This article focuses on the principles of marketing and the concept of marketing mix is analyzed.

Pricing is one of the four aspects (product management, pricing, promotion and place) in the marketing mix, and directly effects how a product is positioned in the market. Pricing strategies will be discussed. The foundation of business marketing strategy is based on three concepts: Segmentation, targeting and positioning. These three concepts are introduced. Keywords Market Segmentation; Penetration Pricing; Positioning; Pricing; Price Skimming; Pricing Strategies; Targeting; Value Based Pricing Overview Most individuals who study the field of marketing know the foundation of the concept. It is based on a marketing mix, which consists of four basic elements. These elements are: Product, price, promotion, and place. These

elements are also known as the 4 P's of marketing (Golden & Zimmerman, 1980). Products are what the seller provides for the buyer for a price. Place refers to how the seller gets the merchandise to the customer. Price is what the seller charges the buyer for the service or product. Promotion is the method in which the seller advertises in order to get customers. The Five Forces Once the marketers have understood the concept of the marketing mix, it would be advantageous for them to develop a strategic plan for selling their products or services. A popular model for determining competitive advantage is Porter's Five Force Analysis model. This model lists five key areas that marketers and strategic planners should evaluate when analyzing the competitive environment. The five forces are: Threat of entry, the power of buyers, the power of suppliers, the threat of substitutes, and competitive rivalry (Porter, 1985). Each force has a list of questions to be answered as follows. Threat of Entry Are there any benefits associated with bulk purchasing? How much will the latest technology cost? Do the competitors have a stronghold on most of the distribution channels? Are there any cost advantages not associated with the size of the company? Will competitors retaliate? Will new laws weaken the company's competitive position? How important is differentiation? The Power of Buyers Are there any large players in the market (i.e. chain restaurants)? Will the large players have the support of small suppliers (i.e. companies such as Home Depot receiving flowers from local nurseries)? Is the cost of switching between suppliers low (i.e. a conference coordinator switching from Hertz to Avis)? The Power of Suppliers Are the costs high for switching suppliers? Is the brand powerful (i.e. Cisco)? Is there a possibility of the supplier integrating (i.e. banks offering insurance)? Are the customers fragmented so that they have limited bargaining power? The Threat of Substitutes Is there a product-for-product substitution (i.e. cell phones instead of land lines)? Is there substitution of need (i.e. lighter textbooks reduces the need for chiropractic care)? Is there a generic substitution (i.e. for insurance purposes, getting a generic prescription versus

a brand prescription)? Can we do without the product (i.e. fast food because it can lead to obesity)? Competitive Rivalry If there is a strong chance of entry, competitive rivalry will be high. There is a danger that involves substitute products as well as suppliers and buyers attempting to take control of the market. Application

Pricing Pricing is one of the four aspects (product management, pricing, promotion and place) in the marketing mix, and directly effects how a product is positioned in the market. It should take into consideration fixed and variable costs, competition, organizational objectives, proposed positioning strategies, target groups and their willingness to pay the price. When an appropriate price is selected, it should: Assist the organization in reaching its financial goals, be a realistic price for the target market, and support a product's positioning and be consistent with the other variables in the marketing mix. Many organizations have utilized various factors when determining the pricing strategies for their products and services. However, there are some general guidelines that all share. For example, the marketing representatives may go through a series of steps as follows. Develop marketing strategy (perform marketing analysis, segmentation, targeting and positioning). The team will have to determine the mix of each aspect of the marketing mix formula. The first step will be to develop a marketing strategy for the product or service. At this point, a decision is made as to who the target market will be and how the product will be positioned. Another factor will be the response to "is pricing going to be a key point of the positioning"? For example, if the product is going to be sold on eBay, the company may consider researching how other companies have set up a pricing structure for the same or similar items. Make marketing mix decisions (define the product, distribution and promotional campaign). There will be trade offs between the variables in the marketing mix. Pricing will be based on other decisions that have been made in the areas of distribution and promotion. For example, is the expectation to sell a small number of luxury items at high prices so that the product becomes a rare, unique commodity? Estimate the demand curve (understand how quality demanded varies with price). There tends to be a relationship between price and quantity demanded. Therefore, the marketing team will attempt to estimate the demand curve for the product or service since pricing impacts sales. The first step will be to conduct market research to find out if price will have an effect on the demand for the product. If the product already exists, the marketers may want to survey whether or not the market will accept prices above and below the current price. The results will give the marketing team an idea of the price elasticity of demand for the product. Calculate cost (include fixed and variable costs associated with the product or service). Once it has been determined that the product will be launched, the marketing team will need to understand all of the costs involved. Therefore, they will need to calculate the fixed and variable costs related to the product or service, which is referred to as the total unit cost. The unit cost of the product determines how much is needed in order to break even. Any price set higher than this could set the profit margin. Understand environmental factors (evaluate potential responses from competitors and understand legal constraints). The marketing team should find out if there are any legal restraints on pricing. For example, offering different prices to different consumers can lead to cases of price discrimination. There may be legislation that dictates how high the price can go. Also, there are laws that prevent predatory pricing, especially in the international trade market. Set pricing objectives. There are a variety of ways to set the pricing objectives. Some of the most popular objectives include:

Profit Maximization By taking into consideration revenue and costs, this objective seeks to maximize current profits. Revenue Maximization This objective does not take profit margins into consideration when attempting to maximize current revenue. Maximize Quantity This objective tries to increase the amount of units or products that are sold and/or the amount of customers or service that is provided as a means to decrease the long-term cost that was estimated by the experience curve. Maximize Profit Margin This objective intents to increase the unit profit margin with the understanding that the quantified results will be lower than expected.

Differentiation (Quality Leadership) This objective looks at the difference in price when determining the target market. While some companies may seek to be the low-cost leader, others will highlight quality as the justification for higher prices. For example, a consumer would expect to pay a high price for a Prada handbag.

Survival This objective is successful when there is a crisis in the marketplace. For example, the market may be experiencing a price war, market decline or market saturation. Therefore, the company may be forced to temporarily set a lower price that will cover costs and allow the business to continue to operate in order to survive. In this type of situation, survival is more important than profits.

Partial Cost Recovery An organization may seek only partial cost recovery if it has other sources of income. Some of the most classical pricing strategies are: Price Skimming: When the product is introduced, the organization will set a high price in order to attract consumers who are not sensitive to price. However, the prices will eventually fall due to an increase in supply, especially from competitors. This strategy is most appropriate when: Customers are not sensitive to price, there is no expectation of large cost savings at high volumes, and the organization lacks the proper resources required to pay for

the capital expenditures for high-volume manufacturing with lower profit margins. Penetration Pricing: When the product is introduced, the price is set at a lower bar as a means to eventually increase the market share. Once market share has been obtained, the prices are increased. This strategy tends to be used by companies attempting to enter a new market or desiring to build a small market share. Apenetration strategy may also be used when a company wants to promote complimentary products. The main product is set at a low price in order to get customers to buy the accessories, which are sold at higher prices.

Economy Pricing: This strategy is considered the "no frills" approach. The cost of marketing and manufacturing are kept low. An example is store brand products or generic drugs. Premium Pricing: When the product is unique and the company has a competitive advantage, a high price can be set. Determine pricing utilizes the information gathered in the aforementioned levels involved in selecting a pricing technique, developing a pricing arrangement, and defining discounts available. Once the prices have been set, the marketing team may employ one or more of the following pricing methods in order to achieve their goals.

Cost-plus pricing the price is set at the production cost plus a predetermined profit margin. Target return pricing The price is set in order to gain a predetermined return on investment. Value-based pricing A price is set based on the notion that a customer will pay in accordance to the value understood by the customer versus the actual cost of an alternative item or service. Caminal & Vives (1996) research showed that "a higher current market share can be interpreted by future consumers as a signal of higher relative quality and will tend to increase future demand" (p. 222).

Psychological pricing A price is set based on factors such as product quality and perceived consumer value. The company perceives that the customer will respond based on emotion versus logic. For example, the price may be $1.99 versus $2.00. The list price is usually the price that is quoted to the target market. However, discounts may be given to distributors

and a select group from the target market. Examples of discounts include: Quantity discounts Discount offered to customers purchasing large quantities. Cumulative Quantity discounts Discount offered increases as the cumulative purchase increases. This is a good approach for resellers who purchase large purchases over time versus purchase large quantities at one time. Seasonal discounts Discounts offered depending on the time of year the purchase was completed. The purpose is to offset seasonal variations in sales. Cash discounts Discount offered to customers who pay before the due date. Trade discounts Discount offered to distributors who successfully perform their responsibilities to the organization.

Promotional discounts Discount offered in order to generate sales. This type of discount is usually set up for a short, specified period. For example, Ford offered $1,000 rebates for the Taurus in order to maintain its lead over the Honda Accord as the number one selling car in the United States (Naughton, 1997). Viewpoint Business Marketing Strategy The foundation of business marketing strategy is based on three concepts, which are segmentation, targeting and positioning. Segmentation Customers are not the same. They have different needs and place different values on products and services. In order for organizations to respond to the various demands, they may group similar customers together in order to customize a marketing campaign geared toward each group. This process is an example of market segmentation. Marketers predict that each segment will have similar feelings about specific products. Therefore, there is a high probability that the individuals in the group will be receptive to the marketing campaign. The purpose of marketing segmentation is to recognize groups of like customers; arrange the groups according to highest priority; understand the potential customers' wants, needs and behavior patterns; and respond to the different preferences with the appropriate marketing strategy. If the goal is met, businesses are expected to increase their revenue and marketing effectiveness. In order to have a successful segmentation, there must be homogeneity with the segment, heterogeneity between segments, segments which can be measured and identified, segments that can be accessed, and segments that supply the vastness necessary to bring in profits. The variables involved in segmentation are: Geographic variables, demographic variables, psychographic variables and behavioral variables. When a marketer collects information on the various variables, he will combine the information to create a buyer profile. In business-to-business marketing, market segmentation can be tricky because market researchers must work with smaller customer populations which are not conducive to large group statistical analysis (i.e. data mining).

Targeting Once the segments have been identified, the organization must determine which markets they will focus on. This is the next step and it is called targeting. Targeting involves the selection of customers. At this level, the organization must decide which segments need to be targeted, the number of products to make available, and which products will belong to certain segments. Targeting decisions are based on the maturity of the market, the degree of diversity seen in customers requirements and desires, the stamina of the competitors, and the volume of sales necessary for a respectable profit. Business marketers have to decide which segments are the most profitable, how to assign the sales staff to the various segments, and develop distribution channels. Targeting can be selective (i.e. niche marketing) or extensive (i.e. mass marketing).

Positioning Once segmentation and targeting have been completed, the organization is ready for the final step positioning. A product's position is based on how the customers view the product (i.e. their perception). Therefore, positioning is considered an organization's attempt to instill a picture in the minds of the customers for which the products have been targeted. There are two ways to achieve this goal. They are re-positioning and de-positioning. Re-positioning occurs when the organization changes the identity of the product based on the identity of other products with which it may be in competition. De-positioning occurs when the organization attempts to alter the identity of the competitive products based on the identity of its own product. To fulfill the requirements involved in the positioning process, the organization must:

Accurately identify and define the market that the product will be targeted toward and compete in. Identify the characteristics that help to sufficiently define the product. Collect and gather research from trial customers who will offer their opinions, advice, and initial reception of the product based on its relevant characteristics. Determine each share. Decide where each product will be placed within the overall product category. Examine the fit between the position of the organization's product and the ideal vector. In the positioning phase, organizations are challenged with deciding which elements of their value proposition that they will highlight in order to make their product the preferred choice for potential customers. The three elements

are uniqueness, differences, and similarity. Uniqueness is when the organization can say it is the only company with the product. Differences are highlighted when the organization compares its product to the competitor's product (i.e. a Sony television has more features than a Toshiba television). Similarity occurs when an organization advertises that its product has the same features, but at a lower price. Organizations may highlight different parts of its value proposition to different target markets. The objective is to position the product or service so that it is the first thing that pops into the mind of the potential customers. Conclusion Pricing is one of the four aspects (product management, pricing, promotion and place) in the marketing mix, and directly effects how a product is positioned in the market. It should take into consideration the fixed and variable costs, the competing markets and products, the organizational objectives, the suggested positioning techniques, the target audience and the customers compliance in paying the price. When an appropriate price is selected, it should: Assist the organization in reaching its financial goals, be a realistic price for the target market, and assist with a product's arrangement while being compatible with the additional variables involved. Many organizations have utilized various factors when determining the pricing strategies for their products and services. The foundation of business marketing strategy is based on three concepts, which are segmentation, targeting and positioning. The purpose of marketing segmentation is to accurately recognize the groups that are akin to the customer-base that will be involved; prioritize which groups a business will focus on; understand the potential customers' wants, needs and behavior patterns; and respond to the different preferences with the appropriate marketing strategy. If the goal is met, businesses are expected to increase their revenue and marketing effectiveness. Targeting decisions are based on the maturity of the market, the degree of diversity seen in customers requirements and desires, the stamina of the competitors, and the volume of sales necessary for a respectable profit. Business marketers have to decide which segments are the most profitable, how to assign the sales staff to the various segments, and develop distribution channels. Targeting can be selective (i.e. niche marketing) or extensive (i.e. mass marketing). In the positioning phase, organizations are challenged with deciding which elements of their value proposition that they will highlight in order to make their product the preferred choice for potential customers. The three elements are uniqueness, differences, and similarity. Terms & Concepts Market Segmentation: A marketing technique that divides a market into clearly defined categories according to their shared needs and similar behavior patters. The segments, each homogenous in their requirements and viewpoints, are expected to react correspondingly to the same marketing strategies employed. Penetration Pricing: When a corporations implements a low starting price with the hopes of it leading to a growth in sales and market shares. Positioning: The act of creating a positive perception and identity of a product by instilling such images in the minds of the potential consumers and target market. Pricing: An element involved in the marketing mix along with product management, promotion, and place. Price Skimming: Occurs when a corporation implements a high starting price for a product with the intention of lowering the price over time to make the product more widely available in its market. The goal is to remove profits of the market one layer at a time. Pricing Strategies: Intentional planning of the product pricing that takes into consideration of the consumers desires and needs, the products assets, and the potential competitors. Targeting: The selection of customers a business wishes to service. Value Based Pricing: When a company uses its marketing and sales programs to educate potential customers on the value of products so that they are willing to pay more. Bibliography Caminal, R., & Vives, X. (1996). Why market shares matter: An information-based theory. RAND Journal of Economics, 27(2), 221-239. Retrieved July 3, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=9606192119&site=bsi-live

Golden, L., & Zimmerman, D. (1980). Effective retailing. Chicago, IL: Rand McNally College Publishing Company. Naughton, K., & Light, L. (1997,January 20). Taurus may tumble from the top. Business Week, (3510), 4. Retrieved July 3, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=9701145891&site=bsi-live Porter, M. E. (1980). Competitive strategy. The Free Press. Suggested Reading Driussi, A. (2007,May 11). Pricing: The lost component of the marketing mix? Professional Marketing Su, 57, 6-7. Retrieved October 8, 2007, from EBSCO Online Database Business Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=25227268&site=bsi-live Source

Graham, J. (2006). Demystifying marketing or what makes it work. American Salesman, 51(9), 14-19. Retrieved October 10, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=22067390&site=bsi-live Hudson, A. (2006). Marketing principles you can't avoid. Contractor Magazine, 53(1), 46. Retrieved October 10, 2007, from EBSCO Online Database Business Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=19628603&site=bsi-live Source

Kaschyk, H. (2007,May). A new aspect of the marketing mix. American Drycleaner, 74(2), 38-40. Retrieved October 8, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=25031120&site=bsi-live