PRINCIPLES OF MARKETING

Pricing Context and Concepts Prof. Rushen Chahal

Prof. Rushen Chahal

1. Roles and Perception of Price

Price:

The value that is placed on something. What someone is prepared to give in order to gain something else, e.g. you scratch my back and I scratch yours Pricing is a skill, interpreted differently by different people and comes under various names
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1. Roles and Perception of Price

Customers perspective:Assess the price against values such as:

Functional areas design and ability benefits to satisfy promises Quality reflecting the worth of a product Operational in relation to influence a production process or increase efficiency Financial purchases seen as investments
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1. Roles and Perception of Price

Sellers perspective:

A distinctive and highly visible element of the marketing mix Generator of revenue and provides the basis of recovering costs and creating profit Pricing requires knowledge and understanding of the customer and external environment

Prof. Rushen Chahal

2. Pricing contexts
a. Consumer markets:

Psychological factors can play an important role in consumers choice of purchase Price negotiation in consumer markets can be difficult - the price is on the product take it or leave it Price banding can be useful in market segmentation, e.g. gym membership pricing
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2. Pricing contexts
b. Retail and wholesale markets:

These groups take a more rational approach to price interpretation. Pricing structures need to reflect demand. Price discipline is expected - manufacturers should not sell direct to the public at lower prices than retailers could set.
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2. Pricing contexts
c. Non-profit markets:

These organisations encourage people to use their products/services and participate in their activities. Pricing - selling goods at cost or subsidising costs visibly below market rates. Price sometimes passes through a third party, e.g. free governments medical insurance
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2. Pricing contexts
d. B2B markets:

The costs of installation, training, financing, employee and social safety, service, aftersales, re-maintenance etc., are all considered before the pricing. Much companies use value management to analyze the greatest costs incurred in the products and processes.
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3. External influences on price

Prof. Rushen Chahal

3. External influences on price

a. Customers and consumers
Must

take into account behavioural

feelings and price sensitivity of the end buyer. Critical to understand the price threshold, i.e. the highest or lowest point the price can go.

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3. External influences on price

b. Demand and price elasticity

If price rises, then demand falls. price falls then demand rises.

If

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3. External influences on price

The boomerang demand curve

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3. External influences on price

Elastic demand

Inelastic demand curves

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3. External influences on price

Factors influencing price sensitivity:1. The unique value effect:- the better differentiated the product, the lower the price sensitivity 2. The substitute effect:- The greater the number of substitutes the greater the price sensitivity 3. The difficult comparison effect:- The more difficult it is to make a comparison between the products, the lower the price sensitivity
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3. External influences on price

4. The total expenditure effect:- the smaller the proportion of total spend the product represents, the lower the price sensitivity 5. The end benefit effect:- greater the end benefit of the product, the lower the price sensitivity

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3. External influences on price

c. Channels of distribution Take into account the businesses in the distribution chain, from manufacturers, wholesalers, retailers, agents etc. d. Competitors Must reflect the price intensity of the industry Monopoly Oligopoly Monopolistic competition Perfect competition
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4. Internal influences on price

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4. Internal influences on price

Pricing is influenced by internal factors:a. Marketing objectives For profit

maximization, market share maximization, cost leadership b. Costs - A company's costs take two forms, fixed and variable
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