1 / 18

Pricing

Pricing. Marketing I Mr. Yates. Pricing?. There are many ways to price a product. By looking at all the variables you can determine the best policy / strategy in various situations. . “Markup”.

neola
Download Presentation

Pricing

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Pricing Marketing I Mr. Yates

  2. Pricing? • There are many ways to price a product. • By looking at all the variables you can determine the best policy / strategy in various situations.

  3. “Markup” • Markup is a term used in marketing to indicate how much the price of a product is above the cost of producing and distributing the product. • It can be expressed as a fixed amount or as a percentage.

  4. Markup Example • Let's look at an example: • Initial Retail is $1.99 • Cost is $1.40 • Difference = $0.59 • Thus the Initial Markup is ($0.59/$1.40) x 100% = 42.14% • The Profit Margin is the profit relative to the sales price = ($0.59/$1.99) x 100% = 29.65%

  5. The Pricing Matrix

  6. Pricing Objectives I • Current profit maximization - seeks to maximize current profit, taking into account revenue and costs. • Current profit maximization may not be the best objective if it results in lower long-term profits. • Current revenue maximization - seeks to maximize current revenue with no regard to profit margins. • The underlying objective often is to maximize long-term profits by increasing market share and lowering costs. • Maximize quantity - seeks to maximize the number of units sold or the number of customers served in order to decrease long-term costs as predicted by the experience curve.

  7. Pricing Objectives II • Maximize profit margin - attempts to maximize the unit profit margin, recognizing that quantities will be low. • Quality leadership - use price to signal high quality in an attempt to position the product as the quality leader. • Partial cost recovery - an organization that has other revenue sources may seek only partial cost recovery.

  8. Pricing Objectives III • Survival - in situations such as market decline and overcapacity, the goal may be to select a price that will cover costs and permit the firm to remain in the market. • In this case, survival may take a priority over profits, so this objective is considered temporary. • Status quo - the firm may seek price stabilization in order to avoid price wars and maintain a moderate but stable level of profit.

  9. Premium Pricing • Use a high price where there is a uniqueness about the product or service. • This approach is used where a a substantial competitive advantage exists. • Such high prices are charge for luxuries such as Luxury Cruises, top of the line hotel rooms, and First Class flights.

  10. Penetration Pricing • The price charged for products and services is set artificially low in order to gain market share. • Once this is achieved, the price is increased. • This approach was used by …

  11. Economy Pricing • This is a no frills low price. • The cost of marketing and manufacture are kept at a minimum. • Supermarkets often have economy brands for soups, spaghetti, etc.

  12. Price Skimming • Charge a high price because you have a substantial competitive advantage. • However, the advantage is not sustainable. • The high price tends to attract new competitors into the market, and the price inevitably falls due to increased supply. • Once other manufacturers were tempted into the market and the watches were produced at a lower unit cost, other marketing strategies and pricing approaches are implemented.

  13. Price Skimming (more detail) • Price skimming is a pricing strategy in which a marketer sets a relatively high price for a product or service at first, then lowers the price over time. • Price skimming is sometimes referred to as riding down the demand curve.

  14. Psychological Pricing • This approach is used when the marketer wants the consumer to respond on an emotional, rather than rational basis. • For example 'price point perspective' 99 cents not one dollar.

  15. Product Bundling • Here sellers combine several products in the same package. • This also serves to move old stock. Videos and CDs are often sold using the bundle approach.

  16. Promotional Pricing • Pricing to promote a product is a very common application. • There are many examples of promotional pricing including approaches such as BOGOF (Buy One Get One Free).

  17. “Cost Plus” Pricing • There are several varieties, but the common thread in all of them is • cost of the product, + additional amount to represent profit. • Cost-plus pricing is often used on government contracts, and has been criticized as promoting wasteful expenditures.

  18. Cost Plus Calculation • Price of a product or service is determined by using: • direct costs, • indirect costs, • and fixed costs (whether related to the production and sale of the product or service or not). • These costs are converted to per unit costs for the product and then a predetermined percentage of these costs is added to provide a profit margin.

More Related