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Transcript
Price Marketing Mix 4P - PRICE How do you price your product or service so that your price remains competitive but allows you to make a good profit. How is the price made up? (producer’s perspective) Fixed costs (costs, which are not changing depending on quantity, e.g. renting of facilities, administration costs, heating, electricity) Variable costs (costs which are changing depending on the produced volume, e.g. materials used in the product) Margin – the gross profit of the company from the product Price Penetration Pricing Price set to ‘penetrate the market’ ‘Low’ price to secure high volumes Typical in mass market products – chocolate bars, food stuffs, household goods, etc. Suitable for products with long anticipated life cycles May be useful if launching into a new market Market Skimming High price, Low volumes Skim the profit from the market Suitable for products that have short life cycles or which will face competition at some point in the future (e.g. after a patent runs out) Examples include: digital technology, new DVDs, etc. Loss Leader Goods/services deliberately sold below cost to encourage sales elsewhere Typical in supermarkets, e.g. at Diwali, selling sweets at low cost in the hope that people will be attracted to the store and buy other things Purchases of other items more than covers ‘loss’ on item sold e.g. ‘Free’ mobile phone when taking on contract package Psychological Pricing Used to play on consumer perceptions Classic example – Rs.999 instead of Rs.1000! Links with value pricing – high value goods priced according to what consumers THINK should be the price Going Rate (Price Leadership) In case of price leader, rivals have difficulty in competing on price – too high and they lose market share, too low and the price leader would match price and force smaller rival out of market May follow pricing leads of rivals especially where those rivals have a clear dominance of market share Where competition is limited, ‘going rate’ pricing may be applicable – banks, petrol, supermarkets, electrical goods – find very similar prices in all outlets Marginal Cost Pricing Example: Aircraft flying from India to New York – Total Cost (including normal profit) = Eur 15,000 of which Eur 13,000 is a fixed cost* Number of seats = 160, average price = Eur 93.75 Marginal Cost of each passenger = Eur 2000/160 = Eur 12.50 If flight not full, better to offer passengers chance of flying at Eur 12.50 and fill the seat than not fill it at all! *All figures are estimates only Target Pricing Setting price to ‘target’ a specified profit level Estimates of the cost and potential revenue at different prices, and thus the break- even have to be made, to determine the mark-up Mark-up = Profit/Cost x 100 Few Conclusions on Pricing There is no cheap or expensive – everything is relative to customer’s perceptions Pricing decisions are influenced by product quality itself, the subjective beliefs of customers and competitors Demand and its elasticity or inelasticity vs pricing has to be considered Pricing can also be the basis of marketing strategy: e.g. premium, standard, low price