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Bargain! You Get What You Pay For
Rix Marketing: A Practical Approach 7e
Chapter Ten: Pricing Strategies
Next: What is Price?
What is Price?
• The money value of an item
• What you pay for what you get
Marketers give a special meaning to the term price:
• Tangible aspects
o quantity, quality, performance and features
• Intangible aspects
o status, approval, security, peace of mind
Rix Marketing: A Practical Approach 7e
Chapter Ten: Pricing Strategies
Next: Strategic Price Setting
Learn more on pages 348 - 349
Strategic Price Setting
Stage 1: Set a pricing goal
Profit-oriented
Sales-oriented
Status quo-oriented
Stage 2: Consider costs, demand and competitors
Estimate sales around the expected price
Consider marketing mix elements
Cost-based
Entry price
Fixed or flexible pricing
Loss leaders
Stage 3: Set the base price
Demand-based
Competition-based
Stage 4: Adjust the base price
Discounts and allowances
Price lining
Recommended retail price
Rix Marketing: A Practical Approach 7e
Chapter Ten: Pricing Strategies
Freight charges
Psychological pricing
Next: Pricing Goals
Learn more on page 349
• Profit oriented
goals
o maximise gross
profit
o achieve target ROI
• Sales oriented
goals
o achieve target
sales volume
o achieve target
market share
Pricing
Goals
Rix Marketing: A Practical Approach 7e
Chapter Ten: Pricing Strategies
• Status-quo goals
o stabilise prices
o meet competition
o ‘don’t rock the
boat’
Next: Factors Influencing Price
Learn more on pages 350 - 352
Factors Influencing Price
Before setting a base or list price marketers need to consider:
• Demand factors
o expected price
range
o elasticity of
demand
o other marketing
mix elements
•Cost factors
fixed and
variable costs
o
total cost at
different volumes
o
Rix Marketing: A Practical Approach 7e
Chapter Ten: Pricing Strategies
• Competitive
factors
o are we a price
maker or price
taker?
Next: Elasticity of Demand
Learn more on pages 352 - 360
Elasticity of Demand
Rix Marketing: A Practical Approach 7e
Chapter Ten: Pricing Strategies
Next: Product Cost at Various Levels of Output
Learn more on pages 354 - 356
Measuring Product Cost at Various Levels of Output
Rix Marketing: A Practical Approach 7e
Chapter Ten: Pricing Strategies
Next: Setting Base Price
Learn more on pages 358 - 360
Setting Base Price
In practice, marketers set their base (or
list) price by:
Adding a profit margin to cost
o Estimating demand (how many will
sell) at various prices
o Pricing above, below or the same level
as their competitors’ prices
o
Rix Marketing: A Practical Approach 7e
Chapter Ten: Pricing Strategies
Next: Break-even Analysis: A Useful Tool
Learn more on pages 360 - 370
Break-even Analysis: A Useful Tool
Rix Marketing: A Practical Approach 7e
Chapter Ten: Pricing Strategies
Next: Marketing Pricing: Price Skimming
Learn more on pages 365 - 366
Market Entry Pricing: Price Skimming
Setting price at or above our most expensive competitor price
and highest customers’ expected price.
• Can establish a premium image
• Gives price flexibility
• Works best when:
o new product is distinctive
o demand is inelastic
o PLC is in the early stages
o patents or other technology protect
the product
Rix Marketing: A Practical Approach 7e
Chapter Ten: Pricing Strategies
Next: Marketing Entry Pricing: Penetration Pricing
Learn more on pages 370 - 371
Marketing Entry Pricing: Penetration Pricing
Setting a price below our cheapest competitor price and lower
level of customers’ expected price.
• Can achieve fast high-volume sales
• Discourages competitors
• Works best when:
o demand is elastic
o economies of scale are possible
o strong and fast competition is
expected
Rix Marketing: A Practical Approach 7e
Chapter Ten: Pricing Strategies
Next: What Kind of Discount is This?
Learn more on page 371
Price Adjustment Strategies
Marketers adjust their base prices in various ways:
•Discounts and
allowances
quantity discounts
o trade discounts
o settlement discounts
o promotion discounts
o
• Geographic
pricing
ex-factory
o uniform delivered
o zone delivered
o freight absorption
o
Rix Marketing: A Practical Approach 7e
Chapter Ten: Pricing Strategies
• Other pricing
tactics
flexible pricing
o price lining
o odd pricing
o loss leader pricing
o recommended retail
price
o
Next: What Kind of Discount is This?
Learn more on pages 371 - 382
What Kind of Discount is This?
Rix Marketing: A Practical Approach 7e
Chapter Ten: Pricing Strategies
Next: Changing prices
Changing Prices
Marketers change their price in order
to:
• Recover cost increases
• Clear excess stock
• Win market share
• Promote particular products
• Achieve sales budgets
Marketers need to consider competitor
motives and reactions when making or
responding to price changes.
Rix Marketing: A Practical Approach 7e
Chapter Ten: Pricing Strategies
Next: Five Minute Quiz
Learn more on pages 382 - 383
Five Minute Quiz
1.
2.
3.
4.
5.
Define price from a marketing perspective
List three common pricing goals
Define price elasticity of demand
List four types of discounts offered by firms
List four alternative ways of allowing
for freight costs in a firm’s price
Rix Marketing: A Practical Approach 7e
Chapter Ten: Pricing Strategies