Setting the right price is an important part of effective

marketing.

Why it is different than the other 3Ps .?

It is the only part of the marketing mix
that
generates
revenue
(product,
promotion and place are all about
marketing costs).

price is the amount of money or goods for which a thing is

bought or sold.

The level of consumer demand.

The level of competition from rival producers.
The cost of production.
Business objective.
Marketing mix.
Taxes and subsides.
Elasticity of demand
New or existing product

Free market price A price determined

purely by the forces of supply and
demand without interference from an
outside source

Demand

Demand is the desire to own anything, the ability to pay for

it, and the willingness to pay.

Substitute products

Complementary products

Substitute products

Substitutes are goods that can be used in place of

the primary good.

The relationship between the price of the substitute

and the demand for the good in question is positive.

If the price of the substitute goes down the demand

for the good in question goes down. (coffee , tea)

Substitute products

Complementary products

Complementary are products that tend to be

bought and consumed together.

If the price of sugar rises, then less tea will be

bought and as a result there will be less demand for
coffee.

complementary products

 Price

elasticity of demand The responsiveness of

consumer demand to a change in price.

A product with an elastic demand curve would have a higher

change in demand than a change in price (uses percentages).

A product with an inelastic demand curve would have a lower

change in demand than a change in price.

Consumer demand for a product tends to be

price elastic if:1.

The product has many close substitutes.

2.

It is an expensive item.

3.

Consumers dont need to buy it frequently they have time to

search for alternatives.

Consumer demand for a product tends to be

price elastic if:1.

The product has few close substitutes.

2.

It is a low cost item.

3.

It is a necessity that consumers needs to purchase regularly.

Supply

Supply is the total amount of a good or service available

for purchase.

Supply
There

are TWO types of change in supply

1. Movement ALONG the supply curve

2. SHIFTS in the supply curve

Supply
A

movement ALONG the supply curve

A movement along the supply curve is caused by a change

in PRICE of the good or service.

For instance, an increase in the price of the good results in

an EXTENSION of supply (quantity supplied will increase),
whilst a decrease in price causes a CONTRACTION of
supply (quantity supplied will decrease).

Supply
A

SHIFT in the supply curve

A shift in the supply curve is caused by a change in any

non-price determinant of supply. The curve can shift to the
right or left.

A rightward shift represents an increase in the quantity

supplied (at all prices) S1 to S2, whilst a leftward shift
represents a decrease in the quantity supplied (at all
prices). S1 to S3.

Supply
Factors

that affect the position of the supply

curve
1.

2.
3.
4.

Changes in the costs of supplying the product to the

market
Improvements in technology
Taxes
Climate and weather

Supply
Price

elasticity of supply The responsiveness of the

supply of a product to changes in price.

A product with an elastic supply curve would have a higher

change in supply than a change in price (uses percentages).

A product with an inelastic supply curve would have a lower

change in supply than a change in price.

(1)
Cost based
pricing

Pricing
strategies

(2)
Customer
based
pricing

(3)
In a
competitive
market

Cost-plus
pricing
Penetration
pricing
Price
skimming
Psychological
pricing
Competitive
pricing

Promotional
pricing

(1) Cost plus pricing

Cost

plus pricing It is the average cost of

producing each item or unit of output + mark
up profit.

The

objective is to cover production costs and earn a

good profit.

Price = [total cost / total output] + mark up for profit

(1) Cost plus pricing

If a firm produces 10,000 packets of biscuits at a
total cost of $10,000 and it wants to make 40%
profit in each packet. Calculate the price for each
packet.

(1) Cost plus pricing

The costs of production for a new toy are $10.
What price should the company sell the new toy
at if it prices at a cost plus profit at 100% profit
mark-up?

(1) Cost plus pricing

It
It

is easy to apply

does not take into account what price

consumers may or may not be willing to pay or
how much competition there is.

(2) penetration pricing

Penetration

pricing when the price is set lower

than the competitors prices to enter new market.

It ensures that sales are made and the new

product enters the market.

High risk strategy and only large businesses may

be able to afford to do it.

(2) penetration pricing

1.

when demand is price elastic

2.

To increase market share

3.

To launch a new product

4.

To enter new market with little product

differentiation

(2) Penetration pricing

The costs of production for a new toy are $10.
The price of competitors products are:Product A $25 / product B $20/ product C $23/
product D $22.
What price should the company sell the new toy
at if it prices using penetration pricing?

(3) Price skimming

pricing

strategy used when there is little

competition in a market for a new or improved
product.

It

involves charging a high price to recover

development costs and to gain high initial profit
from those consumers who are willing to pay more
because the product is new or unique.

(3) Price skimming

Help to establish the product as being of good

quality.

It may put off some potential customers because of

the high price.

(4) Psychological pricing

Strategies

recognize that consumers use price as

an indicator of product value and quality.

Prices

influence consumer perceptions of different

products.

(5)Competitive pricing
When

the business set the price in line with or

below competitors' prices.

Sales will be high realistic prices.

Searching for competitors prices waste time and

money.

(6)promotional pricing
A

product is sold at a very low price for a short

period of time.

Getting rid of unwanted stock.

Renew interest in a business if sales are falling.

Lower the sales revenue.

What pricing strategy would most probably be used for the

following products? Explain your answer.
a. A watch that is very similar to other watches sold in the shops.
b. A new type of radio that has been developed and is a lot higher quality
than existing radios.
c. A chocolate bar which has been on the market for several years and
new brands are being brought out which are competing with it.
d. A shop, which sells food, wants to get its money back on buying the
stock and make an extra 75% as well.
e. A new brand of soap powder is launched (there are already many
similar brands available ).
f. A toy sold for $ 1.99.