Chapter 32: Using the Marketing Mix

1. Chapter 32: Using the Marketing Mix Pricing

2. Pricing Strategies • Price Skimming – high price is set to yield a high profit margin, usually during the introduction of a product • Penetration Pricing – low prices are set to break into a market or to achieve rapid growth in market share • Price Leadership and Price Taking – in price leadership a large company (the price leader) sets a market price that smaller firms (price takers) tend to follow) • Predator (or destroyer) Pricing – when a firm sets very low prices in order to drive other firms out of the market

3. Pricing Tactics • A pricing approach or technique used in the short term to achieve specific objectives • Loss Leaders – setting low prices for certain products in order to encourage consumers to buy other, fully priced products • Psychological Pricing – intended to give the impression of value (ie: £9.99 instead of £10)

4. Influences on the pricing decision • Costs of Production (in cost-plus pricing, a mark-up percentage is added to the average cost of producing a product) • Price Elasticity of Demand – the responsiveness of a change in the quantity demanded to a change in price Price elasticity = % change in quantity demanded of Demand % change in price Elastic Demand– greater than 1 Inelastic Demand – less than 1 IGNORE THE MINUS SIGN

5. Factors influencing price elasticity of demand • Necessity • Habit • Availability of Substitutes • Brand Loyalty • Proportion of Income spent on a product • Income of consumers

6. Difficulties in calculating and using price elasticity of demand • Price elasticity of demand calculations assume that ‘other things remain equal’ while price changes . . . In practice, this does not happen • There may have been significant changes in the market, affecting the level of demand independently of price • Competitors’ reactions • Consumers’ reactions • Market research