ukg h?v=WjTxv0lehGk
Warning: recommended for mature audience only. May include drug reference, adult language,
sex reference, cultural humor.
Tactics for fine-tuning
the base price

The general price level at which the

company expects to sell the
good or service
 Discounts, allowances,
rebates and value pricing

Quantity Cash
discounts discounts
A price reduction A price reduction
offered to buyers offered to a
who purchase consumer, an
multiple units or industrial user or a
above a specified marketing
dollar amount intermediary in return
for prompt payment
of a bill
 Discounts, allowances,
rebates and value pricing (Cont.)

Functional Seasonal
discount discount
Also known as a A price reduction for
trade discount; a buying merchandise
discount to out of season. Helps
wholesalers and to shift out-of-season
retailers for stock and ensures a
performing channel steady production
functions schedule year-round.
 Discounts, allowances,
rebates and value pricing (Cont.)

Promotional
Rebates
allowances
Payment to a dealer Cash refund given for
for promoting the the purchase of a
manufacturer’s product during a
products specific period
 Value-based pricing

A price that is set at a level that the customers

perceive to be a good price compared to the
price of other options
Geographic pricing
Geographic pricing (Cont.)
Special pricing tactics
 Professional service pricing
A surgeon may perform a
heart operation and
charge a flat fee of $10
000. The operation itself
may require only four
hours, resulting in an
apparent $2500 hourly
rate. The surgeon justifies
the fee because of the
lengthy education and
required to learn the
complex procedures of
heart surgery.
Special pricing tactics
Special pricing tactics
 Next Week

Marketing Mix: Place.