4Ps:
Pricing
MC: consumers judge the benefits the product delivers against the ___sacrifice___ necessary to obtain it.
(not target optimization. sacrifice includes price and efforts sth…)
Price 1. the only mix element that generates revenue
2. a highly visible tool : very visible ,
not think hard about the company website/ packege, but they pay attention to the price. price is the least susptaintable advantage bc easy to copy by others.
3. an indeicator of quality, in the absence of other information.
4. pricing is an art, not a science.
Five Cs of Pricing
value: <-company objectives
<-customers
<-competition
<-costs
<-channel members
MC: health clubs often use a low, introductory offer price to get ppl to join their club. What type of pricing orientation does this represent ?
its sales orientation; not target return orientation : it is part of profit orientation
5Cs: Company Objectives
• Sales orientation: Max volume
focus on market share : market share is the greast predictor for LR success eg: walmart,
• Profit orientation: Max profit or return
- try to get profit as much as they can from small volume
- not so focus on share volume,
So: charge as much as they can, not decrease the price. not only in SR
• Competitor orientation: relative to competitiors
• Customer orientation: Max value
- consider customer how much they will pay & how they value - relates to scarfice, dollar value and time, efforsts
* A company: can have more than one orientation;
* sales and profit orientation hard to combine together
5Cs: customers
MC: Theres a saying, "if you have to ask the price of a yacht, you cant afford it." Products like yacht are most likely to associated with: prestige pricing. ( not target return value.)
• what factor influence the elasticity of demand? ( elasticity means price sentivity : wut happens to your demand )
1. availability of substitutes
2. complementary products
3. scarcity -> necessity or luxury (nice to have)
4. time :- urgency : eg: social trends-> popular-> necessity
-length of price shift
5. income effect
6. Proportion of budget (amount you spend on sth, expensiveness of an item) : housing is a huge proportion
eg: gas for me is a necessity, but also large portion of my budget, may argue in the exam, not just yest or no. given u a situation, let u consider wuts the problems with that
Pratice: would u expect demand for each of these types of products (car, house, shoes) to be elastic or inelastic, and why? pick one and argue in the exam.
MC : which of the following 5Cs of pricing do marketers to understand with traditional demand curve economic theory: Customers ( not cost)
5Cs: Customer
Reference prices : ppl know the avg price,
does your cotegary product has the referenc prices?
Familiarity, past experience:
Preference for EDLP (every day low pricing) vs. high/low pricing
5Cs: Competition
• level of competition often shapes pricing:
1. Monopoly: can set up whatever price u want
2. Oligopoly:
3. Monopolistic competition: some challeges
4. Pure competiton
MC: how can a company extricate itself from a mkt characterized by pure competition?
answer: differentiate the product in some way, so customers can see the distinct
– Decommoditize through differentiation:
organic/ free run/ omega-3 eggs ( similar to the brand equity )
5Cs: Costs
MC: in general, prices should not be based on costs because:
Answer: consumers base their purchased decisions on perceived value.
– Cost not equal to value
– but cost structrures affect profitability
– Break-even Analysis
“At this price, what level of sales is required to cover costs?”
-Marketing Math:
Break-even point ($)= total FC/ (1-(unit VC/ unit price))
Break-even point (units)= total FC/ unit CM
CM: contribution margin( or say contribution profit) = Revenue – Varible Cost
if a targeted return is sought:
Break-even point (units)= ( total FC+ profit) / unit CM
*will in the final , need to calculate
MC: one of the limitations associated with break-even analysis is:
it assumes there is only one price for the product. ( not: it only tells markerters wut price is needed to break-even. )
Limitations of break-even analysis?
– Assume only one price ( price is not always fixed)
– assumes all costs are know
– assumes CM is steady with volume. ( CM= revenue – variable costs)
– accuracy depends on accuracy of demand forecasts
– different demand levels
5C: channel members (渠道成員)
• Manufacturers（製造廠家）, wholesaler （批發商）, and retailers（零售商） can have different pricing priorities.
eg: Nike running shoes: wholesalers: pricing priority
Strategic: New Product Pricing
1. Skimming (a.k.a. market-plus pricing):
setting a relatively high price (may be reduced as competition increases)
eg: apple iphones
2. Penetration Pricing ( 滲透定價)(a.k.a. market- minus pricing) :
– setting low price to attract new customers,
– grow mkt share : eg: 1% realty company
Pricing Tacticals
1. Tactical: Promotional Pricing
– Marketdowns, discounts
– Leader pricing
– Coupons, rebates（ 回扣）
2. Tactical: Bundling (捆綁式)
introducing the shaw value bundle. get phone. internet. TV. plus great extras for $99.90
any bundle company can do it no matter wut their orientation, LR or SR.
Non-profits and pricing
pricing helps achieve various goals:
• profit maximization (e.g. fundraisers)
• cost recovery : 成本回收
E.g: translink: has got used to price strategy, price is low enough to encourage customers to use it more; price should also be high enough to cover its cost. e.g: Bc hydro, gasline
• market incentives:
• market suppression: 市場抑制