Chapter 20 – Marketing Mix - PricingUnit 3 - Marketing

You will learn…………………………..

•Role of price in the marketing mix

•Price determination•Demand & Supply•Pricing Strategies

Role of the Price •Deciding the price is

important ▫Rivals

Too high customer choose rival’s product

Role of the Price •Deciding the price is important

▫Rivals Too low wonder about products

quality

Only 15,999 baht

Role of the Price •Deciding the price is

important ▫Rivals

Similar Competition

Price Determination

Demand

Supply

Demand

What is demand?“The want and, willingness and ableness of

consumers to buy a good or service at different prices”

What does demand look like?

Quantity Demanded

Price

D

D

DemandCurve

Law of Demand: •If price rises demand

falls •People will not be able

to buy the same quantity with the same money

Shifts in Demand

$3.002.502.001.501.000.50

21 3 4 5 6 7 8 9 10 1211

Pric

e of

Ice-

Crea

m C

one

Quantity of Ice-Cream Cones0

Increasein demand

D1D2

Decreasein demand

D3

Factors affecting demand•Changes in the prices of others products

Substitute Products Complimentary Products

Factors affecting demand•Changes in tastes, preferences or fashions

Factors affecting demand•Changes in peoples incomes

Factors affecting demand•Advertising

Elasticity of Demand

Elastic Demand

Price

Quantity

Demand

Quantity demanded is very sensitive to price changes.

Many substitutes

Change in quantity is greater than the change in price

Inelastic Demand

Price

Quantity

Demand

Quantity demanded is not very sensitive to price changes.

Not many substitutes

Change in quantity is not as great as the change in price.

Elastic? or Inelastic?,

0

1

2

3

4

5

6

7

0 100 200 300 400 500

Price

1000 ./month

Here the slope relates that thequantity demanded is very sensitive to price changes

Elastic? or Inelastic?,

1

2

3

4

5

100 200 300 400 500

million /month

Price

6

BUT a change in the scale of measure changes the graphso as to make it look as though the quantity demandedis NOT very sensitive to changes in price !

Elasticity of DemandElastic? Inelastic?

How to make your product more inelastic • …why???

…so customers don’t react to price increases!

• Make your product DIFFERENT to competitors – to keep them brand loyal.

• Take over the competition! So customers have to buy your products.

• Make small price changes over a short period of time – so customers don’t notice!

Supply

What is supply?“The amount of goods or services

producers are willing and able to produce at different prices”

What does supply look like?

SupplyCurveprice

Quantity supplied

S

S

Law of Supply: •If price rises supply

rises•More and more

suppliers want to sell their product because of higher profits

Shifts in SupplyPrice of

Ice-CreamCone

Quantity of Ice-Cream Cones0

Increasein supply

Decreasein supply

Supply curve, S3

curve, Supply

S1Supply

curve, S2

Factors affecting supplyChanges in the costs of supplying the products to the market

Factors affecting supplyImprovements in technology

Factors affecting supplyTaxes

Factors affecting supplyClimate & Weather

Elastic Supply

Price

Quantity

Supply

Quantity supplied is very sensitive to price changes.

Many substitutes

Change in price is greater than the change in quantity

Inelastic Supply

Price

Quantity

Supply

Quantity supplied is not very sensitive to price changes.

Not many substitutes

Change in quantity is not as great as the change in price.

Shifts in SupplyPrice of

Ice-CreamCone

0 Quantity of Ice-Cream Cones

Demand

Newmarket price

Initial market price

S1

S2

2. . . . resultingin a higherprice of icecream . . .

1. An increase in theprice of sugar reducesthe supply of ice cream. . .

3. . . . and a lowerquantity sold.

2.00

7

$2.50

4

Elasticity of SupplyElastic? Inelastic?

Market Price DeterminationPrice of

Ice-CreamCone

0 1 2 3 4 5 6 7 8 9 10 11 12Quantity of Ice-Cream Cones

13

Interception point determines market

price

Supply

Demand

$2.00

Activity 20.1 – Page 303(New)Price ($) Demand (000s) Supply (000s)

0.50 10 2

0.75 9 3

1.00 8 4

1.25 7 5

1.50 6 6

1.75 5 7

2.00 4 8

2.25 3 9

Activity 20.2Change taken

placeDD/SS

affected?Price increase of decrease?

Sales increase or decrease

Bad harvest of coffee beans

Jeans go out of fashion

A govt report published that

states eating rice is very healthy

New technology introduced into

computer production which

increases efficiencyCosts of

components has increased

Competitors prices increase

Pricing Strategies

Cost-plus Pricing Strategy

•Cost + mark-up▫cost of

manufacturing▫plus a profit mark-

up

•Advantage▫Easy to apply

•Disadvantage▫If price is to high

than the rival price, you may lose sales

Penetration Pricing Strategy

•Used to enter a new market

•Price lower than the competitors

•Advantage▫Ensures sales are

made

•Disadvantage▫Low price means

low profit

Price Skimming Strategy

•High price set for a new product or invention on the market

•Advantage▫helps establish

good product quality

•Disadvantage▫May put off some

potential customers because of the high price

Competitive Pricing Strategy •Price in line with

or just below rival•Aim to capture

more of the market

•Advantage▫Sales likely at high

realistic level▫not under or

overpriced•Disadvantage

▫Research competitors constantly to set price

▫costs time & money

Promotional Pricing Strategy

•Sold at very low price for short periods

•Advantages ▫Useful for getting

rid of the over stocks

▫Helps make interest in the business

•Disadvantage▫The sales revenue

will be lower because the price

Psychological Pricing Strategy

•Attention on the effect of the price on the consumers perception of the product

•Could include▫High price – High

Quality Status Symbol

▫Pricing just below whole number (e.g. 19,999 baht) Cheaper Impression

▫Regular purchased products at low prices value for money

Which pricing strategy would you use?

a) A watch that is very similar to other watches sold in shops

Which pricing strategy would you use?

b) A new type of radio that has been developed and is of much higher quality than existing radios

Which pricing strategy would you use?

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.

Which pricing strategy would you use?

d) A shop, which sells food, wants to get its money back on buying the stock and make an extra 75 per cent as well.

Which pricing strategy would you use?

e) A new brand of soap powder is launched (there are already many similar brands available).

Which pricing strategy would you use?

f) Toys sold for $1.99 each

$1.99

Activity 20.4 ++Pricing Strategy

Description

Examples of use

Advantages

Disadvantages

Cost-plus

Penetration

Skimming

Competitive

Promotional

Psychological

Now your should be able to………•Understand how prices are determined in

the market•What influences demand & supply•Selecting suitable pricing strategies for

different business situations/objectives