Marketing Mix; Pricing

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  • Created by: Soph
  • Created on: 30-05-14 14:29

Pricing

Should take into account:

  • Fixed and variable costs
  • Competition
  • Company objectives
  • Proposed positioning strategies
  • Target group and willingness to pay
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Pricing Strategy

Penetration Pricing: businesses set a low price to increase sales and market share. Once the market share has been captured the firm may then increase the price.

Skimming Pricing: Businesses set an initial high price and then slowly lowers the price to make the product available to a wider market. The objective is to skim profits of the market layer by layer.

Price Leaders: Market leaders whose market share is so strong that its prce changes are closely followed by rivals.

Price Takers: A business has no option but to charge the ruling market price.

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Pricing Tactics

Phychological pricing: to appeal to custmers who use emotional rather than rational responses to pricing messages.

Loss Leader: a product priced eow cost price in order to attract consumers into a shop or online store. The purpose of making a product a loss leader is to encourage customers to make further purchases of profitable goods while they are in the shop.

Influences on Pricing:

  • Competitors actions
  • Economy
  • Demand
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Price Elasticity

Measuers the responsiveness of demand after a change in price.

Values:

  • 0; inelastic, demand does not change at all when the price changes.
  • Between 0-1; demand is inelastic
  • 1; elastic,
  • Bigger than 1; demand responds more than proportionately to a change in price, demand is elastic.

Factors effecting price elasticity

  • Number of substitutes
  • Cost of switching between products
  • Degree of necessity
  • Habitual consumption
  • Peak and off peak times
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Use of PED

Can use it to predict:

  • The effect of a change in price on the total revenue and expenditure of a product
  • The price volatility in a market following changes in supply-this is important for commodity prodcuers who suffer big price and revenue shifts from one time period to another.
  • The effect of a change in an indirect tax on price and quantity demanded
  • Can be used as part of price discrimination. This is where a supplier decides to charge different prices for the same product to different segments of the market
  • Usually charge a higher price to consumers whose demand for the product is inelastic
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