The role
and nature of price
• Price - The
value exchanged for products in a marketing exchange. The price is very evident
in most marketing transactions.
} Price is
the most readily changeable characteristic of a product.
} It is a
key component of the profit equation
(Profit = Total Revenue – Total
Costs), having strong effect on the firm’s product costs and hence its
profitability.
} It has
symbolic value to customers (prestige pricing and discount pricing).
Price
and non-price competition
• Price
Competition emphasises price, and matching or beating
competitors’ prices.
• Non-price
Competition emphasises factors other than price to distinguish
a product from competing brands (distinctive product features, service, product
quality, promotion and packaging).
Factors
in Price Setting
Step 1: Pricing
Objectives
Ø Decreases
in price create increases in quantities demanded.
Ø Prestige
items sell best in higher price ranges.
Shift in
Demand
Cross-elasticity
of Demand
• Changes in
the prices of other products affect a product’s demand
Ø If
products are substitutes, an increase in the price of one will increase demand
for the other
Ø If one
product is essential for use of second, an increase in the price of one
decreases demand for another
Step 3:
Determine costs
} The
analysis of demand, cost and profit is important because customers are becoming
less tolerant of price increases forcing manufacturers to find new ways to
control costs.
} There are
two types of total costs:
Ø Fixed
costs
v
costs that do not vary with the changes in the
number of units produced or sold.
Ø Variable
costs
v
costs that vary with the changes in the number of
units produced or sold.
Breakeven
analysis
} Breakeven
Point is the point at which the costs of producing a product equal the revenue
made from selling the product.
Ø The point
at which profitability starts.
Ø Break-even
point = Fixed costs/ Unit
Selling Price - Variable Costs
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