Issues about Pricing Concepts ♦Definitional issues, i.e., meaning, ♦Importance of pricing decisions ♦Pricing objectives ♦The relationship between price and the

marketing mix Department of Marketing & Logistics, UNT

Charles Blankson, Ph.D.

What is a price? ♦ The amount of money charged for a

product/service or ♦ The sum of the values that consumers exchange for the benefits of purchasing and/or using the product/service. ♦ Price is only one of the marketing mix

tools that a firm uses to achieve its marketing objectives. Department of Marketing & Logistics, UNT

Charles Blankson, Ph.D.

Meaning of price to the firm ♦ An element in the firm’s marketing mix (Wall-

Mart, United Airline) which can be manipulated to achieve corporate objectives (e.g. to promote sales, improve upon image, compete with a new entrant). ♦ Part of the relationship which yields a revenue from which costs can be met and profits made. ♦ A measure of risks to the firm involved in the sale and/or as an insurance premium against the maturing of these risks. Department of Marketing & Logistics, UNT

Charles Blankson, Ph.D.

Meaning of price to the firm contd. ♦ Part of the overall bundle of factors (e.g.

discounts, settlement terms, credit terms, good citizenry) which can be used to affect consumer purchase behavior.

Department of Marketing & Logistics, UNT

Charles Blankson, Ph.D.

Meaning of price to the consumer ♦ A measure of the value of the total bundle of

satisfaction being offered. ♦ A cost. ♦ A measure of quality (e.g. you get what you pay for). ♦ A measure of alternative(s) foregone directly/indirectly. ♦ Part of the decision process that may affect ability/willingness to purchase (i.e., discounts, credit terms, settlement terms, part exchange/trade in terms, guarantees). Department of Marketing & Logistics, UNT

Charles Blankson, Ph.D.

Kotler (2000) proposes five major pricing objectives ♦ The first issue confronting the firm when

setting prices is to assess where the firm wants to position itself/its offerings in the market place. ♦ Pricing objectives therefore, stem from positioning objectives. ♦ For example the firm’s positioning objective(s) may include: (a) functional, (b) symbolic, (c) experiential, (d) leader, (e) follower, (f) global/worldwide-wide recognition and so on. Department of Marketing & Logistics, UNT

Charles Blankson, Ph.D.

Kotler’s five major pricing objectives ♦ Survival ♦ Maximum current profit ♦ Maximum market share (penetration

pricing) ♦ Maximum market skimming and ♦ Product-quality leadership.

Department of Marketing & Logistics, UNT

Charles Blankson, Ph.D.

Shipley and Jobber (2001) pricing objectives ♦ Relating to profits, ♦ Relating to survival, ♦ Relating to sales volume/revenue, ♦ Relating to market share, ♦ Relating to image creation, ♦ Relating to competitive advantage, ♦ Relating to barriers to entry, and ♦ Relating to perceived fairness (the just price). Department of Marketing & Logistics, UNT

Charles Blankson, Ph.D.

The relationship between price and the marketing mix ♦ Price management is a crucial element in

marketing and competitive strategy and a key determinant of performance. ♦ Price is the only element in the marketing mix (i.e., 4 P’s and 7 P’s) that directly generates revenue. ♦ The other elements in the marketing mix generate costs/expenses. Department of Marketing & Logistics, UNT

Charles Blankson, Ph.D.

Importance of price ♦ A Measure of value, ♦ A measure of quality, ♦ Has impact on offering selection among

competing alternatives, ♦ It is important in competitive positioning, ♦ It is flexible and, if managed carefully, can be adapted in a changing environment, ♦ Can affect the activities of competing firms, suppliers, distributors and government. Department of Marketing & Logistics, UNT

Charles Blankson, Ph.D.

The price decision ♦ Increase price ♦ Reduce price ♦ “Hold” price

Department of Marketing & Logistics, UNT

Charles Blankson, Ph.D.

When to change prices ♦ New product/new processes introduction ♦ Skimming/creaming pricing ♦ Penetration pricing ♦ Me-too pricing. ♦ “External”/Environmental changes (PESTLE) ♦ Raw material cost changes ♦ Tax or duty changes ♦ Competitive action (price wars) ♦ Change in size or structure of industry. ♦ Sales promotions Department of Marketing & Logistics, UNT

Charles Blankson, Ph.D.

What is the just price? ♦ Based on social consideration ♦ As a result of government or pressure

groups’ lobby ♦ Geared towards achieving “just” or “fair” prices.

Department of Marketing & Logistics, UNT

Charles Blankson, Ph.D.

Pricing Techniques ♦ Cost plus method ♦ Marginal analysis ♦ “Other” e.g.: Competitor analysis

Blind guess

Department of Marketing & Logistics, UNT

Charles Blankson, Ph.D.