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Principles of pricing strategies
Principles of pricing strategies
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Recommended: Principles of pricing strategies
Topic: Pricing Strategy
Introduction
All goods and services offer some utility or power to satisfy wants. This utility is the individual preference associated with each goods. The sum of all the values that consumers exchange for the benefits of using the product or service is called the price of that product. It can mean “rent, tuition fee, fare, rate, interest, toll, premium, honorarium, dues, assessment, retainer, salary, commission, wage, even bribe and income taxes “(Schwartz 1981). Price is one of the key components of the classic “four Ps: product, price, place, and promotion” grouping of the marketing mix (McCarthy 1960) The marketing mix is defined as the set of controllable marketing variables that marketers employ to “obtain the desired responses from their target markets” (Kotler and Armstrong 1991).
Factors influencing Pricing strategy
Pricing decisions can be “difficult and often speculative due to the uncertainties” prevailing in the market.(Burley & Kortge 1994).The factors that affect the pricing strategy can be broadly divided into Internal and external Factors.
Internal Factors
Capacity Utilization: “Excess capacity increases production and lower prices” (Cavusgill, 1996)
Internal cost structure: The fact that most firms use cost plus pricing strategies suggests that “cost advantages are translated into advantages in price levels” (Govindarajan & Anthony, 1983; Monroe, 1990).
Market contribution rate: It is defined as the “percentage of total firm profits” represented by one particular product (Forman, 1998). A product accounting for a significant profit contribution to a firm will acquire more attention than a less profitable product, thus affecting the pricing strategy selected.-
External factors
P...
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...of marketing, Massey University
Kotler, Philip and Gary Armstrong (1991), Principles of Marketing (5th ed.). Englewood
Cliffs, N.J.: Prentice-Hall.
McCarthy, E. Jerome (1960), Basic Marketing: A Managerial Approach. Homewood, IL:
Irwin Morrison, Steven A. and Clifford Winston (1990), "The Dynamics of Airline Pricing
and Competition," American Economic Review, 80 (2), 389-93.
Monroe, Kent D. (1990). Pricing: Making profitable decisions. New York,
NY7 McGraw-Hill.
Schwartz, David J. (1981), Marketing Today: A Basic Approach (3rd ed.). New York:
Hartcourt Brace Jovanovich.
Stango, Victor (2002). Pricing with consumer switching costs: Evidence from the
credit card market. Journal of Industrial Economics, 50(4),475– 492.
http://faculty.ksu.edu.sa/alshum/DocLib4/kotler12_exs.pdf
http://www.cc.gatech.edu/~ninamf/papers/below-cost-tr.pdf
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A couple of Squares has a limited capacity for which to produce their products and smaller companies tend to have larger fixed costs than bigger companies. Therefore, A Couple of Squares must maximize profits in order to ensure that they will stay in business. A profit-oriented pricing objective is also useful because of A Couple of Squares’ increased sales goals. A Couple of Squares increased their sales goals due to recent financial troubles. Maximizing profits is the easiest way to meet these sales goals due to the fact that A Couple of Squares has limited production capacity. The last key consideration favors a profit-oriented pricing objective because A Couple of Squares offers a specialty product. A specialty product often has limited competition, therefore can be priced on customer value. Pricing at customer value will maximize profits as well as customer satisfaction. A Couple of Squares’ lack of production capacity, increased sales goals, and specialty product favor a profit-oriented pricing
As we learned from Chapter 12, price must be carefully determined and match with firm’s product, distribution, and communication strategies. (Hutt & Speh, 2012, p. 300) Therefore, there should be a strong market perspective in pricing. In order to build an effective pricing policy, marketers should focus on the value a customer places on a product or service. One of the most effective ways to do so is differentiating through value creation.
There are four key factors in the marketing mix, which includes product, place, promotion and price (Worth). Product, which includes tangible and intangible qualities, is the simplest factor and plays a fundamental role in the marketing mix. Secondly, place, is also a significant variable in the marketing mix because the convenience of the location decides the popularity of the product. Thirdly, promotion influences the visibility of the product. Through advertisements, brochures, and other efforts, promotion helps to raise the public’s awareness on the product. Finally, the price is the most straightforward factor in the marketing mix, which directly relevant to the exchange in the market place. The cost-oriented pricing is the mostly common
The 4 Ps of the marketing mix are: Product, Promotion, Price, and Place. The marketing mix puts the right products, at the right price point, in the right place, at the right time. The following examines how Claire’s Chocolates optimizes its marketing mix (Yoo, Donthu, & Lee, 2000, 195-196).
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It basically constitutes 4P’s of marketing mix such as price, place, product and promotion. All these 4P’s have similar repercussion for the promotion of products in various organizations. These justifiable elements of marketing mix can be utilized by a business organization to increase its marketing efficiency. With the marketing mix, a company can have access to marketing information so as to determine the outcomes of the marketing activities on its total sales. The company can evaluate the extent of efficiency of its marketing activities using the information gathered from the marketing mix.
The marketing mix helps a company define the marketing elements for successfully positioning a market offer. The four P’s model, one of the best-known models, helps a company define its product marketing options in terms, place, price and promotion (MindTools.com, 2010). To enhance their impact with their target market, companies often use this model when you are planning a new venture, or evaluating an existing offer. As companies start out in an industry, many marketers learn about putting the right product in the right place, at the right price, at the right t...
In a market there can be many types of pricing strategies. Some of these include: average pricing, marginal cost pricing, penetration pricing, skimming price, price discrimination, cost plus pricing, kinked price among others. Most of these strategies are based on the aim of profit maximisation. The pricing strategy differs under the different market structures like perfect competition, monopolistic competition, oligopoly and monopoly.
Marketing is a process of determining a consumer’s needs, devising a product or service to satisfy those needs, and trying to focus customers on the goods and services you are offering. Marketing is extremely important, and a fundamental building block for business growth. A marketing team is given the task of creating customer awareness through a variety of different marketing techniques. If a business does not pay close attention to their consumer demographic and needs, they will eventually fail over time. Two important aspects of marketing include acquiring new customers, and the preservation and growth of relationships with current customers. Marketing has always been viewed as a creative outlet, which encompassed advertising, distribution, and the selling of goods and services. Marketing staff will also try to anticipate what customers will want in the future, often being accomplished with market research. In summation, a good marketing plan should be able to create a favorable proposition or series of benefits that a customer can value through goods or services. The marketing mix is normally described as the strategic positioning of a product or service in the marketplace, using the specification of the four Ps. During the early 1960’s, Professor E. Jerome McCarthy of Harvard Business School stated that a marketing mix contains four elements. The four key points are product, pricing, promotion, and placement. It is recognized that all these aspects must be present to ensure a successful business model within a given industry. We will now take a thorough look at the four marketing mix points.
Costs are frequently fixed and direct with detail to a given product. A sample is the salary of a product manager with duty for only one product. Product manager’s salary is a fixed cost to the company for a wide range of production volume levels. If the company drops the product completely, the product manager is no longer wanted.
When a business aims to be as successful as possible in selling its products and services, it must examine in detail whether or not the products will be attractive and necessary; if the price is optimal; if the product is being distributed in the best locations; and finally, how interest and awareness can be created for the products. In order for a business to target all of these elements at the right people at the right time, it must employ the right type of marketing mix: Product, Price, Place and Promotion.
Pricing is one of the key functions of the finance as well a marketing department of any company whether it is a manufacturing concern or a service provider. On one hand, the finance department decides the margins and other costs involved in bringing the product or service to a condition for final consumption, the marketing department analysis the market conditions, determines the consumers purchasing power and behavior and various other factors which would influence the sales of their product in the market.
Intuitively, a cost-plus approach sets a lower boundary for the selling price. Yet to pitch a competitive price on the market, it takes more than that. The demand forecast advocates opting for the lowest selling price which yields the highest return. A market penetration strategy necessitates thorough knowledge of the selling prices of the nearest competitors and their retaliation potential. Ideally, the lowest price in the market of £10,400 dictates the upper ceiling of AUDI’s price discretion. However, setting initially a too low price in the hope for increasing it subsequently is not a viable option, as prices are somewhat inflexible upward. Instead, costs have to sink in the long run. Nevertheless, claiming a larger market share will allow AUDI to deftly climb the steep learning curve, lower its costs and further mobilize against market followers. A high price elasticity of demand insinuates that profit margins will continue to soar, if selling prices are reduced any further. As the point of maximum profit is apparently not yet reached, the company is advised to extend the range of the forecast. But is the highest profit naturally the best profit?
To create a successful marketing mix you must have all of the following aspects: the right product for your target market, sold to your target market at the appropriate price,in the right place and time, while using the most fitting promotion. ( Marketing Theory 1995.) The product, price, place, and promotion all are of uttermost importance in a business, since all businesses must complete all of these activities, including advertising agencies and research firms, everybody in the business world should understand the marketing mix.