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PRICING
TOPIC 6
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CHAPTERS OUTLINE
At the end of this topic, student will be able
to:
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S$'(!)!(A**+
The amount of money
charged for a product
or services.
Example : RM1.00 for
a pen.
$!('DEF!T"!
(-MM-N*+
The sum of values that
consumer exchanged
for the #enefits of
having or using aproduct or services.
DEFINITION OF PRICE
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A firm introducesits product to
new distributionchannel or
geographicalarea
A firmdevelops oracquires a
new product
A firm enters
bids on newcontract work
1 $ %
INTRODUCTION
Pricing is a problem when a firm has to set aprice for the first time. This happens when:
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Firm's has to consider many factors that willaffect the pricing decision:
PRICE DECISIONS
!TER!&' F&(T"R
• Mar)eting *trategy• +ricing "#,ective• Mar)eting Mix
*trategy• "rgani-ational
(onsiderations
ETER!&' F&(T"R
• Mar)et / Demand• (ompetitors
*trategy / +rice
• Economic (ondition• overnment /
*ocial (oncern
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INTERNAL FACTORS
AFFECTING PRICE DECISIONS
INTERNAL FACTORS
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efore setting the price! company must decideon its strategy for the product. "f the targetmarket and positioning has been selectedcarefully! then the overall marketing mi# strategy
including price will be fairly straightforward.
$#ample: %hen T&&TA introduced its ($)*+brand! the aim is to compete with $uropean
lu#ury,performance cars. +o! it-s require them tocharge at higher price level.
1. MARETING STRATEG!
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PRICING
O"#ECTI$ES
Sur%i%&l
M&'i(u(curren)pr*+i)
M&r,e)-&re
le&der-ip
Pr*duc)/u&li)0
le&der-ip
. PRICING O"#ECTI$S
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To keep plant operating inventories turningover! they will often cu) price-.
Profits are less important than survival. As longas prices cover variable costs and some fi#edcosts! the companies stay in business.
Survival
&ver
/apacity
"ntense
/ompetition
/hanging /onsumer
%ants
/ompanies pursues survival as their ma0or ob0ective if plagued with:
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1any companies try to set the price that willma#imi2e current profits.
They estimate the demand and costs associatedwith alternative prices and choose the price thatproduces (&'i(u( curren) pr*+i)! c&- +l*2!or r&)e *+ re)urn *n in%e-)(en).
Max. Current Profit
&ther 1arketing1i# 3ariables
(egal 4estraint&n Price
/ompetitor-s4eaction
These make the company ignore the effects of:
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+ome companies will set a price as low aspossible to become a market share leader.
They believe that company with largestmarket share will en0oy )e l*2e-) c*-) andige-) l*ng3run pr*+i).
ecoming a market share leader means:
A leader for a specific product category.
/ontinuous demand in long,term period.+ales volume is higher than competitors.
Market Share Leadership
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A company might aim to be the product,qualityleader in the market.
This normally calls for charging high price tocover iger per+*r(&nce /u&li)0 and igc*-) *+ R4D.
Product ‘Q’ Leadership
5ational! build high quality
washing machines and pricesthem at 41677 more thancompetitors- washing machines.+o! this makes 5ationalproducts are of better quality inthe eye of the customers.
'AM$*'
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Price is influenced by the other marketing mi# strategy:
PRODUCT5 Product factors such as features! design!quality! si2e! technical e#pertise! raw material etc.1any consumers use price as an indicator of product
quality. +o! the quality of product must suits with theprice suggests.
PROMOTION5 The firm-s decision on theirpromotional mi# strategy will also influence the
pricing decision. PLACE5 The distribution channel management such
as warehouse! transportation! distance ! resellermargin etc will influence the price decision.
. MARETING MI7 STRATEG!
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8. ORGANI9ATION CONSIDERATION
/ompanies handle pricing in a variety of ways. "n-(&ll c*(p&nie-! prices are often set by topmanagement rather than by marketing orsalespeople.
"n l&rge c*(p&nie-! pricing is typically handled bydivision and product,line managers.
"n indu-)ri&l (&r,e)! salespeople may allowed tonegotiate with customers within certain price range.
8ere! top management sets the general pricingob0ectives and policies and often approves the pricesproposed by lower levels management.
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E7TERNAL FACTORS
E7TERNAL FACTORS
AFFECTING PRICE DECISIONS
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1:&;. MARET
MARKET NATURE EFFECT ON PRICE EXAMPLE
PURE
COMPETITION
Many buyers &
sellers trading in
unifr!
"!!dity
Cannt si!#ly "$arge !re
r less be"ause buyers %ill
easily "an btain fr!
ant$er sellers
$eat' sugar
MONOPOLI(TI
C
COMPETITION
Many buyers &
sellers trade
)er a range f
#ri"e
A range f #ri"e ""urs
be"ause sellers "an
di*erentiate t$eir *ers t
buyers
Fd' drin+s'
beauty
OLI,OPOLI(TI
C
COMPETITION
Fe% sellers %$
$ig$ly sensiti)e
t ea"$ t$er-s
#ri"ing
Pri"e "$anges %ill "ause
"!#etitr t res#nd by
l%ering #ri"e r
in"reasing ser)i"es
Cars'
"!#uters
PURE
MONOPOL.
Cnsist f ne
seller
Pri"ing is $andled
di*erently in ea"$ "ase
TN/' A(TRO
PRICING IN DIFFERENT T!PE OF MARET 5
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1:
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. COMPETITOR>S STRATEG! 4 PRICE
The company also needs to benchmark its costsagainst its competitors- costs to learn whether it isoperating at a cost advantage or disadvantage. Firmswith larger si2e plant! having more facilities andequipment! e#perienced in the market surely will havecost advantage compare to other smaller firms. $#ample : T&&TA compare to P$4&9*A
The company also needs to learn the price! /u&li)0 *++er of the competitors. /onsumer will base their 0udgments of a product-s value on the price that
competitor-s charge for similar product. $#ample: A consumer who is thinking to buy /anon digital
camera evaluate price! quality and offer of comparable productsuch as odak! 5ikon! +ony etc.
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. ECONOMIC CONDITIONS
+everal economic factors will strongly affectthe company pricing decisions including: $conomic boom
$conomic recession
"nflation
"nterest rate etc
Those factors will affect on: The cost of production
/onsumer perception on product-s price and value /onsumer buying power
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8. GO$ERNMENT
All the price should be follows the rules andregulations imposed by the government.
%ill the government intervene and prevent this
price from being charged;
$#ample:
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?. SOCIAL CONCERN
"n setting price! company usually are not free
to charge whatever prices they wish. 1anyfederal! state and even local laws govern therules of fair play in price to protect thebusinesses and consumers.
Few illegal pricing strategy includes:
Price3+i'ing = sellers must set pricewithout talking to competitors.
Pred&)*r0 pricing = selling below cost toputting out competitors from the market.
Price di-cri(in&)i*n = ensuring seller willoffer same price to the customer.
Decep)i%e pricing = retailer purposely set
>high- regular price then announce >sale-SNM/!S"#/$M"%"&
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MARET3PENETRATION PRICING
4 MARET3SIMMING PRICING
NE@ PRODUCT PRICING STRATEG!
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MARET PENETRATION
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1arket penetration pricing usually use as new,product pricing strategies.
They -e) l*2 ini)i&l price to penetrate themarket quickly deeply ?attract large no of buyer
@ high volume. The high volume will results lowercost in return.
MARET PENETRATIONPRICING
The market is highly price sensitive
Production distribution costs fall with e#perience gained
(ow price discourages actual and potential competition
Followingcondition favor
setting a low price
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1any companies favor setting high prices to-,i(B the market.
$#ample: %hen +&5 first introduced their first89T3 to Bapanese market.
1arket skimming makes sense under thefollowing conditions:
A sufficient number of buyers have a high current demand.
The unit costs of producing a small volume are not so much higher
that they cancel the advantage of charging what the traffic will bear.
The high initial price does not attract more competitors.
The high price communicated the image of superior product.
MARET SIMMING PRICING
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