- •В.Е. Приходский
- •Contents
- •Introdiction
- •Market-based pricing
- •Competition-based pricing
- •1. The Principles and Functions of Marketing
- •Introduction: Develop and review a framework for marketing
- •1.1. What is marketing?
- •1.2. The objectives of marketing
- •1.3. Implementing the marketing mix
- •Test Questions
- •Product
- •Personnel
- •2. Market Research
- •Introduction
- •2.1. What is market research?
- •2.2. Sources of marketing information
- •Information requirements
- •Internal sources
- •2.3. Primary research
- •2.4. Market changes
- •Information on sales
- •Test Questions
- •A questionnaire
- •Case Study ‘Sun Rush’
- •4M Brits shrug off gloom in sun rush
- •3. Product
- •Introduction
- •3.1. Kotler’s five ‘levels’ of product benefit Core and basic benefits
- •Expected, augmented and potential benefits
- •Competition of augmented benefits
- •Copeland’s product typology and strategy
- •3.2. The product life cycle Uses of the product life cycle
- •Introduction
- •Figure 3.1. The product life cycle The introduction stage
- •The growth stage
- •The maturity stage
- •The decline stage
- •Criticisms of the product life cycle
- •3.3. New product development The importance of new products
- •Screening
- •Development
- •3.4. Product portfolio theory
- •The bcg matrix
- •Figure 3.2. The Boston Consulting Group matrix
- •A composite portfolio model: the gec matrix
- •Figure 3.3. The gec matrix
- •4. Pricing Decisions and Strategies
- •4.1. The Pricing Decision What determines prices?
- •Factors influencing pricing decisions
- •External factors influencing pricing decisions
- •4.2. Cost-Based Pricing
- •What is break-even analysis?
- •Calculating break-even point
- •Break-even charts
- •‘What if’ analysis
- •The margin of safety
- •Cost-based pricing methods
- •Fixed Cost 200,000
- •Contribution 25
- •Problems with cost-based pricing
- •4.3. Market-Based Pricing Demand based pricing
- •4.4. Competition-Based Pricing
- •4.5. Problems with Demand- and Competition-Based Pricing
- •Test Questions
- •Case Study ‘What Price Promotion?’
- •5. Customer Service and Sales Methods
- •Introduction
- •5.1. ‘The customer is always right’
- •5.2. Placing the product – distribution
- •Indirect distribution via intermediaries
- •5.3. Closing the sale
- •Test Questions
- •Case Study ‘Company Handbook’
- •6. Marketing Communications
- •6.1. Targeting an audience
- •6.2. How to reach a target audience
- •6.3. Marketing communications performance
- •6.4. Guidelines and controls on marketing communications
- •Test Questions
- •Case Study ‘Marketing Communication’
- •References and further reading
4. Pricing Decisions and Strategies
Key words: fixed and variable costs, average costs, break-even level of output, margin of safety, cost-plus pricing, profit mark-up, contribution pricing, contribution, loss-leader, marginal cost pricing, demand-based pricing, market skimming, penetration pricing, price discrimination, competition-based pricing, price leadership, destroyer pricing
4.1. The Pricing Decision What determines prices?
Deciding on the price at which to sell a product is one of the most important decisions an organisation can make. If price is set too high, consumers may be unwilling to buy the product. If price is set too low, a firm may not be able to cover its costs of production.
The prices of all products are likely to vary over their product life cycles as the marketing objectives of different organisations change – for example, from launching a new product, to maximising profit from the product. At any given time, short-term objectives, such as the need to fight off new competitors or to extend the life of the product, may affect the pricing strategy of a firm. Pricing low to generate sales and fight off competition may cause a firm to lose money in the short term. However, in the long run, if a firm is to stay in business, it must be able to cover its costs of production with sales revenues.
Three major factors can, therefore, be identified as influencing the pricing decisions of firms. These are:
The costs of production (and the desire for profit)
The level and strength of consumer demand
The level of competition among producers to supply the market
Factors influencing pricing decisions
Prices set by a firm with reference to its costs of production will be greatly influenced by the particular aims and objectives agreed by the organisation.
The need to survive. Underlying all business is the need to survive. To do this, a firm must be able to generate enough revenues to cover its costs of production. This is of particular importance to non-profit-making organisations such as charities. All donations or monies they receive are spent on their particular activities. That is, income should exactly equal costs. However, because flows of income and expenditures do not necessarily occur at the same time, charities must be careful not to overspend and operate at a loss.
The desire for profit. Covering costs may ensure business survival, but most business owners also want to earn a profit from their activities. The level of return on their investment will need to be at least as much as the interest they could have earned by placing the money in a bank account instead. In order to earn this profit, they will need to set a price for their product which will generate revenues to exceed production costs.
Expanding sales. When a firm enters a market for the first time with a new product, its long-term objective may be to maximise profit, but in the short term it will have other aims as well. For example, in order to ensure a successful launch for the product, it may decide to pitch price low and cut its profit margins to the bone. If there are a number of other similar products already on the market, it may need to keep price at this low level in order to build market share and maximise potential sales If sales do not match expectations, it may find itself left with underused capacity, in terms of labour, stocks of materials, machines, and other equipment. However, in other circumstances, launching an entirely new and unique product may allow a firm to pursue a high-price strategy. Consumers may be willing to pay a premium price for a new product. A high selling price may also be the only way the firm can justify the high cost of product research and development (R&D) and an initial supply. It may be that sales will need to expand before a firm can benefit from cost saving associated with mass production and be able to pass these on to consumers in the form of lower prices.