Chapter 7 - Print It Real
Chapter 7 - Print It Real B216
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This 14 page Class Notes was uploaded by KUMIKO Notetaker on Thursday October 29, 2015. The Class Notes belongs to B216 at Republic Polytechnic taught by Gerrard Ong in Summer 2015. Since its upload, it has received 42 views. For similar materials see Marketing in Social Science at Republic Polytechnic.
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Date Created: 10/29/15
ghapter 7 Print It Real Price is the amount of money charged for a product or service It is the sum of all the values that customers give up to gain the bene ts of having or using a product or service Why is Price important Only element in marketing mix that produces revenue One of the most exible marketing mix elements One of the most in uential element affecting consumer decision making Direct impact on rm39s bottom line Factor In uencing Pricing hje iues Factors Affecting Pricing Decisions Chim i attract new customers or retain existing ones it can set prices low to prevent competition from entering the market or set prices at competitor39s level to stabilize the market prices can be reduced temporarily to create excitement for a brand or priced to help the sales of other products in the company39s line INTERNA EXPLANATION EXAMPLES L FACTORS Achieving Pricing plays an important role When Xiaomi company39 in helping to accomplish launched their 5 company objectives at many smart phones in objective levels A rm can set prices to the Southeast Asia market it relies heavily on limited time sales to create buzz around its brand and attract new customers in the midst of erce competition between the bigger brands such as Apple Alignment of price to overall marketing strategy Alignment of overall marketing strategy to price EXTE RNA L FACTORS The market and demand Price is only one element of the company39s broader marketing strategy Thus before setting price the company must decide on its overall marketing strategy for the product or services For example if target market and positioning is set then its marketing mix strategy including price will be fairly straightforward Price is this case is a crucial productpositioning factor that de nes the product39s market competition and design Instead of rst determining its cost and ends with a selling price a company starts with an ideal selling price based on customer value consideration and then focus on keeping cost within the price range EXPLANATION The number of competitors in the market sometimes determines how sensitive the sellers are to each other s pricing and marketing strategies When there are few sellers each seller is alert and responsive to competitors39 pricing strategies and moves The price that a seller can charge also depends on how sensitive the demand is to price changes The degree price sensitivity depends on many factors such as availability of substitutes whether it is a need and Samsung Honda positioned its quotAcuraquot brand as premium to compete with European cars in the higher income segment and therefore requires charging a high price When Honda set out to design the Fit it began with a 13950 starting price point and an operating ef ciency of 33 miles per gallon rmly in mind It then designed a stylish car with costs that allowed it to give target customers those values EXAMPLES Singtel Starhub and M1 are more sensitive to each other s marketing strategies compared to Laptop companies such as Lenovo Acer etc The demand for products with a number of substitutes such as avoured or want etc drinks is also more price sensitive compared to products with little or no substitute The Economic conditions can have a In the aftermath economy strong impact on the firm39s of the 2007 Asia pricing strategies Economic Financial Crisis factors such as a boom or many recession in ation and interest consumers have rates affect pricing decisions tightened their because they affect consumer belts and spending consumer perceptions become more of the product s price and value value conscious and the company39s costs of As a result producing and selling a product many marketers increased their emphasis on value for money pricing strategies Other A company must know what For cab bus and factors impact its prices will have on other transport other parties in its environment operators to For example how will resellers raise prices the and government react to company has to various prices and are there any take into social concerns that need to be consideration taken into account the affordability of public transport to low income earners and seek approval from the Public Transport Council Pricing Decisions j l I fUEJEwEEEEdJ ti Jri ng a l UaiuEm aied F rici 39iE EIEI39 5 l r n 1 l i Er mlpia tin n Iiiaimed pi ntl g l gt 39 ill39l39flil l39fl39l E39Emh lll G z Value i iir tt39gi39 r A H l hsrlln it Earn Etcname gnaw117i F ri in RF MannWEEHlmimlnl t i Marlsir Fi39 iti f lll i StratiEglavEs 39 i l39liEElli ll EmuJ3 i IIiIEriiii i39l i i fltli hi Eiilf lia 39E IEI ltnr leir39uig In IW39Wchl iItnl prltlr j silli Pricing Methods Aduerntegee D i eedve nteg ee la Leee frequent nriee EQSEEHSEEJ adjustments r Dieaane int ing prefite if priee Farming gi Priee leempaetitien minimised turne nut me high r Fairer methnel UEIJIILJEIBEEEEI Zr Firiee matinee gneumexrs r Meeeurir ig erceie39eel value Pricing pereeiued value difficult r 1 Ln Pri ee re reeen teeellleetiee Ennmlpaetltien l9 r milee effect prefut n1 argm wiedem eff innuetr y 7 when test risee r Preue nta harmfull DlFIE E were leeeei Prie irng I Cnrpnrate Dbjeetliwee Revenue amp Pro t Tetteem 39 9 lP rndulct usit amimg i Distributrian channel Feeturree duemlreagee 3 Benefits FAB PEW EElp tilnn af ru uct Quality ea Brand I liability En Willingness tu Pane Einst39nmE rs Exillrniiianr Prudlluc39i Emmjj tit mrs Offerings FAB Strung Enlmpeti tium 1 CostBased Pricing Costbased pricing involves setting prices based on the costs for producing distributing and selling the product plus a fair rate of return for its efforts and risk A company39s costs may be an important element in its pricing strategy Many companies such as Air Asia Carrefour and Dell work to become the quotlow cost producers in their industries Companies with lower costs can set lower prices that result in greater sales and pro ts i Firrne design what they eeneider me he a gene prnduet tetall the mate ef malltin the pre uet end Example Z gtquot1r3939i39lt r Eellling priee ehteined after marking up the est geriee by a rnrgin Illewleuleted e5 3 eel pniee39ll BreakEuE Wallmrne Tua39tiatl Fixad East I5El l ll l Price v ariable E Firm t E T 39tnll Hawan UE Tutsi Hit 5 Fund Iquot are 3 l5 ma Iii EVE In m a Tilt all Revenue i nrmte lFlrvn lxit and tail East a 3 maria bnle Cuat 4cm EDIE East in Dollars Lthn 53 1139 22E 31E Ella Evil Sale Val me ll Units than amnda 1 ValueBased Pricing Good pricing begins with an understanding of the value that a product or service creates for customers Valuebased pricing uses buyers39 perceptions of value not the seller s cost as the key to pricing Valuebased pricing means that the marketer cannot design a product and marketing program and then set the price Price is considered along with the other marketing mix variables before the marketing program is set Firms sat prime barred can the r at the gnawith cutiering as Example EmmaIr piano tails at higher price than man competing bra r1315 Eluttci who lliu39hr one it a Ereat value For them as a recent ad proclaims a Steinwwgr 325 you place EEUW E never been fquot Steinway ha me revokes imagai at claasiztall concert stage 1 CompetitionBased Pricing In setting its prices the company must also consider competitors39 costs prices and market offerings Consumers will base theirjudgments of a product39s value on the prices that competitors charge for similar products A consumer who is thinking about buying a Canon digital camera will evaluate Canon39s customer value and price against the value and prices of comparable products made by Nikon Sony Olympus and others m 3 r FirmsIslet rites EbmlpetltmnEasari Ft charged in r similar Pricing prod Lilit Examples E sfagm Less Sugar Eulfmea L st ll f 1551 loll quotlZJ39 l Jll lrallat e 5M5 quota ahu Caultumd Ht 2 5 algaammo mime Mil ill margari El Price Adjustment Strategies STRATEGY DESCRIPTION EXAMPLES Discount Adjustment of basic price Discount for a and to reward business dealer buying a Allowance customers for certain very large pricing purposes such as the quantity of early payment of bills products volume purchases and off season buying These can be for many purposes For paying bills promptly For buying large quanUUes For performing certain functions such as selling storing and record keeping trade intermediaries For buying out of season products For trading in old items when buying in new ones For rewarding intermediaries for participating in advertising and sales support Nestle manufacturer give allowance to NTUC Fair A price reduction for a dealer buying large quantity their promotional displays in the supermarket programs Segmented Selling a product or service Customer pricing at two or more prices Some movie based on differences in theaters and customer time location or museums product charge lower for senior citizens and students Time Movie Psychologic al pricing Promotional Temporarily pricing products below the list price and sometimes even below cost to increase pricing Dynamic pricing Pricing that considers the psychology of prices not simply the economics the price says something about the product short term sales Adjusting price continually to meet the characteristics and needs of individual customers and situations theaters charge a higher price du ng weekends compared to weekdays Location Tickets for the center seats for Phantom of the Opera is more expensive than tickets at the rear balcony Product A one liter bottle of Evian mineral water cost substantially less than a 200ml Evian water face spray even though the aerosol packaging cost a little more than the plastic bottles An LCD TV priced at 888 during Chinese New Year or pricing at 299 when your competitors charged 300 Temporarily reducing the price of the new lPhone5to increase sales Bidding for an item on the internet such as EBay Stock exchanges where prices of shares uctuate by the minute Internation Adjusting price for A pair of Levi39s al pricing international markets selling for 30 in the US might go for 63 in Tokyo and 88 in Paris New Product Pricing Strategies MlerketeSkimmi mg IMarketePenetnratmn i Setting a HIGH prise fr 3 new pairedutt H EEett iri a PHIEE fear a new prmduct tea skim meemum revenuee layer by tie eti reel 3 large mum her er buyEre and leis er frem the eegmente willing tee eely e large me rleet enerea the WE WEIEE The lemmeany eeerii ieee ehert term I The eemeeee melee2e fewer but mere prefite te gain market E li39ElFEE ipmfi39tgaihle gale a UEEEI wing I Lileed when e The ereeuet hee reletieele little ereeluet 5 Teret market eereei39eee iereeruetl39eereiee di mmi a m hierei g u ieque aide emigree that we ether 1 Caneumers all the FJIFEI MEI are priEE calm getter e able tn Ei F FE F iIF hnne39 5a eeeeitiee quot393 Cele eu mere ef the gereduet are net priee L winm39w39 r 7 p 1 xi Eemmenly weed fer preduete their ere C mm mlypuge j mt HEW mg Em elf Enid eueliw hurt ell net etenidl GUI e5 Far dUFltt Fl C n lltlmn i EI Ei tr L ll igig Egg hEttEr than Empeti ng pr duct Eiharuzi e lquee ereleee Lifeewle E E Em intreueed inn 213111 STRATEGY DESCRIPTION EXAMPLES Market Setting a high price for a When Apple Skimming new product to skim rst introduced Pricing maximum revenues layer the lPhone its by layer from the initial price was segments willing to pay as much as the high price the 599 per phone company makes fewer The phones but more pro table sales were purchased Market skimming make only by sense only under certain customers who conditions really wanted Product39s quality and the sleek new image must support its gadget higher price innovators and Enough buyers must could afford to want the product at that pay a high price price for it Six The costs of producing a months later smaller volume cannot be Apple dropped so high that they cancel the price to the advantage of 399 for an 868 charging more model and 499 Competitors should not for the 1663 be able to enter the model to attract market easily and new buyers undercut the high price Within a year it dropped prices again to 199 and 299 respectively In this way Apple skimmed the maximum amount of revenue from the various segments of the market Market Setting a low price for a When lkea rst Penetration new product to attract a opened stores Pricing large number of buyers in China in and a large market share 2002 they Some conditions must be slashed its met for this low price prices in China strategy to work to the lowest in Market should be highly the world the price sensitive so that a opposite low price produces more approach of market growth many Western Production and retailers there distribution costs must By increasingly decrease as sales volume stocking its increases economy of Chinese stores scale with China Low price must help made products keep out the competition the retailer and the penetration pricer pushed prices must maintain its low on some items price position Otherwise as low as 70 the price advantage may below prices in be only temporary lkea39s outlets outside China lkea now captures a 43 market share of China39s fast growing home wares market alone PriceQuality Matrix Price H HF Good value 393 Premium Strata E strategyr m E E39 E g s 5quot Duerehar linl 39 Law 9 Q Emanumy strategy 5139 rateg y Ethical Issues in Pricing 1 Deceptive Reference Pricing Buyers make decision based on selling price comparisons and if the reference price is in ated or is just plain ctitious it will do harm to consumers Eg Real estate agents in ating the selling price of and discount for new condominium units 2 Bait and Switch 0 The tactic is deceptive because sellers advertise items for a very low price without the intent to really sell any Eg Retailers at Sim Lim Square advertise electronic products at low price but always out of stocks 3 Predatory Pricing The aim is to keep the price low until the competition have been driven out of business after which the prices are increased o If prices set are below cost this can be illegal in some countries Eg Singtel offering hand phone on contract at low or zero cost when M1 entered the market 4 Price Discrimination Selling the same product to different consumers at different prices based on different time season location perceived consumer wealth etc Eg Restaurant having different menus for locals and tourists 5 Price Fixing Practice of colluding with other rms to control price 0 Companies aim to avoid price competition and set a price which is more favorable towards pro t maximisation Eg Oil cartel formed by oil producing nations in the 805 to control price of oil Practice Questions 1 Many customers use price as an indicator of quality If Nike wants to maintain its strong brand image it will set a for the apparels in the sortswear market a Valuefor money price b Premium price c Economy price d Price similar to competitors If two companies collude to control prices in the market it is called a Price discrimination b Price exibility c Price xing d Price penetration Consumers are more price sensitive in which of the following conditions a Availability of substitutes b Value of the product is low c Perceived risks of ownershipusage I high a ony b ii only c H amp iii only d and ii only Below is the cost incurred in producing RayBan sunglasses based on 1000 units Item Cost per unit Raw materials 50 v Labour costs monthly 20 f salaries Equipment costs 22 f Overheads factory 28 f furniture etc Total cost a What is the total unit cost of a pair of RayBan sunglasses b How much should the RayBan sunglasses be priced if it wants to achieve a price markup of 24 For 1000 units sold what would be the pro t in dollars c Which items are xed cost and which are variable costs d What is the number of units that the company needs to sell at the price in order to breakeven You may refer to the breakeven formula given below Breakeven Volume Total xed Cost Selling Price Variable Cost In which quadrant would you place the following chocolate brands Godiva Merci Merlion and Top Identify the pricing strategy used for each brand and suggest why the company is using this strategy Chocolate Brand Average Quadra Commen Selling nt ts Price Per 2009 Godiva 40 910 7 a my l m g m t 1 an M mu luvum I an 9 u v H I Ir i am I any x mm 2 my 52 am will inquot mam a m H 53 H w my quotum mm n smrlwmmmammmmm minM m u 4 im Choose the relevant price adjustment strategies in the table below and match them to the illustrations Illustrations Pricing Adjustmen t Strategies a In USA USD599 SGD760 g I In Singapore SGD1499 a 7 Elli 7 7 a a a Dealer Price Ema ElfBail Emmmt If Hail Whirl El dayspf limlcse a 1 Ethics are the moral principles and values that govern the actions and decisions of an individual or group They serve as guidelines on how to act rightly and justly when faced with moral dilemmas What are some pricing practices which are considered unethical in Marketing Learning Outcomes 1 Evaluate the different Methods used to set a price costbased valuebased and competitionbased 2 Identify and compare the various strategies used to determine the price of a new product skimming economy penetration and premium 3 Explain how companies use price adjustment strategies 4 Identify ethical issues related to pricing Need answers Feel free to drop me an email 15043445 myrpedusg
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