MKT103 PRICING

• Commercial exchange


  Where a seller provides a product to a buyer in return for something in exchange (usually an amount of money). Both the buyer and seller participate in the exchange voluntarily because the exchange will lead them both to be better off.
• The product could be something tangible, which is referred to as a good, or the product could be the result of human or mechanical effort, which is referred to as a service.
• Buyers


  • Consumer - an individual who purchases a product for his or her own use
  • Business customer - an individual or group who purchases the product in order to resell it or for other business purposes
• Price


  The amount of money that has to be paid to acquire a given product. Insofar as the amount people are prepared to pay for a product represents its value, price is also a measure of value.
• Cost


  From the viewpoint of the seller, the difference between prices and costs is quite important. A price is what a business charges, and a cost is what a business pays.
• Buyers, particularly consumers, will typically use the terms price and cost synonymously.
• Marketing activities


  • Actions an organization can take for the purpose of facilitating commercial exchanges
  • There are four categories: product, distribution, promotion, and pricing
• Value


  The benefits, or the satisfactions of needs and wants, that a product provides to customers
• Price is the marketing-mix element that produces revenue; the others produce costs.
• Marketing concept


  The key to business success is to focus on satisfying customer needs
• The marketing concept is a modern form of the philosophical viewpoint known as "enlightened self-interest": One's self-interest is the best served by focusing one's attention on the needs of others.
• Pricing considerations guided by the marketing concept

  • The feeling of a price being substantially higher than the customer's expectations (sometimes referred to as "sticker shock")
  • The feeling that a price is unfair or is higher than can be justified
  • Customers perceiving they are receiving a discount, or a price lower than their expectations
• The oldest records of prices ever found are clay tablets with pictographic symbols found in a town known as Uruk, in what was ancient Sumer and what is now southern Iraq. These rice records are from 3300 BC- they've survived 5,300 years.
• Barter

  Goods and services were exchanged for other goods or services
• Medium of exchange


  Something that is widely accepted in exchange for goods and services in a market
• Three categories of pricing issues

  • Buyer-seller interactivity
  • Price structure
  • Price format
• Interactive price


  A price arrived at by the buyer-seller interactions of negotiation or the interactions of auction bidding

  
• Fixed price


  The price that the customers actually expected to receive and sticking to it
• Price structure


  An approach in products and services pricing which defines various prices, discounts, offers consistent with the organization goals and strategy
• Price segmentation


  The practice of charging different customers different prices for the same item
• Price format


  The form of expression of a price
• Price partitioning


  The question of whether a price should be expressed as a single number or as the sum of more than one number
• Strategic pricing


  The coordination of otherwise independent activities to achieve the common objective of profitability
• Successful strategic pricing strategies

  • Value-based
  • Proactive
  • Profit-driven
• Value-based pricing


  Differences in pricing across customers and changes over time reflect differences or changes in the value to customers
• Proactive pricing


  Companies anticipate disruptive events and develop strategies in advance to deal with them
• Profit-driven pricing


  The company evaluates its success at price management by what it earns relative to alternative investments rather than by the revenue it generates relative to its competitors
• The strategic pricing pyramid represents five distinct but very different sets of choices that build upon one another

  
• Value creation


  • The value of something is not just what someone will pay for it, but what they will get value from in use
  • Companies that have the technology and capability to create value may fail to convert that into value for customers
• Engineering and manufacturing departments design and make what they consider a "better" product

  Finance totals the costs to determine "target" prices, then marketing tries to demonstrate enough value to justify premium prices
• When cost-based prices prove unjustifiable, managers may try to allow "flexibility" in the markups, but this is not a fundamental solution as the financial return on the product remains inadequate
• Solving the problems of cost-based pricing requires a complete reversal of the process - starting with customers and the target price
• Value creation


  When cost-based prices prove unjustifiable, managers may try to fix the process by allowing "flexibility" in the markups. This tactic may minimize the damage, but it is not a fundamental solution because the financial return on the product remains inadequate.
• Value-based pricing


  Designing product and service offers that can drive sales growth at profitable prices has gone from being unusual to being the goal at most successful companies. Profit-leading companies now think about what market segment they want a new product to serve, determine the benefits those potential customers seek, and establish prices those customers can be convinced to pay.
• Value-based pricing process


  1. Estimate how much value different combinations of benefits could represent to customers

  2. Challenge engineers to develop products and services that can be produced at a cost low enough to make serving that market segment profitable at the target price
• Price structure


  The most simple price structure is a price per unit. The purpose of more complicated price structures is to reflect differences in the potential contribution that can be captured from different customer segments by capturing the best possible price from each segment, making the sale at the lowest possible cost, or both.

  
• Airline price structure


  • Business traveler vs pleasure traveler
  • Refundable vs non-refundable tickets
  • Economy vs first class
• Ryanair price structure


  • Charge for printing boarding pass
  • Charge for checking bags
  • Charge for bringing baby and baby items
  • Charge for boarding early
  • Charge for using on-board lavatories
• Price and value communication


  Developing price and value communications is one of the most challenging tasks for marketers because of the wide variety of product types and communication vehicles. The content of value messages will vary depending on the type of product and the context of the purchase.
• Reframing prices in smaller units comparable to the flow of benefits can have a significant positive effect on customer price sensitivity