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BUS2010F - Lecture 13 (Tactics 3 - Price)

The document discusses pricing tactics in marketing, emphasizing the importance of price as a variable for positioning and decision-making. It outlines different pricing strategies, including cost-based, value-based, and competition-based pricing, along with their objectives and implications. Additionally, it covers specific tactics like market-skimming and market-penetration pricing, as well as product mix pricing strategies.

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11 views

BUS2010F - Lecture 13 (Tactics 3 - Price)

The document discusses pricing tactics in marketing, emphasizing the importance of price as a variable for positioning and decision-making. It outlines different pricing strategies, including cost-based, value-based, and competition-based pricing, along with their objectives and implications. Additionally, it covers specific tactics like market-skimming and market-penetration pricing, as well as product mix pricing strategies.

Uploaded by

khmaponya
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Marketing I

BUS2010F

Dr James Lappeman

Lecture 13
10 March 2024
Tactics 3 – Price
Text: Lappeman et al., (2021) Ch14, p221-235
Email: [email protected]
2024
Tactics

NEXT
What is a price?
Price refers to the amount of
money charged for a product
or service, or the sum of the
values that consumers What are some
exchange for the benefits of other things
having or using the product or (besides money) we
service. exchange for value?
Remember

Value = Benefit - Cost

There are many different costs involved in a decision


(opportunity cost, time cost, status cost etc..)
but price is the clearest
Who usually gets consulted
first about pricing?
What are the problems with the accounting
department figuring out pricing in isolation?
The clash?
Between the marketing department
(who try to use marketing principles)
And the finance department
(who prefer to use predetermined margins, stock turns etc)
And the production team
(whose performance is measured mechanistically)
And the retailer
(who wants to move stock and earn their own profits)
And the consumer
(Who chooses to buy it or not)
Think about the role of pricing in Marketing?

üFor some products, price is the most important variable


üPrice is crucial for positioning
üMajor factor in decision making.
üMost flexible marketing mix decision.
üProblem: too quick to drop prices
Parameters
- Price floor à product costs
- Price ceiling à consumer perceptions of value
- Usually charge a price between these two extremes.
Objectives of pricing?
• Gain profit
• Cover costs
• Build demand (price influences demand)
• Develop a user base (many software companies start at 0)
• Support a positioning strategy (premium?)
• Support a competitive strategy (dissuade new entrants?)
Pricing philosophy

• Cost based
• Value based
• Competitor based
Cost-based pricing

Cost + Markup % = Price

Remember that there are both fixed and variable costs


Cost-plus pricing: also called mark-up
pricing. Calculates the unit cost of a product Types of cost-
and adds a given mark-up percentage to
determine price.
based pricing

Break-even pricing: setting prices such that


you are able to break-even with your
predicted sales.

Target profit pricing: setting prices to reach a


specified profit goal given your predicted
sales.
But remember…

Consumers are not economic robots…


they are calculating based on their own
perceived VALUE
Value-based pricing

Value based pricing is based on customers


perception of the value a business offers with
their product or service.

Since perceptions are different for each


consumer, measuring exact value can be difficult.
Value vs Cost-based pricing

Value-based pricing involves offering just the right combination of


quality and good service at a fair price.
The power of
positioning and
brand building
What did Häagen-
Dazs realise?
(Diagnosis and
Strategy)
Price check
Competition based pricing

• Competition based pricing involves setting prices


based on competitors’ strategies, costs, prices,
and market offerings
• Consumers base their judgements of a product’s
value on the prices that competitors charge for
similar products
This strategy is often used in undifferentiated
product categories, or where gaps in pricing ranges
are identified as potential segments

For example, there is soap on supermarket shelves


at R5 and R15, so you set your price at R10

?
R5 R15
Competition based pricing

• Price leaders tend to set the bar for the rest of the
industry.
• They also set the standard for what is expected from
a business in that industry.
• Abundance of similar offerings leads to intense
competition.
• Here small price changes can give you a competitive
advantage
Competitive phenomena that impact on price

• Monopoly?
• Pure competition?
• Oligopoly?
• Number of competitors increasing?
• Number of substitute offers?
• Switching costs
Pricing new products
(2 generic strategies)
Market-skimming pricing

Setting a high price for a new product to skim


maximum revenues layer by layer from the
segments willing to pay the high price; the
firm makes fewer but more profitable sales.

Can you think of a product that skims the market?


Products high quality must support its
higher price & there must be enough
Market- people willing to purchase the product
skimming at its initial price.
pricing
Must be a sufficiently unique product
to ensure competitors cannot enter
and undercut.
Market-penetration pricing

Setting a low price for a new product in order to


attract a large number of buyers and a large
market share.

Can you think of a product that used price


to penetrate the market?
High sales volume à Lower per unit costs à ability to price cut even further.

Several conditions need to be met for


Market- success:
penetration • Price sensitive market
pricing • Production & distribution costs must fall
as volume increases
• Low price must keep out competition
Product mix pricing
(Some generic tactics)
Product Line Pricing:
Setting the price steps between various products in a
product line based on cost differences between product,
customers evaluations of different features and
competitors’ prices.
Optional Product Pricing

The pricing of optional or accessory products


along with a main product.

Low prices used to entice you à base model.


Captive Product Pricing

Setting a price for products that must be


used along with a main product.

Base product is cheap, then you’re hooked!

Can you think of some examples?


By-product Pricing:
Setting a price for by-products to make the
main product’s price more competitive.

If by-products have no value and getting rid of


them is costly, it affects the pricing of the main
product.

We try find a market for the by-products to get


any price that exceeds the cost of storage and
delivery.

E.g. Lumber mills, wine farms


Product bundle pricing:

Combining several products and offering the bundle at a


reduced price.

Price bundling promotes the sale of products that


customers may not otherwise buy.
Thank you
@JamesLappeman

James Lappeman

Email: [email protected]
BUS2010F

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