Pricing Strategies

1. Pricing Strategies

2. Introduction • Pricing = deciding what price to set for products and services • What is a price? • What the buyer is prepared to pay in exchange for a product or service • Price – often called something else; e.g. • Fee • Fare • Rent • Subscription

3. Price and the Marketing Mix • Price is a very important part of the marketing mix • Price directly influences profits by creating revenue rather than affecting costs • Price helps a business “differentiate” its product or service compared with other, similar products • E.g. High price = better quality? • E.g. Low price = better value / lower quality? • The price that is set must be consistent with everything else in the marketing mix • E.g. a high-priced product needs to have features/benefits that customers feel justify paying more

4. Price and Marketing Objectives • Main objective of setting the right price = generate the level of sales that meets the objectives of the business • Possible objectives that influence price-setting: • Maximising profits • Maintaining or increasing share of a market • Entering a new market and getting a product/service accepted by customers in the new market • Increasing sales volume (e.g. to make more efficient use of production)

5. Pricing Strategies

6. Activity • The Price is Right Game

7. Pricing to Enter a New Market? • Difficult to get pricing right when entering a new market • Market likely to have well-established competitors • Customers in the market already have perceptions about what the right prices are • How can a business attract attention to their product/service? • What kind of messages are sent to customers by asking for a low/medium/high price? • How will existing competitors in the market react? Will there be a “price war” • If first into market then Price Skimming may be the right strategy • If trying to enter and build share of a well-established market – then Penetration Pricing may be best

8. Pricing Strategy Activity • For following items suggest what pricing strategy might be effective: • Coca Cola (normal) • PSP Console • Daz Washing Powder • MP3 Player • New Porsche • Supermarket Clothing Range

9. Product Life Cycle and Pricing • The Product Life Cycle • Describes how sales of a product change over time • Various phases – introduction; growth; maturity; decline • Price needs to change depending on the stage of the product life cycle • E.g. launch phase • For a new market with few competitors. Then price can be high • E.g. growth phase • More competitors and higher sales volume; price likely to be lower

10. Loss Leaders • A product offered at a loss to entice customers to visit a shop or website. • The hope is that customers will either : • Purchase other products at the same time, • Or become longtime / loyal customers to make up for the loss. • Advantages • Loss leaders can be just a few products in a much wider range - but the customer has the impression that the whole range is great value • Good method of short-term pricing • Disadvantages • Customers come to expect low prices on these products