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Understanding Pricing Strategies in the Marketing Mix

Chapter 20 delves into the significance of pricing within the marketing mix. It covers how price influences consumer behavior and competitive positioning, detailing the essential factors in price determination, such as demand and supply. The chapter also explores various pricing strategies that businesses can adopt to remain competitive. Understanding the role of price is crucial, as setting it too high can lead customers to opt for rival products. Learn how to balance pricing effectively to maximize market share and profitability.

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Understanding Pricing Strategies in the Marketing Mix

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  1. Chapter 20 – Marketing Mix - Pricing

    Unit 3 - Marketing
  2. You will learn………………………….. Role of price in the marketing mix Price determination Demand & Supply Pricing Strategies
  3. Role of the Price Deciding the price is important Rivals Too high  customer choose rival’s product
  4. Role of the Price Deciding the price is important Rivals Too low  wonder about products quality Only 15,999 baht
  5. Role of the Price Deciding the price is important Rivals Similar  Competition
  6. Price Determination Demand Supply
  7. 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?
  8. DemandCurve D Law of Demand: If price rises demand falls People willnot be able to buy the same quantity with the same money Price D Quantity Demanded
  9. Shifts in Demand $3.00 2.50 Price of Ice-Cream Cone Increase in demand 2.00 Decrease in demand 1.50 1.00 0.50 D2 D3 D1 0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of Ice-Cream Cones
  10. Factors affecting demand Changes in the prices of others products Substitute Products Complimentary Products
  11. Factors affecting demand Changes in tastes, preferences or fashions
  12. Factors affecting demand Changes in peoples incomes
  13. Factors affecting demand Advertising
  14. Elasticity of Demand
  15. Elastic Demand Quantity demanded is verysensitive to price changes. Many substitutes Change in quantity is greaterthanthe change in price Price Demand Quantity
  16. Inelastic Demand Price Quantity demanded is not very sensitive to price changes. Not many substitutes Change in quantityis not as great as the change in price. Demand Quantity
  17. Elastic? or Inelastic?, Here the slope relates that the quantity demanded is very sensitive to price changes Price 1000 ./month
  18. Elastic? or Inelastic?, BUT a change in the scale of measure changes the graph so as to make it look as though the quantity demanded is NOT very sensitive to changes in price ! Price 6 5 4 3 2 1 100 200 300 400 500 million /month
  19. Elasticity of Demand Elastic? Inelastic?
  20. …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! How to make your product more inelastic
  21. 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?
  22. SupplyCurve S price Law of Supply: If price rises supply rises More and more suppliers want to sell their product because of higher profits S Quantity supplied
  23. Supply curve, S 3 Supply curve, S 1 Supply curve, S Decrease 2 in supply Increase in supply Shifts in Supply Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0
  24. Factors affecting supply Changes in the costs of supplying the products to the market
  25. Factors affecting supply Improvements in technology
  26. Factors affecting supply Taxes
  27. Factors affecting supply Climate & Weather
  28. Elastic Supply Quantity supplied is verysensitiveto price changes. Many substitutes Change in price is greaterthanthe change in quantity Price Supply Quantity
  29. Inelastic Supply Price Quantity supplied is not very sensitiveto price changes. Not many substitutes Change in quantityis not as great as the change in price. Supply Quantity
  30. 1. An increase in the price of sugar reduces the supply of ice cream. . . S2 S1 New market price $2.50 2.00 2. . . . resulting in a higher price of ice cream . . . Demand 4 7 3. . . . and a lower quantity sold. Shifts in Supply Price of Ice-Cream Cone Initial market price Quantity of 0 Ice-Cream Cones
  31. Elasticity of Supply Elastic? Inelastic?
  32. Supply Interception point determines market price $2.00 Demand Market Price Determination Price of Ice-Cream Cone 0 1 2 3 4 5 6 7 8 9 10 11 12 13 Quantity of Ice-Cream Cones
  33. Activity 20.1 – Page 303(New)
  34. Activity 20.2
  35. Pricing Strategies
  36. 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
  37. 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
  38. 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
  39. 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
  40. 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
  41. 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
  42. Which pricing strategy would you use? A watch that is very similar to other watches sold in shops
  43. Which pricing strategy would you use? A new type of radio that has been developed and is of much higher quality than existing radios
  44. Which pricing strategy would you use? A chocolate bar which has been on the market for several years and new brands are being brought out which are competing with it.
  45. Which pricing strategy would you use? A shop, which sells food, wants to get its money back on buying the stock and make an extra 75 per cent as well.
  46. Which pricing strategy would you use? A new brand of soap powder is launched (there are already many similar brands available).
  47. Which pricing strategy would you use? Toys sold for $1.99 each $1.99
  48. Activity 20.4 ++
  49. 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
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