Lecture 11: pricing and channels to market

Price - generates revenue therefore has a huge impact

Price Assessment involves quality, financial, personal, operational, and functional

External influences on the pricing decision:

 Customers and consumers
 Legal and regulatory
 Channels of distribution
 Demand and price elasticity
 Competitors

Elasticity of Demand:
Price elasticity = % change in quantity demanded / % change in price

The seller perspective:

Price is the only element of the marketing mix which generates revenue
 Quantity sold is dependent upon price charged
 Customers will draw conclusions about the quality of the product/ service from the
price
 Sellers need to appreciate the real cost to the customer
 Price must be integrated with the other elements of the marketing mix

Pricing methods:
 Cost
 Competition
 Marketing

Cost based pricing: Cost factors that affect pricing decisions

 Gives indication of minimum price that needs to be charged to break even
 Once the relevant costs are calculated its necessary to estimate how many units are
likely to be sold

Disadvantages of this:
 Leads to an increase in price as sales fall
 Focuses on internal costs rather than what customers are willing to pay

Fixed costs (overheads):

 Costs that don’t vary with sales or production levels
 Executive salaries
 Rent

Variable costs:
 Costs that do vary directly with the level of production
 Raw materials
Total costs – sum of the fixed and variable costs for a given level of production

Competitor-orientated pricing

Competitive benchmarking:
 The supplier will benchmark themselves against major competitors, setting their
prices either above, the same or below them

Going-rate pricing:
 Where the producers take the going rate price
 This mainly occurs in undifferentiated commodities

Competitive bidding:
 The supplier will price according to a specification drawn up by the purchaser
 Usually the supplier