Marketing MIX Price Prepared By : Rafa Alyasin • Marketing Mix: a term used to describe all the activities that go into marketing a product or service. the 4 P’s are , What's Marketing Mix? Marketing Mix : Price Marketing Mix Price Is the amount of money producers are willing to sell or consumer are willing to buy the product Marketing Mix : Price •The price chosen may not be related to the cost of manufacturing but rather to what consumers are willing to pay, the product's value, and the brand image. •The business must constantly monitor what its competitors charge for their products to ensure its prices remain constant. A business can adopt new pricing strategies for: • • • • Marketing Mix : Price To break into a new market To increase market share To increase profits To make sure all costs are covered and a particular profit is earned Setting a high price for a new product that is unique or very different from other products on the market or in the initial launch and Innovative . Examples , Methods Of Pricing : 1- Price skimming a new computer games system is developed. It will be sold in the shops at a very high price, much higher than the existing computer games systems. Because it is new and has better graphics than the old systems, consumers will be willing to pay the high price. Advantages & Disadvantage : Price skimming Advantages & Disadvantage : Profit earned is very high . 1- Price skimming It may backfire if competitors produce similar products at a lower price. Helps recover/compensate research and development costs Setting a very low price than the competitor price to attract customers to buy a new product and able the business to enter new market . Methods Of Pricing : 2Penetration pricing Once the business build some customer loyalty for the product it will increase the price to level same as its main competitors. Examples , a company launches a new chocolate bar at a price several cents below the prices of similar chocolate bars that are already on the market. If this is successful, consumers will try the new bar and become regular customers. Advantages &Disadvantages: Penetration pricing On the flip side, would Ferrari be Ferrari if their cars were selling for $10,000? Probably not. Advantages &Disadvantages Advantages &Disadvantages: Penetration pricing Attracts customers more quickly Low revenue due to lower prices Cannot recover development costs quickly Can increase market share quickly When the product is priced in line with or just below competitors’ prices to try to capture more of the market.,used for new and existing products. Methods Of Pricing : 3Competitive pricing Examples , Advantages & Disadvantages : Competitive pricing Advantages & Disadvantages : Competitive pricing need to find ways of competing to attract sales. Business can compete on other matters such as service and quality Setting price by adding a fixed amount to the cost of making the product. the cost of manufacturing the product plus a profit mark-up. It involves: • Estimating how many of the products will be produced. Methods Of Pricing : • Calculating the total cost of producing this output. • Adding a percentage markup for profit. >>>Total cost /output + % markup. 4- Cost plus pricing Examples , Example : Cost plus pricing Advantages & Disadvantages: Cost plus pricing Advantages & Disadvantages Advantages & Disadvantages: Cost plus pricing Makes sure that the price covers all of the costs Price might be set higher than competitors or more than customers are willing to pay, which reduces sales and profits. Quick and easy to work out the price When a product is sold at a very low price for a short period of time Setting the price of a few products at below cost to attract customers Methods Of Pricing : 5- Loss leader pricing/Promot ional pricing And increase sales into the shop in the hope that they will buy other products as well Examples , For example, at the end of summer, a shop might have a lot of summer clothes left unsold. It might have a sale offering ‘Buy one, get one free’. This will encourage customers to buy one item in order to get a second one free and it will clear the end-of-season stock. Advantages &Disadvantages: Loss leader pricing/Promotio nal pricing Advantages &Disadvantages Advantages &Disadvantages: Loss leader pricing/Promotio nal pricing Helps to sell off unwanted stock before it becomes out of date Revenue on each item is lower so profits may also be lower A good way of increasing short term sales and market share A very high price for a high-quality product may mean that high income customers wish to purchase it as a status symbol. The impact of psychology on price decisions If a price for a product is set just below a whole number, for example, 99¢ is just below $1, this creates the impression of it being much cheaper. Supermarkets may charge low prices for products purchased on a regular basis, which will give customers the impression of being given good value for money. Repeat sales are often made when the price support consumers’ perceptions of the product – this may be its brand image when the price is set high. Dynamic pricing :is when businesses change product prices, usually when selling online, depending on the level of demand. Airlines regularly use dynamic pricing and charge different prices for flights to the same airport at different times of the day or different times of the year. For example, the price of flights to holiday resorts is much higher during school holidays than during term time. Using different pricing methods for the same product Dynamic pricing Dynamic pricing can also be used, often when products are sold ‘online’, to reflect rapid changes in the level of demand. If demand increases then the price will be raised, and at times of low demand the price will be reduced. For example, at American football games ticket prices often change to reflect the increased demand for tickets at popular games and when a game is less popular the price is reduced to encourage sales and fill the stadium seats. • There are ethical issues with some dynamic pricing; using technology, businesses can track customers' buying history and charge accordingly. airline charges higher prices to individuals who have previously paid more for their tickets. Using different pricing methods for the same product Dynamic pricing This is compared to other customers who appear to have lower income from their past buying history; these customers are charged lower prices for the same product. Methods Of Pricing Summary Activity 13.3 Page 175 Is it a new or existing product? Factors that affect what pricing method should be used: If it’s new, then price skimming or penetration pricing will be most suitable. >> Introduction stage If it’s an existing product, competitive pricing or promotional pricing will be appropriate. Decline stage price lower to sell last remaining inventory Is the product unique? If yes, then price skimming will be beneficial, charged high pricelatest model of iphone otherwise competitive or promotional pricing. If similar product enter the market Is there a lot of competition in the market? If yes, competitive pricing will need to be used. firms charging very similar prices for their products consumer will buy lest expensive. Does the business have a well-known brand image? If yes, price skimming will be highly successful. Factors that affect what pricing method should be used: What are the costs of producing and supplying the product? If there are high costs, costs plus pricing will be needed to cover the costs. If costs are low, market penetration and promotional pricing will be appropriate. What are the marketing objectives of the business? If the business objective is to quickly gain a market share and customer base, then penetration pricing could be used. If the objective is to simply maintain sales and maximize profit , competitive pricing will be appropriate. • Price Elasticity of Demand: How responsive is a demand for a product to a change in price? • PEDs are affected by the no of substitutes available Price Elasticity of Demand (PED) • Price-Elastic Demand is when a product is very responsive to a change in price. The % change in demand is GREATER than the % change in price, i.e., prices increase by 5%, but sales decrease by 10%. For example, if the price of a chocolate bar rose by 5 per cent, some customers would buy alternative chocolate bars and sales might fall by 15 per cent. This product would be said to have price-elastic demand • Therefore, the business's revenue would be falling with a price increase. Businesses must find another way to increase demand without using the product's price. • Price-Inelastic Demand is when the product is not very responsive to changes in price. The % change in demand is LESS than the % change in price. • This means you can increase the price of the product a lot without the demand changing (i.e., oil & petrol because people have to buy it) The PED of a product refers to the responsiveness of the quantity demanded to changes in its price. PED (of a product) = % change in quantity demanded / % change in price Price Elasticity of Demand (PED) When the PED is >1, that is there % change in quantity demanded is higher in % change in price, the PED is said to be elastic. When the PED is <1, that is % change in quantity demanded is lower than a change in price, the PED is said to be inelastic. Producers can calculate the PED of their product and take suitable action to make the product more profitable. If the product is found to have an elastic demand, the producer can lower prices to increase profitability. The law of demand states that a fall in price increases the demand. And since it is an elastic product (change in demand is higher than change in price), the demand of the product will increase highly. The producers get more profit. If the product is found to have an inelastic demand, the producer can raise prices to increase profitability. Since quantity demanded wouldn’t fall much as it is inelastic, the high prices will make way for higher revenue and thus higher profits.(electricity or water bottles) For example, calculate the price elasticity of demand of Coca-Cola from this diagram. PED= [(500-300/300)*100] / [(80-60/80)*100] Price Elasticity of Demand (PED) = 66.67 / 25 = 2.67 In this example, the PED is 2.67, that is, the % change in quantity demanded was higher than the % change in the price. This means, a change in price makes a higher change in quantity demanded. These products have a price elastic demand. Their values are always above 1. Price Elasticity of Demand (PED) When the % change in quantity demanded is lesser than the % change in price, it is said to have a price inelastic demand. Their values are always below 1. A change in price makes a smaller change in demand. Relationship between PED and revenue and how it is helpful to producers: Producers can calculate the PED of their product and take a suitable action to make the product more profitable. Revenue is the amount of money a producer/firm generates from sales, the total number of units sold *the price per unit. So, as the price or the quantity sold changes, those changes have a direct effect on revenue. If the product is found to have an elastic demand, the producer can lower prices to increase revenue. The law of demand states that a price fall increases the demand. And since it is an elastic product (change in demand is higher than change in price), the demand of the product will increase highly. The producers get more revenue. If the product is found to have an inelastic demand, the producer can raise prices to increase revenue. Since quantity demanded wouldn’t fall much as it is inelastic, the high prices will make way for higher revenue and thus higher profits. Relationship between PED and revenue and how it is helpful to producers:
