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PPRINCIPLESRINCIPLES OFOF MMARKETINGARKETING
Pricing Context and Concepts
Prof. Rushen Chahal
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1. Roles and Perception of Price1. Roles and Perception of Price
Price:-
The value that is placed on something. What
someone is prepared to give in order to gain
something else, e.g. you scratch my back
and I scratch yours
Pricing is a skill, interpreted differently by
different people and comes under various
names
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1. Roles and Perception of Price1. Roles and Perception of Price
Customers perspective:-
Assess the price against values such as:
Functional areas design and ability benefitsto satisfy promises
Quality reflecting the worth of a product
Operational in relation to influence a
production process or increase efficiency
Financial purchases seen as investments
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1. Roles and Perception of Price1. Roles and Perception of Price
Sellers perspective:-
A distinctive and highly visible element of the
marketing mix
Generator of revenue and provides the basis of
recovering costs and creating profit
Pricing requires knowledge and understanding
of the customer and external environment
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2. Pricing contexts2. Pricing contexts
a. Consumer markets:-
Psychological factors can play an important
role in consumers choice of purchase
Price negotiation in consumer markets can
be difficult - the price is on the product take
it or leave it
Price banding can be useful in market
segmentation, e.g. gym membership pricing
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2. Pricing contexts2. Pricing contexts
b. Retailand wholesale markets:-
These groups take a more rational approach
to price interpretation.
Pricing structures need to reflect demand.
Price discipline is expected - manufacturers
should not sell direct to the public at lower
prices than retailers could set.
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2. Pricing contexts2. Pricing contexts
c. Non-profit markets:-
These organisations encourage people to use
their products/services and participate in theiractivities.
Pricing - selling goods at cost or subsidising
costs visibly below market rates. Price
sometimes passes through a third party, e.g.
free governments medical insurance
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2. Pricing contexts2. Pricing contexts
d. B2B markets:-
The costs of installation, training, financing,
employee and social safety, service, after-sales, re-maintenance etc., are all
considered before the pricing.
Much companies use value managementto analyze the greatest costs incurred in
the products and processes.
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3. External influences on price3. External influences on price
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3. External influences on price3. External influences on price
a. Customers and consumers
Must take into account behavioural
feelings and price sensitivity of the end
buyer. Critical to understand the price
threshold, i.e. the highest or lowestpoint the price can go.
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3. External influences on price3. External influences on price
b. Demand and priceelasticity
If price rises, then demand falls. If
price falls then demand rises.
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3. External influences on price3. External influences on price
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Theboomerang demand curve
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3. External influences on price3. External influences on price
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Elastic demand Inelastic demand curves
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3. External influences on price3. External influences on price
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Factors influencing price sensitivity:-
1. The unique value effect:- the better
differentiated the product, the lower theprice sensitivity
2. The substitute effect:- The greater the numberof substitutes the greater the price sensitivity
3. The difficult comparison effect:- The moredifficult it is to make a comparison betweenthe products, the lower the price sensitivity
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3. External influences on price3. External influences on price
4. The total expenditure effect:- the smaller
the proportion of total spend the product
represents, the lower the price sensitivity
5. The end benefit effect:- greater the end
benefit of the product, the lower the price
sensitivity
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3. External influences on price3. External influences on price
c. Channels of distribution
Take into account the businesses in thedistribution chain, from manufacturers,
wholesalers, retailers, agents etc.d. Competitors
Must reflect the price intensity of the industry
Monopoly
Oligopoly Monopolistic competition
Perfect competition
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4. Internal influences on price4. Internal influences on price
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4. Internal influences on price4. Internal influences on price
Pricing is influenced by internal factors:-
a. Marketing objectives For profit
maximization, market share maximization,
cost leadership
b. Costs - A company's costs take two forms,
fixed and variable
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