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Pricing

Pricing. Chapter 27 Blue book -Pricing Theories. What determines a price?. The cost of production The market conditions The competitor’s pricing Marketing objectives Price elasticity of demand Whether it’s a a new or existing product. Market based pricing.

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Pricing

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  1. Pricing Chapter 27 Blue book -Pricing Theories

  2. What determines a price? • The cost of production • The market conditions • The competitor’s pricing • Marketing objectives • Price elasticity of demand • Whether it’s a a new or existing product

  3. Market based pricing • Pricing strategies can be categorised into two broad categories • Penetration Pricing –setting prices low in order to achieve high sales –penetrate the market • Market Skimming –setting prices high for a new product to show it’s unique and differentiated, worth paying for.

  4. Other types of pricing strategies • Price discrimination –different prices for the same product • Loss Leader –product sold at a very low price to encourage consumers to buy other products • Psychological pricing –setting prices that take into account customer’s perception of value of the product • Promotional pricing –special low prices to gain market share –buy one get one free

  5. Prices are influence by Economics • Prices are determined by supply and demand • -If supply increases, then the price is likely to fall. If there are a lot of houses for sale, then the price will drop. • -If demand increases, then the price is likely to rise. If there are a lot of people wanting to buy houses compared to supply, the prices will rise.

  6. PED • Price elasticity of demand refers to the measure of responsiveness of demand following a change in price. • The formula for PED is percentage change in quality demanded/percentage change in price • If the price of a textbook increases by 10% and demand therefore falls by 30%, then the PED is • 30/10 = 3 –Demand is price elastic when the value is greater than 1

  7. Income elasticity • Measures the responsiveness of demand for a product following a change in consumer’s incomes. • Products such as DVDs and airline travel have positive income elasticity, as income rises, demand for these products increase. • Necessity goods have low income elasticity, the demand for petrol is generally consistent regardless of incomes • Luxury goods have high income elasticity • Income elasticity is measure by percentage change in demand divided by the percentage change in income.

  8. Cross Elasticity of Demand (XED) • Cross elasticity –measures the responsiveness of demand for a product following the change in the price of another product • Cross elasticity = percentage change in demand for product X/ percentage change in demand for product Y

  9. Advertising Elasticity • -Measures the responsiveness of demand for a product following a change in the advertising spent on it • Advertising elasticity = percentage change in demand for product/percentage change in advertising spent on product

  10. Activities • Do Activity 27.1 page 285 • Do Acitivity 27.2 page 286 • Work on assessment task –Identify pricing strategies used by your brand

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