marketing lecture sem 2 2024 at uni canberra

marketing

1. Marketing G Lecture 5, Week 5 Presentation prepared based on Armstrong et al. by Associate Professor Dr Abu Saleh University of Canberra

2. Learning objectives 9.1 Identify the three main pricing strategies, and discuss the importance of understanding customer-value perceptions, company costs and competitor strategies when setting prices. 9.2 Identify and define the other important external and internal factors affecting a firm’s pricing decisions. 9.3 Describe the main strategies for pricing new products. 9.4 Explain how companies determine a set of prices that maximises the profits from the total product mix. 9.5 Discuss how companies adjust their prices to take into account different types of customers and situations. 9.6 Discuss the key issues related to initiating and responding to price changes.

3. What is a price? Price is the amount of money charged for a product or service, or the sum of the values consumers exchange for the benefits of having or using the product or service. Price : is the only element in the marketing mix that produces revenue; all other elements represent costs is one of the most flexible marketing mix elements is also the number-one problem facing many marketing executives has a direct impact on a firm’s bottom line.

4. Considerations in setting price What is marketing cost?

5. Major pricing strategies There are three main pricing strategies: customer value-based pricing cost-based pricing competition-based pricing.

6. Value-based pricing versus cost-based pricing

7. Major Pricing Strategies Customer value-based pricing Customer value-based pricing refers to the process of setting the price based on buyers’ perceptions of value, rather than on the seller’s costs. Good-value pricing is offering just the right combination of quality and good service at a fair price. Customer value–based pricing: A Steinway piano—any Steinway piano—costs a lot. But to a Steinway customer, it’s a small price to pay for the value of owning one. © Westend61 GmbH/ Alamy Stock Photo

8. Major Pricing Strategies Customer Value-Based Pricing Value-added pricing attaches value-added features and services to differentiate a company’s offers and thus their higher prices. The Porsche Drive subscription program promises “Dreams on demand—a fleet of Porsches at your fingertips.” That makes the value well worth the price for the group of Porsche enthusiasts who sign up. North Monaco/Shutterstock Cost-based pricing Cost-based pricing refers to the process of setting prices based on the costs for producing, distributing and selling the product, plus a fair rate of return for company’s effort and risk.

9. Major pricing strategies Cost-based pricing (cont.) Types of costs Fixed costs ( overhead ) are those costs that do not vary with production or sales level. Ex: Rent, Heat, Interest, Executive salaries Variable costs are those costs that vary directly with the level of production. Ex: Raw materials, Packaging Total costs are the sum of the fixed costs and variable costs for any given level of production. Q: Consider a restaurant meal you have purchased recently. What were the restaurant’s variable and fixed costs for your meal?

10. Major pricing strategies Cost-based pricing (cont.) Cost-plus pricing Cost-plus pricing ( markup pricing ) refers to the process of adding a standard markup to the cost of the product. Breakeven pricing Breakeven pricing ( target-return pricing ) refers to the process of setting the price to break even on the costs of making and marketing a product or to make the desired profit.

11. Figure 9.3 Breakeven chart for determining target-return price and breakeven volume

12. Major Pricing Strategies Break-Even Volume and Profits at Different Prices Price Unit Demand Needed to Break Even Expected Unit Demand at Given Price Total Revenue Total Costs* Profit (4) – (5) $14 75,000 71,000 $994,000 $1,010,000 − $16,000 16 50,000 67,000 1,072,000 970,000 102,000 18 37,500 60,000 1,080,000 900,000 180,000 20 30,000 42,000 840,000 720,000 120,000 22 25,000 23,000 506,000 530,000 − 24,000 *Assumes fixed costs of $300,000 and constant unit variable costs of $10.

13. Major pricing strategies Competition-based pricing Competition-based pricing refers to the process of setting prices based on competitors’ strategies, costs, prices and market offerings. Consumers base their judgments of a product’s value on the prices that competitors charge for similar products. Q: ‘The goal is not to match or beat competitors’ prices.’ Do you agree with this statement? Why, or why not?

14. Other internal and external considerations affecting price decisions Overall marketing strategy, objectives and mix Marketers must consider the total marketing strategy and mix when setting prices. Pricing can be used to: attract new customers or profitably retain existing ones deter competitors from entering the market stabilise the market by matching competitors’ prices retain the loyalty and support of resellers avoid government intervention create excitement for a brand help the sales of other products in the company’s line.

15. Other internal and external considerations affecting price decisions Overall marketing strategy, objectives and mix (cont.) Three price-positioning strategies are: target costing , which starts with an ideal selling price based on customer-value considerations and then targets costs that will ensure the price is met non-price positioning, which differentiates the market offering to make it worth a higher price high price positioning, which positions products on high prices. Q: Why might a company use high price positioning?

16. Other internal and external considerations affecting price decisions Organisational considerations Management must decide who within the organisation should set prices. In small companies, top management often sets prices. In large companies, divisional or product-line managers set prices. In industrial markets, salespeople may be allowed to negotiate with customers within certain price ranges. In industries where pricing is a key factor, pricing departments within the company set prices or help others to set prices.

17. Other internal and external considerations affecting price decisions The market and demand Pricing in different types of markets In pure competition, no single buyer or seller has much effect on market price. In monopolistic competition, a range of prices occurs. In oligopolistic competition, sellers are highly sensitive to each other’s pricing and marketing strategies. In a pure monopoly, pricing depends on whether it is a government monopoly or a regulated monopoly.

18. Other internal and external considerations affecting price decisions The market and demand (cont.) Analysing the price–demand relationship The demand curve is a curve that shows the number of units the market will buy in a given time period at different prices.

19. Other internal and external considerations affecting price decisions (6 of 7) The market and demand (cont.) Price elasticity of demand Price elasticity is a measure of the sensitivity of demand to changes in price. Elastic demand refers to the situation where demand changes greatly with changes in price. Inelastic demand refers to the situation where demand hardly changes with a small change in price. Q: How might sellers set their prices to respond to elastic demand? To inelastic demand?

20. Other internal and external considerations affecting price decisions The economy Economic factors (e.g. boom, recession, inflation, interest rates) affect pricing because they affect consumer spending, consumer perceptions of the product’s price and value, and the company’s costs. Other external factors The company must consider the impact of its pricing decisions on other parties in the environment, e.g. resellers and the government. It must also take into account broader societal considerations. Uncontrollable factors such as war, politics etc..

21. New-product pricing strategies Market-skimming pricing Market-skimming pricing ( price skimming ) refers to the process of setting a high price for a new product to skim maximum revenue from the segments willing to pay the high price; the company makes fewer but more profitable sales. Market-penetration pricing Market-penetration pricing refers to the process of setting a low price for a new product in order to attract a large number of buyers and a large market share. Q: Give examples of companies that use these pricing strategies.

22. Product-mix pricing strategies A product’s pricing strategy often has to be changed when the product is part of a product mix. The company looks for a set of prices that maximises the profits on the total product mix. Product-mix pricing Pricing situation Description Product-line pricing Setting prices across an entire product line Optional-product pricing Pricing optional or accessory products sold with the main product Captive-product pricing Pricing products that must be used with the main product By-product pricing Pricing low-value by-products to get rid of them or to make money on them and the main products Product-bundle pricing Pricing bundles of products sold together

23. Source: https://www.slideshare.net/anicalena/nine-price-quality-strategies-business-diagram

24. Price-adjustment strategies Companies usually adjust their basic prices to account for differences in: customers products locations changing situations. Q: Can you think of examples where: different customers may pay different prices for the same product or service? a company charges different prices for different locations?

25. Price adjustments Strategy Description Discount and allowance pricing Reducing prices to reward customer responses such as volume purchases, paying early or promoting the product Segmented pricing Adjusting prices to allow for differences in customers, products or locations Psychological pricing Adjusting prices for psychological effect Promotional pricing Temporarily reducing prices to increase short-term sales Geographical pricing Adjusting prices to account for the geographic location of customers Dynamic pricing Adjusting prices continually to meet the characteristics and needs of individual customers and situations International pricing Adjusting prices for international markets

26. Price-adjustment strategies Discount and allowance pricing A discount is a straight reduction in price on purchase during a stated period of time or when purchasing larger quantities. Discounts can take many forms, including: cash discount, quantity discount, functional discount, seasonal discount. An allowance is promotional monies paid by suppliers to retailers in return for an agreement to feature the suppliers’ products in some way. Allowances include: trade-in allowances, promotional allowances.

27. Price-adjustment strategies Segmented pricing Segmented pricing is where a company sells a product or service at two or more prices, even though the difference in price is not based on differences in costs. Segmented pricing takes many forms, including: Customer-segment pricing where customers pay different prices for the same product Product-form pricing where different forms of the product are priced differently, but not based on costs e.g., home brand and manufacturer brand Location-based pricing where different prices are set for specific locations, not based on costs (e.g. price of different theatre seats) Time-based pricing where different prices are set for time of day, time of year etc. (e.g. off-peak prices) Revenue management (aka yield management) where prices are routinely set hour by hour depending on availability, demand and competitor price changes (e.g. airlines) Q: What are some (a) benefits and (b) pitfalls of segmented pricing?

28. Price-adjustment strategies Psychological pricing Psychological pricing is where sellers consider the psychology of prices and not simply the economics. .99, .95 etc.. Reference prices are prices that buyers carry in their minds and refer to when looking at a given product. Q: Price says something about the product – or does it? What do you think?

29. Price-adjustment strategies Promotional pricing Promotional pricing is where a company temporarily prices its product below list price, and sometimes even below cost, to create buying excitement and urgency. Promotional pricing can take many forms, e.g. discounts, rebates, free maintenance, among others. Q: From the marketer’s perspective, what are some of the disadvantages of promotional prices?

30. Price-adjustment strategies Geographical pricing Geographical pricing refers to the process where a company sets prices for customers located in different parts of the country or world. Geographical pricing can take many forms, including: free on board (FOB)-origin pricing uniform-delivered pricing zone pricing basing-point pricing freight-absorption pricing.

31. Price-adjustment strategies Dynamic and personalised pricing Dynamic pricing refers to the process where prices are adjusted continually to meet the characteristics and needs of individual customers and situations. Dynamic pricing offers both advantages for marketers and benefits for consumers. It can also be controversial. Q: Can you think of situations where dynamic pricing might negatively impact a marketer?

32. Price-adjustment strategies International pricing Companies that market their products internationally must decide what prices to charge in the different countries in which they operate. They can either: set a uniform worldwide price, or adjust prices to reflect local market conditions and cost considerations. Factors affecting international pricing include: economic conditions, competitive situations, consumer perceptions. Q: What other factors might affect international pricing?

33. Price changes Initiating price changes When initiating price changes, whether cuts or increases, marketers must consider both: buyer reactions competitor reactions. Responding to price changes When responding to a price change by a competitor, a firm needs to consider several issues, including: external factors its own situation and strategy.

34. Assessing and responding to competitor price changes

35. Public policy and pricing Price competition is a core element of our free-market economy. In setting prices, companies usually are not free to charge whatever prices they wish. Many laws govern the rules of fair play in pricing. Companies must also consider broader societal pricing concerns.

36. Public policy and pricing Pricing within channel levels Prohibited practices when pricing within channel levels include: price fixing (i.e. sellers must set prices without talking to competitors) predatory pricing (i.e. sellers cannot sell below cost with the intention of punishing a competitor or putting competitors out of business). Q: Can you give some examples where price fixing or predatory pricing has occurred?

37. Public policy and pricing Pricing across channel levels Prohibited practices when pricing across channel levels include: price discrimination (i.e. offering different price or trading terms to different customers, except in certain circumstances) retail (or resale) price maintenance (i.e. manufacturers requiring retailers to charge specific retail prices for their products) deceptive pricing (i.e. stating or advertising prices that mislead consumer or are unavailable to the consumer).

38. Question??? NEXT LECTURE: Channel of Distribution Individual Theme Presentation