market factors affecting price. objectives define price and pricing list the four market factors...
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Market Factors Affecting Price
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Objectives
Define Price and Pricing List the four market factors that affect price Identify and discuss each market factor Define elastic demand and inelastic demand List the 5 factors that contribute to demand
elasticity Identify and discuss each factor
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Price & Pricing
Price: the money a customer must pay for a product or service. – Part of the Marketing Mix
Pricing: establishing and communicating the value of products and services to potential customers.
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Four Major Market Factors That Affect Price
1. Costs and Expenses
2. Supply and Demand
3. Consumer Perceptions
4. Competition
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1. Costs and Expenses
Sales + Costs + Expenses = Profit Increasing costs and expenses lead
companies to:– Increase price of product or service– Reduce size of product or service– Drop service that is not valued– Add to their product or service
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1. Costs and Expenses
Lower costs and expenses lead companies to:– Decrease prices of products and services
Improved technology and less expensive materials help companies produce better-quality products at lower prices.– Example: the price of computers
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2. Supply and Demand
With most products:– Demand increases with lower prices– Demand decreases with higher prices
This does not apply to some products Demand Elasticity
– The degree to which demand for a product is affected by its price
Products have either elastic or inelastic demand
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Elastic Demand
When a change in price creates a change in demand.– Example: Price of Steak
Law of Diminishing Marginal Utility– Consumers will only buy so much of a product
even if the price is low.– Example: Price of Laundry Detergent
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Inelastic Demand
When a change in price has very little effect on demand for a product
Example:– Milk– Bread
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Demand Elasticity
The demand elasticity depends on five factors:– Brand Loyalty – Availability of Substitutes– Price Relative to Income– Luxury vs. Necessity– Urgency of Purchase.
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Brand Loyalty
When a customer will not buy a substitute product over a brand name of their choice.
In this case brand is inelastic.
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Availability of Substitutes
When there are a variety of substitutes that will do the same job, the demand becomes elastic.
Example: – Laundry Detergent
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Price Relative to Income
If a price increases dramatically and it is beyond a customer’s budget, they are less likely to buy it.
In this situation the demand will be elastic.
Example:– A diamond ring
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Luxury vs. Necessity
When a consumer feels that a product is a necessity, the demand becomes inelastic.
Example:– medicine
When a consumer feels that a product is a luxury, the demand becomes elastic.
Example:– automobile
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Urgency of Purchase
If a purchase must be made immediately then the demand will be inelastic.
Example:– Running out of gas
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3. Consumer Perceptions
Price planning involves what the consumers perceive
Some consumers associate quality with price– High price equals high
quality– High price equals status,
prestige, and exclusiveness
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3. Consumer Perceptions
Businesses limit a supply on the market to make the consumer think that it is worth more.
Example:– Limited Edition
Personalized service can also add to a customer’s perception.
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4. Competition
2 Forms:– Non-Price Competition– Price Competition
Non-price competition minimizes price as a reason for purchase. The more unusual a product, the greater the freedom to set prices above those of competitors.
Price competition allows a company to gain target market appeal by lowering prices.
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4. Competition
Companies are constantly watching each other. If one lowers their price, their competitors will lower their price too.
The benefit is lower prices for consumers.
Price Wars:– When a company lowers their price to the point that
they lose profits. Can cause financial trouble.
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Summary
Defined Price and Pricing Listed the four market factors that affect price Identified and discussed each market factor Defined elastic demand and inelastic
demand Listed the 5 factors that contribute to demand
elasticity Identified and discussed each factor
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References
Boone, Louis E. & Kurtz, David L. (2001) Contemporary Marketing (10th Edition). USA: South-Western Thomason Learning.
Burrow, James L. (2002). Marketing (Instructor’s Wraparound Edition). USA: South-Western Thomason Learning.
Farese, L.S, Kimbrell, G. & Woloszyk, C.A (2002). Marketing Essentials (3rd Edition). New York: McGraw-Hill.