Issues about Pricing
Concepts
♦Definitional issues, i.e., meaning,
♦Importance of pricing decisions
♦Pricing objectives
♦The relationship between price and the
marketing mix
Department of
Marketing & Logistics,
UNT
Charles Blankson, Ph.D.
What is a price?
♦ The amount of money charged for a
product/service or
♦ The sum of the values that consumers
exchange for the benefits of purchasing
and/or using the product/service.
♦ Price is only one of the marketing mix
tools that a firm uses to achieve its
marketing objectives.
Department of
Marketing & Logistics,
UNT
Charles Blankson, Ph.D.
Meaning of price to the firm
♦ An element in the firm’s marketing mix (Wall-
Mart, United Airline) which can be
manipulated to achieve corporate objectives
(e.g. to promote sales, improve upon image,
compete with a new entrant).
♦ Part of the relationship which yields a revenue
from which costs can be met and profits made.
♦ A measure of risks to the firm involved in the
sale and/or as an insurance premium against
the maturing of these risks.
Department of
Marketing & Logistics,
UNT
Charles Blankson, Ph.D.
Meaning of price to the firm contd.
♦ Part of the overall bundle of factors (e.g.
discounts, settlement terms, credit terms,
good citizenry) which can be used to
affect consumer purchase behavior.
Department of
Marketing & Logistics,
UNT
Charles Blankson, Ph.D.
Meaning of price to the consumer
♦ A measure of the value of the total bundle of
satisfaction being offered.
♦ A cost.
♦ A measure of quality (e.g. you get what you pay
for).
♦ A measure of alternative(s) foregone
directly/indirectly.
♦ Part of the decision process that may affect
ability/willingness to purchase (i.e., discounts,
credit terms, settlement terms, part
exchange/trade in terms, guarantees).
Department of
Marketing & Logistics,
UNT
Charles Blankson, Ph.D.
Kotler (2000) proposes five major pricing
objectives
♦ The first issue confronting the firm when
setting prices is to assess where the firm wants
to position itself/its offerings in the market
place.
♦ Pricing objectives therefore, stem from
positioning objectives.
♦ For example the firm’s positioning objective(s)
may include: (a) functional, (b) symbolic, (c)
experiential, (d) leader, (e) follower, (f)
global/worldwide-wide recognition and so on.
Department of
Marketing & Logistics,
UNT
Charles Blankson, Ph.D.
Kotler’s five major pricing objectives
♦ Survival
♦ Maximum current profit
♦ Maximum market share (penetration
pricing)
♦ Maximum market skimming and
♦ Product-quality leadership.
Department of
Marketing & Logistics,
UNT
Charles Blankson, Ph.D.
Shipley and Jobber (2001) pricing objectives
♦ Relating to profits,
♦ Relating to survival,
♦ Relating to sales volume/revenue,
♦ Relating to market share,
♦ Relating to image creation,
♦ Relating to competitive advantage,
♦ Relating to barriers to entry, and
♦ Relating to perceived fairness (the just price).
Department of
Marketing & Logistics,
UNT
Charles Blankson, Ph.D.
The relationship between price
and the marketing mix
♦ Price management is a crucial element in
marketing and competitive strategy and a
key determinant of performance.
♦ Price is the only element in the marketing
mix (i.e., 4 P’s and 7 P’s) that directly
generates revenue.
♦ The other elements in the marketing mix
generate costs/expenses.
Department of
Marketing & Logistics,
UNT
Charles Blankson, Ph.D.
Importance of price
♦ A Measure of value,
♦ A measure of quality,
♦ Has impact on offering selection among
competing alternatives,
♦ It is important in competitive positioning,
♦ It is flexible and, if managed carefully, can be
adapted in a changing environment,
♦ Can affect the activities of competing firms,
suppliers, distributors and government.
Department of
Marketing & Logistics,
UNT
Charles Blankson, Ph.D.
The price decision
♦ Increase price
♦ Reduce price
♦ “Hold” price
Department of
Marketing & Logistics,
UNT
Charles Blankson, Ph.D.
When to change prices
♦ New product/new processes introduction
♦ Skimming/creaming pricing
♦ Penetration pricing
♦ Me-too pricing.
♦ “External”/Environmental changes (PESTLE)
♦ Raw material cost changes
♦ Tax or duty changes
♦ Competitive action (price wars)
♦ Change in size or structure of industry.
♦ Sales promotions
Department of
Marketing & Logistics,
UNT
Charles Blankson, Ph.D.
What is the just price?
♦ Based on social consideration
♦ As a result of government or pressure
groups’ lobby
♦ Geared towards achieving “just” or
“fair” prices.
Department of
Marketing & Logistics,
UNT
Charles Blankson, Ph.D.
Pricing Techniques
♦ Cost plus method
♦ Marginal analysis
♦ “Other” e.g.: Competitor analysis
Blind guess
Department of
Marketing & Logistics,
UNT
Charles Blankson, Ph.D.