Download The Marketing Mix

The Marketing Mix
Pricing
Pricing Strategies
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Price skimming
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A high price set to yield a high profit margin
Long-term or short-term strategy (early adopters)
Penetration pricing
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Low prices are set to break into a market or to
achieve a sudden spurt in market share
Pricing Strategies
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Price leadership
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Price taking
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A small firm follows the price set by a price leader
Predator or Destroyer pricing
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A large company (the price leader) sets a market price that
smaller firms will tend to follow
Firm sets a very low price in order to drive other firms out
of the market – sole objective is to reduce number of
competitors
Discrimination pricing
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Charging different prices to different customers for the
same product or service
Pricing tactics
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Loss leaders
Psychological pricing
Influences on the pricing decision
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Costs of production
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Cost-plus pricing (cost + a mark-up)
Price elasticity of demand
Cost-plus pricing
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Level of mark-up depends upon:
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Level of competition
Price that customers are prepared to pay
Firm’s objectives
Price elasticity of demand
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P.O.D. = % change in quantity demanded
% change in price
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Price elasticity of demand can be elastic,
inelastic or unitary
Price elasticity of demand
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Elastic
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Inelastic
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% change in price leads to a greater % change in quantity
demanded
Number is greater than 1
% change in price leads to a smaller % change in quantity
demanded
Number is smaller than 1
Unit elasticity
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Price change is exactly cancelled out by the change in
quantity demanded so sales revenue stays the same
Determinants of PED
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Necessity
Habit
Availability of substitutes
Brand loyalty
Proportion of income spent on a product
Income of consumers
Significance of PED
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Inelastic
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Price rise always increases sales revenue & profit
Price fall leads to lower sales revenue and profit
Elastic
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Impact of a price increase is outweighed by
relatively large % change in demand, so sales
revenue decreases
In the case of a price fall, demand increases, but
need to understand costs of production in order to
see if profits will increase
Difficulties in calculating &
using PED
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Other factors not ‘remaining equal’
Competitors’ reactions
Consumers’ reactions
Market research – reliability of surveys