Pricing Strategies

Chapter 6

It is the second of the four marketing P’s, Price. The primary takeaway within this
chapter is that price is not just a means for generating profit.

Origins of Pricing

 SRP –“Suggested Retail Price” it denotes the price that a customer product is expected to
be sold at over the counter and in stores.
 Before when there’s no such thing as SRP, prices were always the subject of
negotiation.
 Emergence of the Suggested Retail Price
There are two elements in particular seriously altered merchandiser’s approach to pricing:
1. Mass Production
2. Transportation

Price Elasticity and Inelasticity

 Elasticity-refers to the degree of sensitivity of a market to changes in a product’s price.

 Inelasticity-refers to a market’s reluctance to let go of a product even if its price goes up
or, contrariwise, inertia against buying more of a product just because its price goes
down.
 Price Elasticity of Demand-is typically explained as the market’s sensitivity to changes
in price.
There are a couple of exceptions to this general rule of demand that are inversely reacting
to price. These are:
1. Veblen goods- goods that become more sought after the higher their prices become,
often in the case of high-end luxury goods (Veblen 1953);
2. Giffen goods-goods that end up being preferred despite its price increase because
substitute goods’ prices are also rising as well, to the point that the former becomes
more attractive than the substitutes (Marshall 2006).
 The market is said to be price elastic if the rate of change in quantity is greater than the
rate of change in price.
 The market is said to be price inelastic if the rate of change in quantity tends to be less
than the rate of change in price.
Pricing Methods

 Price is a very sensitive element because, unique among the components of the
marketing mix, it actually can make or break your product’s profitability.
 If the price is too low, you could use money and at worst be driven out of business.
 If the price is too high, you could price your product out of the market and you could
lose buyers (and your business) too.
 As it turns out, communication plays a vital role in this balancing act. A higher price
helps to communicate higher quality, while a lower price (if done right) can communicate
good value.
 In the end, pricing is not just about recovering your investment. It is also all about
communication.
 Price Quality Strategies
 If there is only one brand that offers products in particular industry, the market
really cannot say whether or not its price is cheap or expensive. The price is
simply taken at face value.
 Point of Reference-it is the most popular product in the category.
 Market Leader-get to dictate the going rate for the product.
 Pricing Objective
o Prices can be set low enough so as to discourage potential competitors from
entering the market.
o Prices can be discounted for a limited time in order to encourage immediate
purchase.
o Prices can be set high in order to communicate a premium feel for the product.

 If the object is market share leadership, then the price is set in such a way
as to appeal to the mass market. However, if the objective is product
quality leadership, then a premium price may be set in order to best
communicate this attribute to the market.
 Setting the Price
 Markup pricing-a typical approach in determining price. Here, the cost of
producing the product is first estimated, with cost being primarily defined as the
variable costs of a product or the costs of its direct components.
 Target return pricing-is similar to markup pricing, except that it is based on the
Return on Investment requirements of the firm.
 Perceived value pricing-is a proactive and marketing-based (rather than
accounting-based) pricing method whereby the value of the product to the market
becomes basis for the price.
 Going-rate pricing-is another relatively simple pricing technique, this time
basing price on industry rates rather than on either costs or market perceptions.
Pricing Strategies and Applications

 Adapting the Price-after the process of determining the suggested retail price as presented in
the previous section, firms may still have to make adjustments based on a number of
circumstances that their product will have to navigate through.
-price is still adjusted depending on the objectives.
 Pricing a New Product-if it is a new product that is being sold, then the business can
either skim the market or penetrate the market.
 Market Skimming
 Market Penetration
 Psychological Pricing-much of pricing’s communication, particularly with regard to
referencing other product’s prices, is inherently psychological in nature.
Here are a few more psychological tactics that are often utilized when setting end prices
for products:
 Odd-Number Pricing
 Free Pricing
 Discriminatory Pricing-discrimination is defined as the treating of different groups of people
in different manners, which is technically unjust because all humans should be treated alike as a
matter of principle.
-In marketing, however, market segmentation is a way of life. Market
segmentation often translates to opportunities for discriminatory pricing—offering
different prices to different market segments.
 Segment Pricing
 Product-Form Pricing
 Image Pricing
 Location Pricing
 Time Pricing
 Product Mix Pricing
 Product Line Pricing
 Optional Feature Pricing
 Captive Product Pricing
 By-product Pricing
 Product Bundle Pricing
 Trade discounts, VAT, and Taxes
 Trade discounts-are the incentives that you offer the resellers or
participants in your selling process. This can include commissions for
sales personnel.
 VAT or value-added tax-is a form of input tax where the tax is
earmarked onto the added value that your firm produces.
 PRINCIPLES OF MARKETING

Submitted By: Group 3

Members:
Campehios, Agnes S.
Yare, Ma. Christine
Abonin, Jaica
Caindoc, Kristel Mae
Batingal, Wilfe
Fiel, Miko
11-ABM B (Alexandrite)

Submitted To: Ms. Eureka Jane Rivera