Other factors affecting pricing

…continued

2. Marketing Boards• Organizations designed to help market or sell

commodities– Advertise– Provide marketing info– Conduct research– Charge a fee to all producers

Example:

• Often set the price of commodities

• Sometimes set the quantity• Quota: Legal amount of a

commodity that one producer can make– Quota can be bought and sold

3. Product Positioning

• Premium Pricing: High-pricing strategy used to position a product as a luxury

Example:

• Discount Pricing: Reduced price from what a customer would expect to pay

Example:

4. Consumer Demand

• Price Elasticity: How much can a price be increased before customers stop buying

Elastic Customers will pay

higher prices

Inelastic Customers will NOT pay

higher prices

5. Competition

• Forces sellers of similar products to remain close in pricing

Example:

Pricing Strategies

Pricing Strategy: A plan developed by a business to make sure its product prices meet marketing objectives

3 main strategies…

1. Market Skimming

Market Skimming: Setting an initially high price before competitors enter the market. Then lowering the price as competition increases or new technology emerges.

Example

Advantages• Business tries to recoup its R&D costs

before competitors copy (break even sooner)

• Can limit demand until production catches up

Disadvantage• Competitors can undercut price, don’t have

the same R&D costs

More examples of Market SkimmingFirst Battery-Powered Calculator (1970)

$1,200$5,800 today

First VCR (1972)

$5,000$22,600 today

First portable radio (1937)

$350$4,600 today

2. Penetration Pricing

Penetration Pricing: Setting an initially low price to attract customers

• Usually happens when VC are low and R&D costs (FC) are high

• Taken to the extreme, it becomes predatory pricing

Advantages• Keep competitors out• High sales volume• Economies of scale

Disadvantage• Need to sell huge volume to hit break-even

point

3. Competitive Pricing

Competitive Pricing: Closely following the prices of competitors. Typically, pricing follows the market leader who sets a benchmark price

Example

3. Competitive Pricing

• Because price is not a major competitive advantage, the battle for market share is fought with advertising, promotion, distribution, & unique product features

• Some retailers have a competitive price police – they advertise that they will not be undersold and that they will match or beat any advertised price offered by their competitors– The onus is on the consumer to prove that there is a

price difference

Advantage• Will not be undersold by competition

Disadvantage• Cannot use price to position your products

Homework

• List 5 items you buy regularly and the price you normally pay– At what price would you be willing to buy more

of the product?– At what price would you buy less?

• List the three main pricing strategies, and explain when a marketer would use each