Pricing

• Price: - is the amount of money charged for a product or service. - is the sum of all the values that consumers exchange for the benefits of having or using the product / service. - has been the factor affecting buyer- choice.

- is the only element in the marketing mix that produces revenue ( all other elements represent costs ).

- is one of the most flexible elements of the marketing mix.

- Pricing and price competition is the number –one problem facing many marketing executives.

- The most common mistakes are pricing that is too cost-oriented rather than customer value-oriented.

Factors to Consider when Setting Prices

• Internal Factors :

- Marketing Objectives:

Survival, Current Profit Maximization,

market share leadership, product quality

leadership.

- Marketing Mix Strategy

Survival as the major objective if :

- They are troubled by too much capacity:

to keep plant going, a company set a low price, hoping to increase demand.Profits are less important than survival.Survival is a short term objective.

- Heavy competition

- Changing consumer wants.

Current Profit Maximization :

They estimate what demand and cost will be at different prices and choose the price that will produce the maximum current profit, cash flow or return on investment.

Market share leadership :

The company with the largest market share will enjoy the lowest cost and highest long-run profit. To become the market share leader, these firms set prices as low as possible.

Product Quality Leadership :

This normally calls for charging a high price to cover higher performance quality and the high cost of R7D. E.g : Hewlett-Packard vs Acer.

Marketing Mix Strategy :- Producers using many resellers who are to

support and promote their products may have to build larger resellers margins into their prices.

- Decision to position the product on high performance quality means that the seller must charge a higher price to cover higher cost.

• External Factors : Market and demand : - Pure competition : many buyers and sellers. - Oligopolistic competition : few sellers who are sensitive to each other’s pricing: Telkom, XL, - Pure monopoly : market consist of 1 seller : PLN, PAM.

• External factors :

• Competitors’ cost, prices and offers

• Economic conditions : boom, recession, inflation, interest rates.

General Pricing Approaches

• Cost -based Pricing

- cost plus pricing

- Break-even Analysis

• Value- based Pricing

• Competition – based Pricing