Marketing
Chapter 10 – pricing strategies: understanding and capturing customer value
What is a price?
Price is the only thing in the marketing mix that produces revenue all other elements represent costs.
Price is also the most flexible marketing mix element (can be changed quickly).
Major pricing strategies
Three major pricing strategies:
1. Customer value-based pricing
Two types of value-based pricing:
1. Good-value pricing
Everyday low pricing,
charging a constant,
everyday low price with few
or no temporary discounts
High-low pricing, charging higher prices on a everyday basis but running frequent
promotions to lower prices temporarily on selected items
2. Value-added pricing
2. Cost-based pricing
Types of cost:
- Fixed costs (overhead)
- Variable costs
- Total costs
3. Competition-based pricing
Other internal and external considerations affecting price decisions
- Overall marketing strategy, objectives and mix
Pricing strategy is largely determined by decisions on market positioning. Price is only one of the
marketing mix tools, which a company uses to achieve its marketing objectives.
- Organisational considerations
Organizations must consider which department sets the prices.
- The market and demand
1. Pricing in different types of markets
Pure competition: the market consists of many buyers and sellers trading in a
uniform commodity, such as wheat, copper or financial securities.
Monopolistic competition: the market consists of many buyers and sellers who trade
over a range of prices rather than a single market price.
Oligopolistic competition: the market consists of a few sellers who are highly
sensitive to each other’s pricing and marketing strategies.
Pure monopoly: the market consists of one seller.
2. Analysing the price-demand relationship
With normal goods, demand and price are inversely related, that is, the higher the price,
the lower the demand.
3. Price elasticity of demand:
Buyers are less price sensitive when the product they are buying is unique or when it is
high in quality, prestige or exclusiveness and vice versa. If demand is elastic rather than
inelastic, sellers will consider lowering their prices.
- The economy
The most obvious response to the new economic realities is to cut prices and offer deep
discounts. Rather than cutting prices, many companies are instead shifting their marketing focus
to more affordable items in their product mixes.
- Other external factors
Resellers
Government
Social concerns
Chapter 10 – pricing strategies: understanding and capturing customer value
What is a price?
Price is the only thing in the marketing mix that produces revenue all other elements represent costs.
Price is also the most flexible marketing mix element (can be changed quickly).
Major pricing strategies
Three major pricing strategies:
1. Customer value-based pricing
Two types of value-based pricing:
1. Good-value pricing
Everyday low pricing,
charging a constant,
everyday low price with few
or no temporary discounts
High-low pricing, charging higher prices on a everyday basis but running frequent
promotions to lower prices temporarily on selected items
2. Value-added pricing
2. Cost-based pricing
Types of cost:
- Fixed costs (overhead)
- Variable costs
- Total costs
3. Competition-based pricing
Other internal and external considerations affecting price decisions
- Overall marketing strategy, objectives and mix
Pricing strategy is largely determined by decisions on market positioning. Price is only one of the
marketing mix tools, which a company uses to achieve its marketing objectives.
- Organisational considerations
Organizations must consider which department sets the prices.
- The market and demand
1. Pricing in different types of markets
Pure competition: the market consists of many buyers and sellers trading in a
uniform commodity, such as wheat, copper or financial securities.
Monopolistic competition: the market consists of many buyers and sellers who trade
over a range of prices rather than a single market price.
Oligopolistic competition: the market consists of a few sellers who are highly
sensitive to each other’s pricing and marketing strategies.
Pure monopoly: the market consists of one seller.
2. Analysing the price-demand relationship
With normal goods, demand and price are inversely related, that is, the higher the price,
the lower the demand.
3. Price elasticity of demand:
Buyers are less price sensitive when the product they are buying is unique or when it is
high in quality, prestige or exclusiveness and vice versa. If demand is elastic rather than
inelastic, sellers will consider lowering their prices.
- The economy
The most obvious response to the new economic realities is to cut prices and offer deep
discounts. Rather than cutting prices, many companies are instead shifting their marketing focus
to more affordable items in their product mixes.
- Other external factors
Resellers
Government
Social concerns
