Marketing Mix; Pricing

Should take into account:

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

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.

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

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

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