PRICING

Questions to answer1. What is the price you pay for your apartment?-rent2. What is the price you pay for your education?-tuition3. What is the price you pay to your doctor or

dentist?-a fee4. What is the price you pay to the airline, taxi and

bus companies?-a fare5. What is the price you pay for the local services?-a rate

Questions to answer6.What is the price you pay for the money you borrow?-charges and interest7. What is the price you pay for driving your car on a

motorway?-a toll . What is the price you pay to the company that insures

you?-premium9. What is the price you pay to the guest speaker?-an honorarium10. What is the price paid to the government official to

help some character steal?

Questions to answer

8-a bribe11. What is the price collected by the trade union?-dues12. What is the price you pay to your regular lawyer to

cover his/her services?-a retainer13. What is the price of an executive?-a salary14. What is the price of a salesperson?-a commission15. What is the price of a worker?-a wage

The role and perception of price

Price is the value that is placed on something.

Price is any common currency of value to both buyer and seller.

Price directly generates the revenues, serves as a communicator, a bargaining tool and a competitive weapon.

The customer’s perspective

Price represents the value they attach

to whatever is being exchanged.

In assessing price, the customer is

looking specifically at the expected

benefits of the products:

Personal

Financial Operational

Quality

Functional

Priceassessment

The seller’s perspective

Profit = Total revenue – Total cost

Total revenue = Quantity sold *

Unit price

Total cost = Production cost +

Marketing cost + Selling

cost

Psychological effects of price

Low price = negative statement about the product’s quality.

A sudden reduction in price of an established product = quality has been compromised.

High price might actually attract customers.

External influences on pricing

1. Customers and consumers

2. Demand and price elasticity

3. Channels of distribution

4. Competitors

5. Legal and regulatory framework

External influences on pricing

1. Customers and consumers

The bigger the area, the more discretion the marketer has in setting price.

What the market will tolerate

COSTS

External influences on pricing

2. Demand and price elasticity Demand determinants

Changing consumer taste and needs Recession Competitors’ products and price

Price elasticity of demand Sales respond to price variations: elastic. Sales stable after price change: inelastic.

External influences on pricing

3. Channels of distribution

External influences on pricing

4. Competitors: Monopoly: only 1 supplier - rare Oligopoly: a small number of powerful

providers dominate the market. Monopolistic competition: competitors,

each with differentiated product. Perfect competition: competitors, each

with products undistinguishable - rare

External influences on pricing

5. Legal and regulatory framework: Watchdog bodies

Internal influences on pricing

1. Organisational objectives

2. Marketing objectives

3. Costs

Internal influences on pricing

1. Organisational objectives Corporate strategy: target volume

sales, target value sales, target growth, target profit figures

Market leader or niche New entrant or established Can be both short-term and long-term

Internal influences on pricing

2. Marketing objectives Focus on specific target markets and

the position desired with them. Depends on product’s life cycle:

Intro. stage: lower price - invite trial Growth & early maturity: raise price Late maturity & decline: price reduction

Internal influences on pricing

3. Costs Total costs include:

Operating and Servicing costs

A product’s selling price generally represents: Its total cost (unit cost plus overheads), & Profit or “risk reward”

The process of price setting

Demandassessment

Pricing objectives

Pricing policies & strategies

Setting theprice range

Pricing tactics& adjustments

1. Pricing objectives

Financial objectives: short/long-term Sales and marketing objectives

Market share and positioning Volume sales Status quo: preserve the status quo –

happy with current situation Price war (undercutting), price matching,

improve product / service / communication

Survival

2. Demand assessment

Marketers need to assess demand

levels for a product at any given price.

This involves a great deal of

managerial skills as there are many

variables.

3. Pricing policies and strategies New product pricing strategies

Price skimming: high price, then lower Penetration pricing: low price, then high up

Product mix pricing strategies: A product range starts with basic products,

then price steps up with additional features Managing price changes:

Price are not static because of competitive pressure, Cost inflation, new opportunities

4. Setting the price range The cost-volume-profit relationship

Fixed costs Variable costs Marginal costs Total costs

Setting the price range Cost-based method Demand-based method Competition-based method

The cost-volume-profit relationship

Fixed costs: do not vary with output in the short term (salaries, rent, etc.)

Variable costs: vary according to the quantity produced (raw materials, etc.)

Marginal costs: change that occurs to total cost if 1 more unit is added

Total costs: all the cost incurred Breakeven analysis: the point at which

total revenue = total cost

A. Cost-based methods

Mark-up price = costs + profit (giá cộng lời vào vốn)

Cost-plus pricing = costs + fix % (định giá có lãi)

Experience curve pricing (định giá theo đường cong kinh nghiệm)

B. Demand-based pricing

When demand is strong, the price goes up; when it is weak, the price goes down.

Need a good understanding of the nature and elasticity of demand.

Psychological pricing: customer-based Rely on the consumer’s emotive responses,

subjective assessments and feelings. Applicable to higher involvement products.

C. Competition-based pricing

Depends on: The structure of the market The product’s perceived value in the market

Can be: Cost-leader with price-oriented approach Price-follower bases on the going-rate for

the product

5. Pricing tactics and adjustments

Price can vary to reflect specific customer needs, the market position.

Marketers should set up a framework for pricing discretion.

Special adjustments can be made for short-term promotional purposes

Discounts, allowances, trade-in Zoned pricing: single, multiple zones

Thank you very much!!!