Pricing

Price is the amount asked or received in exchange for a product . Basis for exchange. What the retailer is willing to sell product/service for; What the Consumer is willing to pay to obtain product/service. Pricing is the process of determining what a company will receive in exchange for its products.

Significance of pricing for fashion marketer

It is the only part of the marketing mix that contributes to profit ; the others only add to the cost. The strength of a company is measured in financial terms , whether it is profit , turnover or return to capital employed .

Basic rules of pricing

All prices must cover costs and profits. The most effective way to lower prices is to lower costs. Review prices frequently to assure that they reflect the dynamics of cost, market demand, response to the competition, and profit objectives. Prices must be established to assure sales.

Setting the Price

Pricing Procedure
Select pricing objective Determine demand Estimate costs Analyze competition Select pricing method Select final price

Survival Maximize current profits Maximize market share Penetration strategy Market skimming Skimming strategy Product quality leaders Partial cost recovery

Setting the Price

Pricing Procedure
Select pricing objective Determine demand Estimate costs Analyze competition Select pricing method Select final price

Understand factors that affect price sensitivity Estimate demand curves Understand price elasticity of demand Elasticity Inelasticity

Pricing strategies
Conditions Under Which Consumers are Less Price Sensitive:
Product is more distinctive Buyers are less aware of substitutes Buyers cannot easily compare quality of substitutes The expenditure is a lower part of buyers total income The expenditure is small compared to the total cost Part of the cost is borne by another party The product is used with assets previously bought The product is assumed to have more quality, prestige, or exclusiveness Buyers cannot store the product

Pricing strategies
Conditions Under Which Demand is Less Elastic:
There are few or no substitutes Buyers do not readily notice the higher price Buyers are slow to change their buying habits and search for lower prices Buyers think higher prices are justified

Setting the Price

Pricing Procedure
Select pricing objective Determine demand Estimate costs Analyze competition Select pricing method Select final price

Types of costs and levels of production must be considered Accumulated production leads to cost reduction via the experience curve Differentiated marketing offers create different cost levels

Setting the Price

Pricing Procedure
Select pricing objective Determine demand Estimate costs Analyze competition Select pricing method Select final price

Firms must analyze the competition with respect to: Costs Prices Possible price reactions Pricing decisions are also influenced by quality of offering relative to competition

Setting the Price

Pricing Procedure
Select pricing objective Determine demand Estimate costs Analyze competition Select pricing method Select final price

Select method: Markup pricing Target-return pricing Perceived-value pricing Value pricing Going-rate pricing Auction-type pricing Group pricing

Setting the Price

Pricing Procedure
Select pricing objective Determine demand Estimate costs Analyze competition Select pricing method Select final price Requires consideration of additional factors: Psychological pricing Gain-and-risk-sharing pricing Influence of other marketing mix variables Company pricing policies Impact of price on other parties

Adapting the Price

Price Discounts and Allowances:
Cash discounts Quantity discounts Trade-in allowances Functional discounts Seasonal discounts Promotion allowances

Adapting the Price

Promotional Pricing Tactics:
Loss-leader pricing Special-event pricing Cash rebates Low-interest financing Longer payment terms Warranties and service contracts Psychological discounting

Adapting the Price

Discriminatory Pricing Tactics:
Customer segment pricing Product-form pricing Image pricing Channel pricing Location pricing Time pricing

Adapting the Price

Price discrimination works when: Market segments show different intensities of demand Consumers in lower-price segments can not resell to higher-price segments Competitors can not undersell the firm in higher-price segments Cost of segmenting and policing the market does not exceed extra revenue

Adapting the Price

Product-Mix Pricing Tactics:
Product-line pricing Optional-feature pricing Captive-product pricing Two-part pricing By-product pricing Product-bundle pricing

Initiating and Responding to Price Changes

Strategic Options Include:
Maintain price and perceived quality; selectively prune customers Raise price and perceived quality Partially cut price and raise quality Fully cut price, maintain perceived quality Maintain price, reduce perceived quality Introduce an economy model

Initiating and Responding to Price Changes

Key Considerations
Initiating price cuts Initiating price increases Reactions to price changes Responding to competitors price changes

Circumstances leading to price cuts: Excess plant capacity Declining market share Attempt to dominate the market via lower costs Price cutting traps: Price/quality perceptions Low prices dont create market loyalty Competition may match or beat price cuts

Initiating and Responding to Price Changes

Key Considerations
Initiating price cuts Initiating price increases Reactions to price changes Responding to competitors price changes

Circumstances leading to price increases: Cost inflation Overdemand Methods of dealing with overdemand: Delayed quotation pricing Escalator clauses Unbundling Reduction of discounts

Initiating and Responding to Price Changes

Key Considerations
Initiating price cuts Initiating price increases Reactions to price changes Responding to competitors price changes

Firms must monitor both customer and competitor reactions Competitor reactions are common when: Few firms offer the product The product is homogeneous Buyers are highly informed

Initiating and Responding to Price Changes

Key Considerations
Initiating price cuts Initiating price increases Reactions to price changes Responding to competitors price changes

The degree of product homogeneity affects how firms respond to price cuts initiated by the competition Market leaders can respond to aggressive price cutting by smaller competitors in several ways

Initiating and Responding to Price Changes

Market Leader Responses to Competitor Initiated Price Cuts:
Maintain price and profit margin Maintain price, add value Increase price, improve quality Launch a low-price fighter line

Reduce price