Contents
Introduction to Marketing
The Marketing Plan
Segmentation, Targeting, and Positioning
Consumer Behavior
The Four Ps
Product
Place
Promotion
Price
Market Research
Other Types of Marketing
Marketing Ethics
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Price
Equally important as product, place, and promotion is the price that a firm charges for its products or services.
Pricing Objectives
A firm’s pricing objectives directly affect its pricing policy. They include:
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Profit-oriented objective: May be either a target return objective or a profit maximization objective:
- Target return objective: Requires that a specific profit level (often stated as a percentage of sales) be attained
- Profit maximization objective: Aims to earn as much profit as possible and reap a quick return on investment
- Sales-oriented objective: Targets some predetermined unit sales level or market share
- Status quo objective: Essentially seeks to maintain current price levels, peg them to an index, or match them to a competitor’s action
Pricing Policy
A firm’s pricing policy is its strategy for setting prices.
- Single price policy: Charging the same price to all consumers (e.g., a penetration price policy, which means setting one low price to capture as much of the market as possible)
- Flexible price policy: Offering the same bundle of goods at different prices to different consumers
- Skimming price policy: Initially targeting the top tier of the market with high prices, then slowly lowering prices over time to meet the needs of other consumer groups
Analytical Pricing Tools
Marketers use analytical pricing tools to measure the relationship among price, consumer demand, and company profitability. These tools may include:
- Break-even analysis: Determines the relationship among volume, costs, and price. Break-even volume = fixed costs ÷ price-variable costs.
- Price elasticity of demand: Measures how demand for a product varies with changes in price. If demand changes significantly when price is changed, demand is elastic; if not, it is inelastic. PED = (% change in quantity demanded) ÷ (% change in price).
Discounts
Discounts are reductions from suggested list price. Common types of discounts include:
- Quantity (bulk) discounts: Entice larger purchases
- Seasonal discounts: Encourage purchases during buyers’ off-seasons
- Trade discounts: Provided to channel members for services rendered
Allowances
A firm may offer its customers and channel members
allowances in return for services rendered. Common types of allowances include:
- Trade-in allowances: Price reductions on new goods when they are exchanged for used ones
- Advertising allowances: Price reductions given to channel members to encourage them to promote the supplier’s brands
- Stocking (slotting) allowances: Gifts or cash given to middlemen in return for prime shelf space
- Push money allowances: Cash gifts offered to retailers to give their sales forces an incentive to push certain brands
Markups
A markup is expressed as either a dollar amount that a seller adds to a product’s cost or a percentage of the selling price that the seller adds to the product’s cost to get the current selling price. For example, if a retail store pays $10 for an item and sells it for $14, the markup is $4, or 40%.Markups are the most common way of setting prices in the distribution channel.
Pricing Tactics
A firm may follow one or more of a variety of general pricing tactics when pricing its products:
- Leader pricing: Setting very low prices on certain items to attract customers. These low-priced items are known as loss leaders.
- Bait pricing: Advertising certain items at a very low price with the intention of attracting consumers and then encouraging them to switch to higher-priced items once they are in the store. Bait pricing is unethical and even illegal, as it can leave a firm vulnerable to charges of false advertising or fraud.
- Odd-even pricing: Setting prices to end with a 5 or 9 (e.g., $1.95 or $21.99).
- Prestige pricing: Setting an artificially high price for a good or service to denote higher quality or prestige.
- Price lining: Setting several price levels for a product line and matching individual products to these preset price levels.
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