Chapter 20 – Marketing Mix Pricing
Unit 3 - Marketing
You will learn…………………………..
• Role of price in the marketing mix
• Price determination
• Demand & Supply
• Pricing Strategies
Role of the Price
• Deciding the price is important
▫ Rivals
 Too high  customer choose
rival’s product
Role of the Price
• Deciding the price is important
▫ Rivals
 Too low  wonder about products
quality
Only
15,999 baht
Role of the Price
• Deciding the price is important
▫ Rivals
 Similar  Competition
Price Determination
Demand
What is demand?
“The want and, willingness and ableness of
consumers to buy a good or service at different
prices”
What does demand look like?
Demand
Curve
D
Price
Law of Demand:
• If price rises demand
falls
• People will not be able to
buy the same quantity
with the same money
D
Quantity
Demanded
Price of Ice-Cream Cone
Shifts in Demand
$3.00
2.50
Increase
in demand
Decrease
in demand
2.00
1.50
1.00
0.50
D3
0 1
D1
2 3 4 5 6 7 8 9 10 11 12
D2
Quantity of Ice-Cream Cones
Factors affecting demand
• Changes in the prices of others products
Substitute Products
Complimentary Products
Factors affecting demand
• Changes in tastes, preferences or fashions
Factors affecting demand
• Changes in peoples incomes
Factors affecting demand
• Advertising
Elasticity of Demand
Elastic Demand

Quantity demanded is very sensitive to
price changes.

Many substitutes

Change in quantity is greater than the
change in price
Price
Demand
Quantity
Inelastic Demand
Price
Demand

Quantity demanded is not very sensitive to
price changes.

Not many substitutes

Change in quantity is not as great as the
change in price.
Quantity
Elastic? or Inelastic?,
Here the slope relates that the
quantity demanded is very
sensitive to price changes
Price
7
6
5
4
3
2
1
0
0
100
200
300
400
500
1000 ./month
Elastic? or Inelastic?,
BUT a change in the scale of
measure changes the graph
so as to make it look as
though the quantity demanded
is NOT very sensitive to
changes in price !
Price
6
5
4
3
2
1
100
200
300
400
500
million /month
Elasticity of Demand
Elastic?
Inelastic?
How to make your product more
inelastic
• …why???
…so
customers
don’t react
to price
increases!
• Make your product
DIFFERENT to
competitors – to keep
them brand loyal.
• Take over the
competition! So
customers have to buy
your products.
• Make small price changes
over a short period of
time – so customers
don’t notice!
Supply
What is supply?
“The amount of goods or services producers are
willing and able to produce at different prices”
What does supply look like?
Supply
Curve
price
Law of Supply:
• If price rises supply
rises
• More and more suppliers
want to sell their product
because of higher profits
S
Quantity
supplied
S
Shifts in Supply
Supply curve, S3
Price of
Ice-Cream
Cone
Decrease
in supply
Supply
curve, S1
Supply
curve, S2
Increase
in supply
0
Quantity of Ice-Cream Cones
Factors affecting supply
Changes in the costs of
supplying the products to
the market
Factors affecting supply
Improvements in technology
Factors affecting supply
Taxes
Factors affecting supply
Climate & Weather
Elastic Supply

Quantity supplied is very sensitive to
price changes.

Many substitutes

Change in price is greater than the
change in quantity
Price
Supply
Quantity
Inelastic Supply
Price

Quantity supplied is not very sensitive to
price changes.

Not many substitutes

Change in quantity is not as great as the
change in price.
Supply
Quantity
Shifts in Supply
Price of
Ice-Cream
Cone
S2
1. An increase in the
price of sugar reduces
the supply of ice cream. . .
S1
New
market price
$2.50
Initial market price
2.00
2. . . . resulting
in a higher
price of ice
cream . . .
Demand
0
4
7
3. . . . and a lower
quantity sold.
Quantity of
Ice-Cream Cones
Elasticity of Supply
Elastic?
Inelastic?
Market Price Determination
Price of
Ice-Cream
Cone
Supply
Interception point
determines market
price
$2.00
Demand
0
1
2
3
4
5
6
7
8
9 10 11 12 13
Quantity of Ice-Cream Cones
Activity 20.1 – Page 303(New)
Price ($)
Demand (000s)
Supply (000s)
0.50
10
2
0.75
9
3
1.00
8
4
1.25
7
5
1.50
6
6
1.75
5
7
2.00
4
8
2.25
3
9
Activity 20.2
Change taken
place
Bad harvest of coffee
beans
Jeans go out of fashion
A govt report published
that states eating rice is
very healthy
New technology
introduced into
computer production
which increases
efficiency
Costs of components
has increased
Competitors prices
increase
DD/SS
affected?
Price increase
of decrease?
Sales increase
or decrease
Pricing Strategies
Cost-plus Pricing Strategy
• Cost + mark-up
▫ cost of manufacturing
▫ plus a profit mark-up
• Advantage
▫ Easy to apply
• Disadvantage
▫ If price is to high
than the rival price,
you may lose sales
Penetration Pricing Strategy
• Used to enter a new
market
• Price lower than the
competitors
• Advantage
▫ Ensures sales are
made
• Disadvantage
▫ Low price means low
profit
Price Skimming Strategy
• High price set for a
new product or
invention on the
market
• Advantage
▫ helps establish good
product quality
• Disadvantage
▫ May put off some
potential customers
because of the high
price
Competitive Pricing Strategy
• Price in line with or
just below rival
• Aim to capture more
of the market
• Advantage
▫ Sales likely at high
realistic level
▫ not under or
overpriced
• Disadvantage
▫ Research competitors
constantly to set price
▫ costs time & money
Promotional Pricing Strategy
• Sold at very low price
for short periods
• Advantages
▫ Useful for getting rid
of the over stocks
▫ Helps make interest
in the business
• Disadvantage
▫ The sales revenue
will be lower because
the price
Psychological Pricing Strategy
• Attention on the
effect of the price on
the consumers
perception of the
product
• Could include
▫ High price – High
Quality
 Status Symbol
▫ Pricing just below
whole number (e.g.
19,999 baht)
 Cheaper Impression
▫ Regular purchased
products at low prices
 value for money
Which pricing strategy would you
use?
a) A watch that is very similar to other watches
sold in shops
Which pricing strategy would you
use?
b) A new type of
radio that has
been developed
and is of much
higher quality
than existing
radios
Which pricing strategy would you
use?
c) A chocolate bar
which has been on
the market for
several years and
new brands are being
brought out which
are competing with
it.
Which pricing strategy would you
use?
d) A shop, which sells
food, wants to get its
money back on
buying the stock and
make an extra 75 per
cent as well.
Which pricing strategy would you
use?
e) A new brand of soap
powder is launched
(there are already
many similar brands
available).
Which pricing strategy would you
use?
f) Toys sold for $1.99 each
$1.99
Activity 20.4 ++
Pricing
Strategy
Cost-plus
Penetration
Skimming
Competitive
Promotional
Psychological
Description
Examples of
use
Advantages
Disadvantages
Now your should be able to………
• Understand how prices are determined in the
market
• What influences demand & supply
• Selecting suitable pricing strategies for different
business situations/objectives