PRICE - Weebly · 2018-04-24 · 3. Price skimming Skimming pricing involves charging a high price...

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T.P.Suraj Business Management & Economics Shanghai

PRICE

The price decision is a crucial part of any marketing

campaign. Deciding on the ‘right’ price for a product is not

an easy task. In fact, research has shown that many

products fail due to poor pricing decisions.

Pricing Decision: Price Makers and Price Takers

Some firms are in a better position than others to set

prices. A monopolist (single supplier of a product) will have

a high degree of market power and therefore has the

ability to set its own prices. Monopolist are therefore said

to be price makers or price setters.

In a highly competitive market, the firms that do not have

much power over the setting of prices are referred to as

price takers. They ‘take’ the price given by others in

market.

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1. Cost-plus pricing (mark-up pricing)

This pricing strategy involves adding a percentage or

predetermined amount of profit to the average cost of

production to determine the selling price.

Advantage: simple and easy to calculate.

2. Penetration pricing

Penetration pricing is a strategy used for a new product to

help establish itself in the industry. This method involves

setting a relatively low price in order to gain market share

and brand awareness. This strategy is suitable for mass

market products that sell in large volumes to sustain low

profit margin, such as fast moving consumer goods.

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3. Price skimming

Skimming pricing involves charging a high price for

innovative or high-tech products for an initial period. A high

selling price is initially set to recoup the costs of research

and development. The strategy can also create a unique,

high quality or prestigious image for the product.

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4. Psychological pricing

Psychological pricing is a strategy that involves using

numbers, such as $ 9.99 or $ 14,995, to make prices seem

lower (than $ 10.00 or $ 15,000). Hence customers

psychologically feel that they are getting a bargain or

better price for the product.

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5. Loss leader

Loss leader pricing involves selling a product at or below

its cost value. This is a short-term strategy that aims to

entice customers to buy more profitable products at the

same time as buying the loss leader. Retailers, such as

supermarkets often use this strategy.

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6. Price discrimination

Price discrimination occurs when the same product,

usually a service, is sold in different markets at different

prices. This is a perfectly legal act.

Examples: Airline tickets for – infant, children and adults

are different. Entrance fees in theme parks, cinemas for

children and adults are different.

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7. Price leadership

Price leadership is a strategy that is often used for best-

selling products or brands. Competitors follow the leader

by establishing their prices based on the price set by the

market (or price) leader.

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8. Predatory pricing

Predatory pricing is a competition-based pricing strategy

that involves a firm setting prices so low that other

competitors, especially smaller firms, cannot compete at a

profitable level. (Reducing price is an attempt to force

rivals out of the industry).

Uber has been accused of using predatory pricing

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Price wars

Involves businesses competing by a series of intensive

price cuts to threaten the competitiveness of rival firms.

In a

price

war

Consumers

benefit from

big price cuts

But firms lose

profits

and some firms may be

forced to close which

may reduce competition

in the long run

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PROMOTION

Promotion is a component of the marketing mix. It refers

to the methods used to inform, persuade or remind

people about its products, brands or business. It is the

key element of any marketing strategy. Examples of

promotion include sales promotion, branding, raising

publicity, and advertising campaigns.

Objectives of promotion

Inform – Informative promotions aim to alert the market

about a firm’s products, especially new ones.

Persuade – Persuasive promotions aim to encourage

customers to make a purchase, to switch from rival

brands and to create loyalty for the product or brand. It is

therefore commonly used in highly competitive markets.

Remind – Reminder promotion techniques are used to

retain customer awareness and interest of an

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established product. Reminder promotions are suitable

for products that are in the maturity or saturation stages

of their product life cycle.

Most promotional campaigns contain an element of both

persuasion and information. However the vast majority of

promotions, especially advertising are of the persuasive

kind.

Types of promotion

1. Above-the-line (ATL) : refers to the use of mass

media sources such as television, magazines and

radio to promote or to establish a favourable long term

image of a business, its brands or its products.

2. Below –the-line (BTL) : refers to the use of non

mass-media promotional activities such as

sponsorship, direct mailing, slogans, word of mouth,

packaging, sales promotion and trade fairs.

Main methods of ATL promotion

Television advertising

Radio

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Newspaper

Magazines

Billboards

Posters

Main methods of BTL promotion

Branding

Slogans

Logos

Packaging

Word-of-mouth

Direct marketing

Direct mail

Sales promotion – discounts, coupons, free samples,

free gifts

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Point of sales

Sponsorship

Popular business Slogans

“The ultimate driving machine” – BMW

“The world’s local bank” – HSBC

“Just do it’” – Nike

“I’m Lovin It’ – Mc Donald’s

“Connecting People” - Nokia

Word-of-mouth promotion

Word of mouth (WOM) refers to the spreading of

information from one person to another through oral

communication.

Promotional Mix

Promotional mix refers to the combination of individual

promotional methods used by a business, such as

advertising, directing marketing, packaging and sales

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promotions. In deciding on a promotional mix,

marketers often consider the marketing acronym

AIDA.

Attention – The promotional mix should raise

existing and potential customers’ awareness of the

product by engaging their attention.

Interest – it should also stimulate and keep

customers interested, perhaps by using

memorable and interesting advertisements.

Desire – The promotional mix should generate a

desire or felling of ‘need’ for the product, perhaps

through the use of free samples to lure customers.

Action – it is vital that a promotional mix

encourages customers to take action. i.e to

purchase the product, perhaps through the use of

discount vouchers or other sales promotion

methods.

In devising a promotional strategy, marketers will

consider a combination of factors, such as :

Cost of promotional medium

The nature of the product

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The products position in its life cycle

Legislation

Common advertising techniques

Bargaining appeals – goods deals and give-away

schemes that attract customers to buy a product on

preferential term. Example: reduced price for a limited

time only.

Celebrity endorsement – using famous celebrities to

advertise a product or brand.

Comparative advertising – comparing a product or

brand with substitutes on the market.

Direct response advertising – using contact details

(phone number, email, fax or mailing address) to

encourage customers to directly respond to an

advertisement.

Feel good factor – focus on the morale and image

boosting benefits of buying a particular product, such

as health-care, luxury sports cars.

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Guarantees – using promises, such as guaranteed to

work on your money back schemes, to entice and

reassure customers.

Numerical or scientific claims – advertisements that

use alleged statistics to promote their products or

brands.

Slogans – using catchphrases, tunes and music that

stick in the minds of customers.

Activity:

Collect advertisements on different advertisement

techniques.

Identify the techniques used in each of the

advertisement and give a brief explanation.

Technology and promotion

Viral marketing: peer-to-peer (P2P)

Marketing done through internet via emails and social

networking services.

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Social networking: platform used by individuals to

build social relationships. Example: facebook,

Instagram

Social media marketing: social media is the tool, and

it is one directional

Example: video, (Youtube, Google, website, blogs,

news feed)

Guerrilla marketing

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Guerrilla marketing aims to ambush or catch the

attention of customers through unusual/ or shocking

techniques.

It is more controversial and designed to be cheap but

provocative risk-taking form of promotion.

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NIVEA – cold cream

Amnesty international – Human rights

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Kitkat – chocolates

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SPIDERMAN -2 (Movie)

Video : Emirates airline, Palmolive

Unethical and socially irresponsible promotion

techniques.

Pester power

Confusion marketing

Ambush marketing

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Infiltration marketing

Pop-up advertisement

PRICE - Weebly · 2018-04-24 · 3. Price skimming Skimming pricing involves charging a high price...

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