Price

- The value placed on a product by business expressed in terms of

money that consumers must pay in order to obtain a good or service

Pricing process

Consequence of bad price

1. Making a loss of the price below cost

2. Feeling to meet sales targets if price is too high
3. Encouraging competitors to join the market niche if the price is set a
level that is very high profits
4. Failing to achieve a balanced and integrated marketing mix if the price
is set with no attempt to link the other P’s of product , place and
promotion

Importance

1. Profitability – maximization of profit

2. Volume – increase sales volume
3. Meeting competition – to ensure u don’t get under cut
4. Social and ethical considerations – medicine

Factors influencing pricing decisions

1. Costs - The company wants to charge a price that both covers all its
cost for producing, distributing, and selling its product and delivers a
fair rate of return for its effort and risk

2. Marketing objectives -If a company sets survival as their major

objective because of heavy competition then to keep the project going
they may set a low price hoping to increase demand

3. Income - Consumers will make a decision to buy a product based on

their purchasing power,

4. Consumer preferences - Consumers often attach a value in their minds

to a product. This is what they think is its real worth.

5. Demand - the ability and willingness of a consumer to purchase a

particular product at a particular price at a particular time.
Business objectives

Other objectives

Cash flow – recover cash as fast as possible especially with products with
short life cycles

Internal and external analysis

Internal

 Cost (fixed and variable)

 Production capacity
 Objectives
 Other marketing mix components

External

 Competitors prices
 Price
 Elasticity of demand
 Consumers income
 Consumer perception of the product
 The state of the national economy

Pricing strategies

0- The process and methodologies firms use to set prices for goods and
services

1. Marke skimming- high pricing at low volumes , suitable for products

that short life cycles or will face competition in the future (PS5, jewelry,
GPU, Games )

Advantage Disadvantage
High price gives the perception of Low sales volume as prices are
high-quality product. high.
Generates a high profit margin Early purchasers of product at
for the company high price may feel that they are
cheated when price falls and so
may be reluctant to make
repeated purchases of the
product.
Can quickly recover their The firm does not benefit from
considerable investments in economies of scale as high price
research and development. leads to low demand.
 It allows the firm to capture a
range of buyers as once it has
satisfied the first group of buyers
(early adopters) at the high price
the seller can lower the price to
make sales to new groups of
customers. This shaving of prices
can continue until the firm has
catered to a large section of the
total market.
\

2. Penetration pricing – pricing at low price to secure a high volume

market (everyday items- bottled water pricing)

Advantage Disadvantage
The firm can benefit from Consumers may switch to other
economies of scale which will competitors as soon as the firm
result in per unit cost of starts to increase its price.
production
Can quickly build up market A low price may give the
share and become a market perception of a poor-quality
leader product
Brand loyalty is built up by Initial low price means firm
creating mass demand for the experience low revenues in the
product sold at a lower price. early stages in the market

3. Cost-plus pricing – ensuring that every produce sold gives back profit
(COP + mark up)

Advantage Disadvantage
Calculation of price is simple Firms might price their products
too high, so they become
uncompetitive or too low so
potential revenue is sacrificed
Quick calculation enables rapid It does not take customer
quotation demand into consideration as
some firms are of the belief that
profits are guaranteed since the
strategy is based on cost. The
focus is product or producer led
rather than on customer
requirements
Profit margins are predictable so Ignores competitors and their
 facilitates better planning actions eg lower price of the
competitor product so the firm
may be uncompetitive.
Ignores the impact of price
elasticity of demand or changing
market conditions such as
recession.

4. Destroyer/Predatory pricing – deliberate price cutting or offer of free

gits/products to force rivals(normally smaller) out of business or
prevent new entrants

5. Going rate price (competitor pricing -pricing that follows the pricing of
rivals especially where those rivals have clear dominance of market
share (interest rates)

Advantage Disadvantage
Almost essential for firms with A price based solely on
little market power eg price competitor’s price might risk the
takers. firm selling at a loss as it may not
cover all of the costs of
production
Flexible to market and May have to vary price frequently
competitive condition due to changing market and
competitive conditions.
Can be designed to win market Basing price solely on
share and sales. For eg pricing competitor’s price could
below competitor adversely affect the business in
the long run if the firm does not
also consider competing in
quality and adding value to
customers.
Low risk pricing strategy since
your competitors are well known
players in the market and have
been around for quite some time.
The chances are slim that your
pricing strategy might go wrong if
you base it according to them.
6. Value pricing – price set in accordance with customers perceptions
about the value of the product/service (art pieces)

7. Psychological pricing – pricing that is used to play on consumer

perceptions ($9.99 to 10)

8. Contribution pricing – prices set to ensure coverage of variable costs

and a contribution to the fixed costs /overhead (used to ensure every
product dolde gives back contribution towards operating costs)

Advantage Disadvantage