Marketing Mix | Pricing in Four P's | Cleverism

1. Develop Marketing Strategy · 2. Make Marketing Mix Decisions · 3. Estimate Demand Curve · 4. Calculate Costs · 5. Assess Environment · 6. Set Pricing Objectives. c l e v e r i s m c l e v e r i s m MENU Login SignUp Jobs Jobs Searchthrough2millionopenpositions. Explore Astructuredsearchthroughmillionsofjobs. JobInterviewTraining Skyrocketyourresume,interviewperformance,andsalarynegotiationskills. Findmynextjob Resume ResumeTemplates Chooseresumetemplateandcreateyourresume. ResumeExamples Resumeexamplesfor200+jobtitles. CoverLetterTemplates Choosecoverlettertemplateandwriteyourcoverletter. Createmyresumenow Learn Courses Onlinecoursesthat’llgetyouresults. Resources Onlineresourcestoadvanceyourcareerandbusiness. Blog Business Marketing,Sales,Product,Finance,andmore. Career Resume,Interview,JobSearch,SalaryNegotiations,andmore. Personaldevelopment Productivity,Mindfulness,Health,andmore. MarketingMix|PricinginFourP’s byMartinLuenendonk LastupdatedonSeptember18,2019 byMartinLuenendonk LastupdatedonSeptember18,2019 Addtofavorites Featuredin: Afterproduct,pricingplaysakeyroleinthemarketingmix.Thereasonforthisimportanceisthatwheretherestoftheelementsofthemarketingmixarecostgenerators,priceisasourceofincomeandprofits.Throughpricing,theorganizationmanagestosupportthecostofproduction,thecostofdistribution,andthecostofpromotion. Simplistically,priceisthevaluemeasuredinmoneyterminthepartofthetransactionbetweentwopartieswherethebuyerhastogivesomethingup(theprice)togainsomethingofferedbytheotherpartyortheseller.Pricingisacomplicatedelement,whichneedstoreflectsupplyanddemand,theactualvalueoftheobject,andtheperceivedvalueofitinthemindoftheconsumer.Apricethatdoesnotreflectthesefactorsandiseithertoohighortoolowwillleadtounsuccessfulsales.Thisiswhyanorganization’spricingwillchangeaccordingtocircumstancesandtime. ©EntrepreneurialInsights Inthisarticle,welookat1)whyispricingimportant,2)pricingobjectives,3)typesofpricingstrategies,4)howtoprice,and5)pricingissues. WHYISPRICINGIMPORTANT? Thereisoftenatendencyformarketerstofocusmoreonactivitieslikepromotion,productdevelopment,andmarketresearchwhileprioritizingtheirresponsibilities.Theseareoftenperceivedasthemoreinterestingaspectsoftheproductandmarketingmix.However,pricingneedstobegivenitsdueattentionsinceithasgreatimpactontherestoftheactivitiesandthecompany.Pricingisofvitalimportancebecauseofthefollowingreasons. PricingasaFlexibleVariable Pricingchangescanbemadequicklyandwithalmostnoleadtimeifthebusinessneedstomakesomeproductpositioningchangesortocounteracompetitor’sactivities.Incomparison,achangetotheproductortoadistributionchannelcantakemonthsandsometimessignificantcostinputs.Similarlyanypromotiondecisionswillalsorequireadditionalfinancialinput.Thoughitisimportanttoplanforpricingchangesandtheirimpactonthebrandandproductperception,thiscanstillbeaccomplishedmuchfasterthananyotherchanges. DefinetheRightPricing Anypricingdecisionsforaproductneedtobemadethroughproperresearch,analysisandaneyeonstrategicobjectivesfortheorganizationandtheproduct.Adecisionmadetooquicklywithsuperficialassessmentcanresultinalossofrevenue.Apricebelowtheperceivedvaluecanleadtobothalossinpotentialadditionalrevenueandatargetaudiencethatjudgesthequalityofthebrandthroughpricepoints.Ifthispriceisraisedlateron,theexistingcustomersmayfeelliketheyarebeingunfairlyburdened.Apricesettoohighcanresultinpotentialbuyersstayingawayaltogether.Pricingisoftendonebyateamofexpertswhospendtimeconductingresearchthatconsidersallvariablesofthemarketandbrand. PricingasaTriggerforFirstimpressions Insomeproductcategories,aconsumerwillformaperceptionaboutitsqualityandrelevanceassoonastheyseetheprice.Eventually,thedecisiontobuyornotmaybebasedontheperceivedvalueoftheentireproductormarketingmixoffering.Butthereisalwaysadangerthatthefirstimpressiontriggeredbythepricepointwilleithermaketherestoftheofferingirrelevantoritwillbeabiasedassessment. PricingasaKeytoSalesPromotions Salespromotionsareoftenashorttimepricebasedofferingsuchasapercentagereductionoratwoinonetypeoffer.Thesearemeanttogenerateinterestintheproductormakeuseofaspecialoccasionorevent.Usedwisely,thiscanbeausefulmethodofincreasingsalesbutthecompanymustavoidthetemptationtoofferthesespecialpricestoooften.Inthisscenario,buyerswillputoffpurchasingtheproducttillthenextsalespromotionofpricereduction. [cp_modalid=”cp_id_75506″] [/cp_modal] PRICINGOBJECTIVES Beforeanypricingdecisionsaremade,acompanymustestablishwhatitmeanstoachievethroughpricing.Often,theseobjectivesinclude: 1.ProfitMaximization:Keepinginmindrevenueandcosts,acompanymaywanttomaximizeprofits.Profitmaximizationobjectivesshouldbelongtermandnotfocusonlyontheshortterm. 2.RevenueMaximization:Withlessfocusonprofits,acompanymayfocusonincreasingrevenuesinordertoincreasemarketshareandlowercostsinthelongterm. 3.MaximizeQuantity:Acompanymaywanttosellaspecificnumberofitemstodecreaselongtermcosts. 4.MaximizeProfitMargin:Anotherobjectivemaybetoincreasetheprofitmarginforeachunitandnotfocusonthetotalnumberofunitssold. 5.QualityLeader:Acompanymaywanttousepricetosignalhighqualityandestablishitselfasthequalityleader. 6.PartialCostRecovery:Ifanorganizationhasmultiplerevenuestreams,itmaynotbetoofocusedonrecoveringahundredpercentofitscosts. 7.Survival:Sometimes,thebestacompanymaywanttodoistocovercostsandtoremaininthemarket.Ifthemarketisindeclineortherearetoomanycompetitors,survivalmaytaketemporarypriorityoverprofit. 8.StatusQuo:Theremaybeaneedtoavoidpricewarswithcompetitors.Soacompanymaymaintainastablepricetocontinueastableprofitlevel. TYPESOFPRICINGSTRATEGIES Thereareanumberofpricingstrategiesthatacompanycanusetosellitsproduct.Thestrategyusedatanytimewilldependonthecompany’sstrategyandobjectives.Someofthesepricingstrategiesarethefollowing. PenetrationPricing Alowpriceissetbythecompanytobuildupsalesandmarketshare.Thismaybedonetoestablishpositioninamarketwithpreexistingsimilarproductsonoffer.Onceapositioniscreated,thepricesmayberaised.Asatellitechannelprovidermayofferanintroductorypriceandthenincreaseasbusinessgrows. SkimmingPricing Here,theinitialpriceissethighandmayslowlybebroughtdown.Thiswillallowthecompanytointroducetheproductstepbysteptodifferentlayersofthemarket.Electronicandtechgadgetsoftenstartataveryhighpricewhichissubsequentlyloweredwiththelowestpointreachedrightbeforeanewmodelislaunched. CompetitionPricing Whentryingtogoheadtoheadwithcompetitorsofferingsimilarbenefits,acompanymaydecideto: a.pricehighertocreateahigherqualityperceptionortotargetanichemarket b.pricethesametoshowmorebenefitsforthesameprice c.pricelowertotrytogainawidercustomerbase ProductLinePricing Here,differentproductsinthesamerangemaybesetatdifferentprices.TelevisionsetsarepriceddifferentlydependingonwhethertheyareHDornot,whethertheyhavewififeaturesofnotandwhethertheyare3Dornot. BundlePricing Agroupofproductsmaybebundledtogetherandsoldatareducedprice.Supermarketsoftenusethismethodthroughtheir‘buyonegetonefree’offers. PsychologicalPricing Oftenacompanywillmakesmallchangestopricestomakeacustomerthinktheitemispricedlowerthanitis.Thisisoftenseeninpricesendingin99.Forexample,anitemmarket199willbeperceivedascloserinpriceto100than200. PremiumPricing Ahighpriceissettoestablishanexclusiveproductofhighquality.Designercarsandpremiumbrandstoresareagoodexampleofthistypeofpricing. OptionalPricing Acompanymayaddoptionalextraitemswithinthepricetoincreaseaproduct’sattractiveness.Carsellersmayoffercarinsuranceforthefirstyearforexample. CostBasedPricing Simply,acompanymaydeterminetheexactcostofproducingandsellinganobjective,addamarkupthatmaybedesirableforprofitsandpriceaccordingly.Thismethodmaybeusedinachangingindustrywhereevencostsofproductionareunpredictable. CostPlusPricing Apercentageisaddedtothecostsasaprofitmargintodeterminefinalprice. HOWTOPRICE BasicPricingProcess Aspreviouslymentioned,acompany’spricingstrategyandmethodchangeswithcircumstancesandtime.Thisiswhythereisnofixedmethodologytoaidacompanyinitspricingendeavors.However,thefollowingstepscanactasageneralguideline: 1.DevelopMarketingStrategy Adetailedmarketanalysisactsasalogicalstartingpointforpricingdecisions.Abusinessfollowsupamarketanalysiswithadivisionanddefinitionofthemarketintosegmentseachwithitsdistinctrequirementsandneeds.Afterthis,adecisionneedstobemaderegardingthedesiredsegmentstobetargeted.Theproductandbrandpositioningisthenbasedontheseidentifiedsegments. 2.MakeMarketingMixDecisions Oncethesegmentsandpositioningissomewhatinplace,themarketingmixplanningcomesintoeffect.Heretheproduct,distribution,andpromotionalelementsaredecisionstofocusuponandtofinalize. 3.EstimateDemandCurve Anothermarketanalysisneedstobeconductedatthispoint.Inthisone,thereneedstobespecificinformationgatheredabouthowthepriceaffectsthequantityoftheproductdemanded. 4.CalculateCosts Acompanycannowgetanaccurateassessmentofthetotalfixedandvariablecostsassociatedwiththeproduct.Theseareanecessaryinputsforpricingdecisionsasthefinalpriceneedstoatleastcoverthesecosts. 5.AssessEnvironment Anothervitalelementthatfeedsintopricingistheenvironment.Thismeansanunderstandingofthecompetitor’sstrategies,theirproductanditsvalueaswellasanunderstandingofanyindustryorlegalconstraints. 6.SetPricingObjectives Asdetailedabove,thereareseveralobjectivesthatacompanycanhavefromitspricingstrategy.Thisisthepointintheprocessthatthoseobjectivesneedtobediscussedandagreedupon. 7.DeterminePrice Usingalltheinformationcollectedandanalyzedtillthispoint,acompanyisnowinagoodpositiontosetthebestpriceforitsproducts.Apricingmethodandstructurecanbeformulatedalongwithanypossiblesalespromotionsordiscounts. Thesestepsarenonecessarilyallfollowedinthissequence.Somestepsmightbeskippedorbundledtogether,whileothersperformedatdifferentstagesindifferentorderdependingonseveralfactors,likeproductorbusinessmodel. FactorsThatAffectPricing Thereareseveralbasicfactorsthataffectpricingforalmostallcompaniesandindustries.Thesecanbecategorizedasinternalfactorsandexternalfactors. InternalFactors Thesearethoseelementsthatareunderthecontroloftheorganization.However,itisvitaltonotethatthoughtheymaybewithinthecompany’sdomainofcontrol,changingthemmaynotbeaseasyasitseems.Forexample,productionprocesschangesmayrequiresignificantcost,timeandprocessredesign.Internalfactorsinclude: FixedandvariableCosts Companyobjectivesandstrategies Marketsegments,targetingandpositioningdecisions ExternalFactors Thosefactorswhichhaveasignificantimpactonpricingdecisionsbutarenotcompletelycontrollablebythecompanyareknownasexternalfactors.Sincetheseareveryimportanttothepricingmethod,acompanycanexertsomecontrolbyconductingdetailedanalysestounderstandindepthhowthesefactorswillbehave.Externalfactorsmayinclude: Competitors Targetmarketbehaviorandwillingnesstopay Industrytrends IndustryorlegalConstraints PRICINGISSUES Inbusiness,thereareoftengreyareasthatmayseemsimplebutareoftendifficulttoaddress.Someissuessuchasminimumwage,workerbenefitsandsafeworkenvironmentareeasytounderstand,otherssuchaspricingstrategiescansometimesbecomequiteblurryanddifficulttojudgeonanethicalscale.Thoughtherearelegalmeasureinplacetopreventunethicalpricingmethods,therearemanyareasnotcontrolledbylawsthatcannonethelesscreatenegativesituationsforbuyers.Forexample,misleadingpromotionalcampaignsortheuseofharmfulorlowqualitymaterialscanleadtoincorrectbuyingdecisions. Itisoftenimpossibletoprovethatamisstepbyacompanyisdeliberateornot.Thesegreyareascanbeentereduponaccidentlybyacompanyaswell.Someofthesegreyareastowatchoutforare: PriceFixing Inacompetitivemarket,pricesareoftenloweredtothebenefitoftheconsumer.Ifthesecompetitorsweretogettogetheranddecidetosellatafixedprice,itwouldmeanmoreexpensiveproductsfortheuserandmorebenefitsforthecompany.Itistherefore,agoodideaforacompanytostudythecompetitionandthemarket,butnottoenteragreementstothedetrimentoftheconsumer. PriceDiscrimination Whenthesameproductissoldatdifferentpricestodifferentsetsofconsumers,itiscalledpricediscrimination.Thisisatrickycategory,asspecialoffersforseniorsandchildrenareacceptablewhilepresentingonlyhighcostoptionstohigherincomeconsumersmaynotbewellreceived. PriceSkimming Whenaproductispricedhighinitiallyandtheneventuallysoldatlowerprices,itiscalledpriceskimming.Thecompanyaimstogathermaximumbenefitfrompremiumusersfirstandthenslowlymovedownthechaintoaccessalllevelsofconsumergroups.Usuallyemployedinthetechindustry,ifnotmanagedwellitcancreateanegativeimpressionintheconsumer’smind.Eventually,somepeoplemaycatchontothepatternandstopbuyingtillalowerpriceisintroduced. OpportunisticPricing Sometimes,thevalueattachedtoaproductmaybemuchhigherthanitscost.Thisallowsacompanytochargeapremiumpricefortheirproducts.Thegreyareahereiswhetherthecompanyshouldfollowthispracticeinallinstances.Ifthereisashortageofanecessarygood,oraspecialsituationsuchasanaturaldisaster,thenthisopportunisticpricingmaybeveryunethical. However,softwareproductsthatmaybelessexpensivetoproducebutoffergreatbenefitmaynotbesimilarlyfrownedupon.Itisagoodideaforacompanytoassesswhethertheirpremiumpricinglimitsaconsumer’saccesstoanecessaryitemsuchasfoodormedicine. Pricingplaysaveryimportantroleindeterminingaproductsperceivedvalue,inbuildingbrandsandinensuringlongtermprofitsandsalesforthecompany.Itisthereforeimportanttogiveitdueimportanceandallowindepthanalysestobecomethebasicofpricingdecisions. MarketingMix–Pricing [slideshareid=292680&doc=marketing-mix-priced-1204668120106339-5&w=710&h=500] Pin109Share19PocketShare128Shares Shareyourthoughtsandexperience Name* E-mail* E-mailisalreadyregisteredonthesite.Pleaseusethe Loginform or enteranother. Youenteredanincorrectusernameorpassword Name: Password: Login Enteranother Subscribe RepliestomycommentsAllcomments Sorry,youmustbeloggedintopostacomment. 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