What Is Price?

Definition:
“The amount of money charged for a product or
service. More broadly price is the sum of the
values that consumers exchange for the
benefits of having or using the product or
service.”
Value
Price
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The consumer
perception of tangible
and intangible benefits
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Factors To Consider When Setting
Price
Customer
perception
of value
Price ceiling
No demand above
this price
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Other internal and
external consideration
____________
Marketing strategy,
objectives and mix
Nature of the market and
demand
Competitors’ strategies
and price
Product
cost
Price floor
No profits below this
price
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General Pricing
Approaches
Buyer-Based
pricing
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Cost-Based
Pricing
Value-Based
Pricing
Cost-Plus
Pricing
Competition-Based
Pricing
Breakeven Analysis
And
Target Profit Pricing
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General Pricing Approaches

Buyer-Based pricing - Value-Based Pricing:
 Uses buyers’ perceptions of value rather than seller’s costs
to set price.
 Measuring perceived value can be difficult.
 Good-Value Pricing: offering just the right combination of
quality and good service at a fair price
○ Introducing less-expensive versions (value menus)
○ Redesigning existing brands for less price (more quality for
the same, or the same quality for less)
 Value-Added Pricing: attaching value-added features and
services to differentiate a marketing offer and support
higher price, rather than cutting price to match
competitions.
o Shifting the focus from price to value
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General Pricing Approaches

Buyer-Based pricing - Competition-Based Pricing:
 Going-rate pricing: is setting the price based largely
on following competitors’ price rather then on company
cost or demand.
○ May price at the same level, above, or below the
competition (different fast-food chains)
 Sealed-Bid Pricing: setting price based on how the
firm thinks competitors will price rather than on its own
cost or demand
○ Used when company bids for jobs.
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General Pricing Approaches

Cost-Based Pricing: Cost-Plus Pricing
Adding standard MARKUP to the cost of the product
Markup pricing:
Calculating all the costs associated with a product and then determining a
markup percentage to cover the costs and expected profits.
Example:
Variable costs: $20
Fixed costs: $ 500,000
Expected sales: 100,000 units Desired Sales Markup: 20%
Variable Cost + Fixed Costs/Unit Sales = Unit Cost
$20 + $500,000/100,000 = $25 per unit
Unit Cost/(1 – Desired Return on Sales) = Markup Price
$25 / (1 - .20) = $31.25
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Supply Chains And The Value
Delivery Network
Supply chain
Upstream
Downstream
The set of firms that supply the raw
materials, components, parts,
information, finance, and expertise
needed to create a product or service
Marketing channels or distribution
channels, such as wholesalers and
retailers who form a vital connection
between the firm and its customers
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Supply Chains And The Value
Delivery Network
Supply chain
(Make-andsell)
Demand
chain
(Sense-andrespond)
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Planning starts with
the needs of target
customer to which the
company responds by
organizing a chain of
resources and
activities with the goal
of creating customer
value
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Supply Chains And The Value
Delivery Network

Value Delivery Network
 The network made up of the company,
suppliers, distributors, and ultimately customers
who “partner” with each other to improve the
performance of the entire system.

Marketing channel (distribution channel)
 Set of interdependent organizations involved in
the process of making a product or service
available for use or consumption by the
consumer or business user
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Nature & Importance of Marketing
Channels

Channel choices affect other
decisions in the marketing mix
 Pricing, Marketing communications,
new products…etc

A strong distribution system can
be a competitive advantage

Channel decisions involve longterm commitments to other
firms
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Nature & Importance of
Marketing Channels
1
1
2
4
3
2
4
5
5
6
7
3
8
6
9
A. Number of contacts without a distributor
= Manufacturer
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B. Number of contacts with a distributor
= Customer
= Distributor
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Nature & Importance of
Marketing Channels

How Channel Members Add Value
 Intermediaries require fewer contacts to move
the product to the final purchaser.
 Intermediaries help match product assortment
demand with supply.
 Intermediaries help bridge major time, place,
and possession gaps that separate products
from those who would use them.
So this system is even more economic
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Nature & Importance of
Marketing Channels
Consumer and business marketing channel levels
producer
producer
producer
producer
producer
Manufacture
r’s
representati
ves or sales
branch
wholesaler
Retailer
Retailer
Consumer
Consumer
Consumer
Channel 1
Channel 2
Channel 3
A. Customer marketing channels
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producer
Business
distributor
Business
distributor
Business
Consumer
Business
Consumer
Business
Consumer
Channel 1
Channel 2
Channel 3
B. Business marketing channels
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Nature & Importance of Marketing
Channels

Number of Channel Levels
“A layer of intermediaries that performs some work in bringing
the product and its ownership closer to the final buyer”
 The number of intermediary levels indicates the
length of a marketing channel.
○ Direct Channels: a marketing channel that has no
intermediary.
○ Indirect Channels: channel containing one or more
intermediary levels.
 Producers lose more control and face greater channel
complexity as additional channel levels are added.
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The Promotion Mix
Personal
selling
Advertising
Any paid form of
nonpersonal
presentation and
promotion of ideas,
goods, or services
by an identified
sponsor
Personal
presentation by the
firm’s sales force
for the purpose of
making sales and
building customer
relationship
Direct marketing
Direct connection with
carefully targeted
individual consumers to
both obtain an immediate
response and cultivate
lasting customer
relationship- the use of
telephone, mail, fax, the
internet, and other tools
to communicate directly
with specific consumers
Public relations
Sales
promotion
Short-term
incentives to
encourage the
purchase or sales
of a product or
service
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Building good relations
with the company's
various public by
obtaining favorable
publicity, building up a
good corporate image,
and handling or heading
off unfavorable rumors,
stories, and events
Promotion Mix
(Marketing
Communications
Mix)
The specific mix of
advertising, personal
selling, sales promotion,
public relations, and direct
marketing tools that a
company uses to
persuasively communicate
customer value and build
customer relationship
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Integrated Marketing
Communications

The Marketing Communications Environment is
Changing: (landscape and communication model)
 Mass markets have fragmented, causing marketers to
shift away from mass marketing to target marketing
 Improvements in information technology are
facilitating segmentation
 Media fragmentation has occurred with companies
doing less broadcasting and more narrowcasting
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Integrated Marketing
Communications

The Need for Integrated Marketing
Communications
 Conflicting messages from different sources or
promotional approaches can confuse company
or brand images
○ The problem is particularly prevalent when
functional specialists handle individual forms of
marketing communications independently
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Integrated Marketing
Communications

Integrated Marketing Communications
 The concept under which a company
carefully integrates and coordinates its many
communications channels to deliver a clear,
consistent, and compelling message about
the organization and its products.
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Shaping The Overall Promotion
Mix
How does the company determine what
mix of promotion tools it will use ?
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Shaping The Overall Promotion
Mix

The nature of each promotion tool
Advertisin
g
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Can reach masses of
geographically dispersed
at a low cost per exposure
(for companies that want
to reach a mass audience,
TV is the place to be)
Personal
Selling
The most effective tool at
certain stages of the
buying process,
particularly in building up
buyers preference,
conviction, and action
Large-scale advertising
says something positive
about the seller’s size,
popularity, and success
Allows all kinds of
customer relationship to
spring up
Advertising is impersonal
and cannot be as directly
persuasive as can
company salespeople
The buyer usually feels a
greater need to listen and
respond, even if the
respond is a polite “No
thank you”
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Shaping The Overall Promotion
Mix

The nature of each promotion tool
Sales
Promotion
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Attract consumer
attention, offer strong
incentive to purchase
Public
Relation
Very believable
Invite and reward quick
response –where
advertising says, “buy our
product” sales promotion
says, “buy it now”
Reach many prospects
who avoid salespeople and
advertisements
Its effects are often short –
lived. Not effective as
advertising or personal
selling in building long –
run brand preference and
customer relationship
As with advertising, public
relation can dramatize a
company or product
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Shaping The Overall Promotion
Mix

The nature of each promotion tool
Direct
Marketing
Nonpublic: the message is
normally directed to a
specific person
Immediate and
customized: message can
be prepared very quickly
and can be tailored to
appeal to specific
consumers
Interactive: it allows a
dialogue between the
marketing team and the
consumer
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