MKX 9550 Tutorial

Creating value Price

Week 10 7th October 2013

Objectives
Know how consumers process and evaluate prices Appreciate how a company should set prices initially for products or services Know how a company should adapt prices to meet varying circumstances and opportunities Understand when a company should initiate a price change Understand how a company should respond to a competitors price change

Tutorial discussion (written submission is not required)

Despite the increased role of non-price factors in modern marketing, price remains a critical element of the marketing mix. Price is the only element that produces revenue; the others produce costs. In setting pricing policy, a company follows a six-step procedure. It selects its pricing objective. It estimates the demand curve, the probable quantities it will sell at each possible price. It estimates how its costs vary at different levels of output, at different levels of accumulated production experience and for differentiated marketing offers. It examines competitors costs, prices and offers. It selects a pricing method. It selects the final price. Companies do not usually set a single price, but rather a pricing structure that reflects variations in geographical demand and costs, market-segment requirements, purchase timing, order levels and other factors. Several price-adaptation strategies are available: (1) geographical pricing; (2) price discounts and allowances; (3) promotional pricing; and (4) discriminatory pricing. After developing pricing strategies, companies often face situations in which they need to change prices. A price decrease might be brought about by excess plant capacity, declining market share, a desire to dominate the market through lower costs or economic recession. A price increase might be brought about by cost inflation or over demand. Companies must carefully manage customer perceptions in raising prices. Companies must anticipate competitor price changes and prepare contingent responses. A number of responses are possible in terms of maintaining or changing price or quality. The company facing a competitors price change must try to understand the competitors intent and the likely duration of the change. Strategy often depends on whether a company is producing homogeneous or non-homogeneous products. A market leader attacked by lower-priced competitors can seek to better differentiate itself, introduce its own low-cost competitor or transform itself more completely.

Case study
Remember, you must bring along typed answers to the following questions, to be handed to your tutor after the case discussion. You will be able to hand-write additional comments onto your answer sheet for later revision of this topic.

Students should read the Tesco case on page 466-467 of your text book, and then answer the following questions: 1. Evaluate the Tesco marketing (distribution) channels? 2. How should a company like Tesco deal with conflict within the supply chain? (Please note that these two questions relate to THIS weeks lecture and you are expected to do some pre reading)