Pricing Concepts and Strategies Pricing Objectives and the Marketing ...
Chapter 16 – Pricing Concepts and Strategies Pricing Objectives and the Marketing Mix 1. Profitability Objectives Marketers at firms must set prices with profits in mind. For customers to pay the set price, they must be convinced they are receiving fait value for their money. Marketers must be able to balance between desired profits and the customer’s perception of a products value. Marketers should evaluate and adjust prices continually to accommodate changes in the environment. Marginal analysis is the method of analyzing the relationship among costs, sales price, and increased sales volume. Profit maximization is the point at which the additional revenue gained by increasing the price of a product equals the increase in total cost. Marketers commonly set target return objectives, which are short or long run pricing objectives of achieving a specified return on either sales or investment. 2. Prestige Pricing Prestige pricing establishes a relatively high price to develop and maintain an image of quality and exclusiveness that appeals to status conscious consumers. Cost if the primary factor that makes you want to own the product since the high cost makes ownership prohibitive.
3. Meeting Competition Objectives In many industries, firm’s set prices to match those of established industry price leaders. Pricing objectives tied directly to meeting prices charged by major competitors deemphasize the price element of the marketing mix and focus more strongly on nonprice variables. i. Value pricing – a pricing strategy emphasizing benefits delivered from a product in comparison to the price and quality levels of competing offerings. this strategy works best for relatively low priced goods and services. The challenge for those who compete on value is to convince customers that low priced brands offer quality comparable to that of a higher priced product. As a result many alternative and private label brands have emerged which creates more competition in the marketplace in recent years. 4. Volume Objectives
Some economists believe firms will set a min. acceptable profit level and then seek to max. sales in the belief that the increased sales are more important in the long run competitive picture than immediate high profits. As a result, firms will expand sales s long as their total profits don’t drop below the minimum return acceptable to management. Another volume related pricing objective is the market share objective. This is when the goal is to achieve control of a portion of the market for a firm’s good/service. 1. PIMS studies Market share objectives may prove critical to the achievement of other organizational objective. Profit Impact of Market Strategies Project is research that discovered strong positive relationship between a firm’s market share and product quality and its return on investment. Factors influencing profitability were a firms market share and product quality. The greater the market share of a firm (>40%), the greater return on investment they experienced (32%). Compared to those (
3. Meeting Competition Objectives In many industries, firm’s set prices to match those of established industry price leaders. Pricing objectives tied directly to meeting prices charged by major competitors deemphasize the price element of the marketing mix and focus more strongly on nonprice variables. i. Value pricing – a pricing strategy emphasizing benefits delivered from a product in comparison to the price and quality levels of competing offerings. this strategy works best for relatively low priced goods and services. The challenge for those who compete on value is to convince customers that low priced brands offer quality comparable to that of a higher priced product. As a result many alternative and private label brands have emerged which creates more competition in the marketplace in recent years. 4. Volume Objectives
Some economists believe firms will set a min. acceptable profit level and then seek to max. sales in the belief that the increased sales are more important in the long run competitive picture than immediate high profits. As a result, firms will expand sales s long as their total profits don’t drop below the minimum return acceptable to management. Another volume related pricing objective is the market share objective. This is when the goal is to achieve control of a portion of the market for a firm’s good/service. 1. PIMS studies Market share objectives may prove critical to the achievement of other organizational objective. Profit Impact of Market Strategies Project is research that discovered strong positive relationship between a firm’s market share and product quality and its return on investment. Factors influencing profitability were a firms market share and product quality. The greater the market share of a firm (>40%), the greater return on investment they experienced (32%). Compared to those (
