Pricing LAP 2Pricing LAP 2

Nature of PricingNature of Pricing

ObjectivesObjectives

Describe the pricing function.Describe the pricing function.

Explain the role of pricing in marketing.Explain the role of pricing in marketing.

Describe the pricing function.Describe the pricing function.

ObjectivObjectivee

• Jay & Paolo’s Jay & Paolo’s snowboardssnowboards

$400 vs. $80$400 vs. $80

Premium vs. off-brandPremium vs. off-brand

Winter vs. off-seasonWinter vs. off-season

Special order vs. local Special order vs. local storestore

• Pricing isn’t always a Pricing isn’t always a straightforward task for straightforward task for marketers.marketers.

• It is, however, a very It is, however, a very important one!important one!

PricingPricing

• A marketing function that involves A marketing function that involves the determination of an exchange the determination of an exchange price at which the buyer and seller price at which the buyer and seller perceive optimum value for a good perceive optimum value for a good or serviceor service

• Important for:Important for:

Customer satisfactionCustomer satisfaction

Continued success of the Continued success of the businessbusiness

• Determining an exchange price—Determining an exchange price—buyers and sellers agree buyers and sellers agree on value.on value.

• Perceiving optimum value—buyers Perceiving optimum value—buyers and sellers both feel they’re getting and sellers both feel they’re getting the best deal possible.the best deal possible.

PricingPricing

• Like a tug-of-war between buyers and sellersLike a tug-of-war between buyers and sellers

Buyers—want low pricesBuyers—want low prices

Sellers—want high pricesSellers—want high prices

• Trick = finding balance and satisfying both groupsTrick = finding balance and satisfying both groups

SellerSeller BuyerBuyer

Characteristics of Effective Characteristics of Effective PricingPricing

• RealisticRealistic

Not too lowNot too low

Not too highNot too high

• FlexibleFlexible

Decrease in bad economic Decrease in bad economic conditionsconditions

Increase in good economic Increase in good economic conditionsconditions

• CompetitiveCompetitive

Low Low priceprice

High High priceprice

$4.00$4.00 $1.00$1.00

Other Names for PricesOther Names for Prices

• InterestInterest

• Wages/SalaryWages/Salary

• FeesFees

• DuesDues

• FareFare

• AdmissionAdmission

• Service chargeService charge

• TuitionTuition

• RentRent

• Can you think Can you think of even more?of even more?

Who Sets Prices?Who Sets Prices?

• Small businesses—usually Small businesses—usually owner or managerowner or manager

• Large businesses—marketing Large businesses—marketing departmentdepartment

Factors Affecting PriceFactors Affecting Price

• CostsCosts

• Supply and demandSupply and demand

• Economic conditionsEconomic conditions

• CompetitionCompetition

• Government regulationsGovernment regulations

• Channel membersChannel members

• Company objectives and Company objectives and strategiesstrategies

Explain the role of pricingExplain the role of pricingin marketing.in marketing.

ObjectivObjectivee

Pricing and Product DecisionsPricing and Product Decisions• Product decisions involve determining Product decisions involve determining

what goods, services, or ideas to what goods, services, or ideas to produce or sell that will satisfy produce or sell that will satisfy customers’ needs and wants. customers’ needs and wants.

• Pricing affects product decisions in Pricing affects product decisions in the following ways:the following ways:

ResearchResearch Type of researchType of research

Length of researchLength of research

Amount of money spentAmount of money spent

Materials used in productionMaterials used in production

Profit decisionsProfit decisions Company must determine if there is a Company must determine if there is a

market for a product by asking:market for a product by asking: Can we make a profit by selling it?Can we make a profit by selling it?

Can we achieve the return on Can we achieve the return on investment we want?investment we want?

Can we set our prices high enough to Can we set our prices high enough to answer the first two questions with answer the first two questions with YES?YES?

Customer decisions—what type of Customer decisions—what type of customer does the company want to customer does the company want to attract?attract?

Company image—what type of image Company image—what type of image does the company want to project?does the company want to project?

Pricing and Promotion DecisionsPricing and Promotion Decisions

• Promotion involves the various Promotion involves the various types of communications that types of communications that marketers use to inform, persuade, marketers use to inform, persuade, or remind customers of their or remind customers of their products. products.

• Pricing affects promotion Pricing affects promotion decisions in the following ways:decisions in the following ways:

Choice of mediumChoice of medium

Amount of money spentAmount of money spent

Time allocated to promotionTime allocated to promotion

Pricing and Place DecisionsPricing and Place Decisions

• Place involves shipping, handling, and Place involves shipping, handling, and storing products and determining when storing products and determining when and where they will be available. and where they will be available.

• Pricing affects place decisions in the Pricing affects place decisions in the following ways:following ways:

Choice of transportation channelsChoice of transportation channels

Cost varies by method of transportation.Cost varies by method of transportation.

Time is also a factor.Time is also a factor.

Where the product is offeredWhere the product is offered

Pricing ObjectivesPricing Objectives

• Goals that marketers keep in Goals that marketers keep in mind when determining pricing mind when determining pricing strategiesstrategies

• May relate to:May relate to: ProfitabilityProfitability

Making as much profit as Making as much profit as possiblepossible

Covering costsCovering costs

SalesSales Selling as many units as Selling as many units as

possiblepossible

Gaining a certain market Gaining a certain market shareshare

CompetitionCompetition

Image/PrestigeImage/Prestige

• How much did you pay for your jeans?

What factors contributed to the final price?

Consider: Prices of competing brands Prices of competing stores How the jeans have been

promoted Their availability in your area The type of store at which

you purchased them

Discuss your thoughts with the class.

• Predatory pricing

The practice of setting prices very low to drive outthe competition

Illegal in many countries

• Some believe predatory pricing is a myth:

It is simply competition.

A business that sets prices too low would only hurt itself.

• What do you think?

Should predatory pricing be illegal?

Is it unethical?

MarkED

Acknowledgments

Original DevelopersChristopher C. Burke,

Sarah Bartlett Borich, MarkED

Version 1.0

Copyright © 2008MarkED Resource Center

Digital-based photography sources:

CORBIS CORP.Small BusinessObj. A: #037Photos copyright 1998 Corbis Corp.750 Second Street, Encinitas, CA 92024

EYEWIRE IMAGESMoney & FinanceObj. A: #MFI_061Photos copyright Eyewire Inc.833 Fourth Ave. SW, Suite 800 Calgary, AB, Canada

Copyright:

All photographic digital images on this CD are owned by the aforementioned photographic resources or their licensors and are protected by the United States copyright laws, international treaty provisions, and applicable laws. No title to or intellectual property rights to the images on this CD are transferred to you. These sources retain all rights and are not to be used, digitally copied, transferred, or manipulated in any way. To do so is a violation of federal copyright laws.