Download - Chapter 20 – Marketing Mix - Pricing
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Chapter 20 – Marketing Mix - PricingUnit 3 - Marketing
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You will learn…………………………..
•Role of price in the marketing mix
•Price determination•Demand & Supply•Pricing Strategies
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Role of the Price •Deciding the price is
important ▫Rivals
Too high customer choose rival’s product
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Role of the Price •Deciding the price is important
▫Rivals Too low wonder about products
quality
Only 15,999 baht
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Role of the Price •Deciding the price is
important ▫Rivals
Similar Competition
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Price Determination
Demand
Supply
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Demand
What is demand?“The want and, willingness and ableness of
consumers to buy a good or service at different prices”
What does demand look like?
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Quantity Demanded
Price
D
D
DemandCurve
Law of Demand: •If price rises demand
falls •People will not be able
to buy the same quantity with the same money
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Shifts in Demand
$3.002.502.001.501.000.50
21 3 4 5 6 7 8 9 10 1211
Pric
e of
Ice-
Crea
m C
one
Quantity of Ice-Cream Cones0
Increasein demand
D1D2
Decreasein demand
D3
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Factors affecting demand•Changes in the prices of others products
Substitute Products Complimentary Products
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Factors affecting demand•Changes in tastes, preferences or fashions
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Factors affecting demand•Changes in peoples incomes
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Factors affecting demand•Advertising
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Elasticity of Demand
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Elastic Demand
Price
Quantity
Demand
Quantity demanded is very sensitive to price changes.
Many substitutes
Change in quantity is greater than the change in price
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Inelastic Demand
Price
Quantity
Demand
Quantity demanded is not very sensitive to price changes.
Not many substitutes
Change in quantity is not as great as the change in price.
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Elastic? or Inelastic?,
0
1
2
3
4
5
6
7
0 100 200 300 400 500
Price
1000 ./month
Here the slope relates that thequantity demanded is very sensitive to price changes
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Elastic? or Inelastic?,
1
2
3
4
5
100 200 300 400 500
million /month
Price
6
BUT a change in the scale of measure changes the graphso as to make it look as though the quantity demandedis NOT very sensitive to changes in price !
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Elasticity of DemandElastic? Inelastic?
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How to make your product more inelastic • …why???
…so customers don’t react to price increases!
• Make your product DIFFERENT to competitors – to keep them brand loyal.
• Take over the competition! So customers have to buy your products.
• Make small price changes over a short period of time – so customers don’t notice!
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Supply
What is supply?“The amount of goods or services
producers are willing and able to produce at different prices”
What does supply look like?
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SupplyCurveprice
Quantity supplied
S
S
Law of Supply: •If price rises supply
rises•More and more
suppliers want to sell their product because of higher profits
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Shifts in SupplyPrice of
Ice-CreamCone
Quantity of Ice-Cream Cones0
Increasein supply
Decreasein supply
Supply curve, S3
curve, Supply
S1Supply
curve, S2
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Factors affecting supplyChanges in the costs of supplying the products to the market
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Factors affecting supplyImprovements in technology
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Factors affecting supplyTaxes
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Factors affecting supplyClimate & Weather
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Elastic Supply
Price
Quantity
Supply
Quantity supplied is very sensitive to price changes.
Many substitutes
Change in price is greater than the change in quantity
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Inelastic Supply
Price
Quantity
Supply
Quantity supplied is not very sensitive to price changes.
Not many substitutes
Change in quantity is not as great as the change in price.
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Shifts in SupplyPrice of
Ice-CreamCone
0 Quantity of Ice-Cream Cones
Demand
Newmarket price
Initial market price
S1
S2
2. . . . resultingin a higherprice of icecream . . .
1. An increase in theprice of sugar reducesthe supply of ice cream. . .
3. . . . and a lowerquantity sold.
2.00
7
$2.50
4
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Elasticity of SupplyElastic? Inelastic?
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Market Price DeterminationPrice of
Ice-CreamCone
0 1 2 3 4 5 6 7 8 9 10 11 12Quantity of Ice-Cream Cones
13
Interception point determines market
price
Supply
Demand
$2.00
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Activity 20.1 – Page 303(New)Price ($) Demand (000s) Supply (000s)
0.50 10 2
0.75 9 3
1.00 8 4
1.25 7 5
1.50 6 6
1.75 5 7
2.00 4 8
2.25 3 9
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Activity 20.2Change taken
placeDD/SS
affected?Price increase of decrease?
Sales increase or decrease
Bad harvest of coffee beans
Jeans go out of fashion
A govt report published that
states eating rice is very healthy
New technology introduced into
computer production which
increases efficiencyCosts of
components has increased
Competitors prices increase
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Pricing Strategies
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Cost-plus Pricing Strategy
•Cost + mark-up▫cost of
manufacturing▫plus a profit mark-
up
•Advantage▫Easy to apply
•Disadvantage▫If price is to high
than the rival price, you may lose sales
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Penetration Pricing Strategy
•Used to enter a new market
•Price lower than the competitors
•Advantage▫Ensures sales are
made
•Disadvantage▫Low price means
low profit
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Price Skimming Strategy
•High price set for a new product or invention on the market
•Advantage▫helps establish
good product quality
•Disadvantage▫May put off some
potential customers because of the high price
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Competitive Pricing Strategy •Price in line with
or just below rival•Aim to capture
more of the market
•Advantage▫Sales likely at high
realistic level▫not under or
overpriced•Disadvantage
▫Research competitors constantly to set price
▫costs time & money
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Promotional Pricing Strategy
•Sold at very low price for short periods
•Advantages ▫Useful for getting
rid of the over stocks
▫Helps make interest in the business
•Disadvantage▫The sales revenue
will be lower because the price
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Psychological Pricing Strategy
•Attention on the effect of the price on the consumers perception of the product
•Could include▫High price – High
Quality Status Symbol
▫Pricing just below whole number (e.g. 19,999 baht) Cheaper Impression
▫Regular purchased products at low prices value for money
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Which pricing strategy would you use?
a) A watch that is very similar to other watches sold in shops
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Which pricing strategy would you use?
b) A new type of radio that has been developed and is of much higher quality than existing radios
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Which pricing strategy would you use?
c) A chocolate bar which has been on the market for several years and new brands are being brought out which are competing with it.
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Which pricing strategy would you use?
d) A shop, which sells food, wants to get its money back on buying the stock and make an extra 75 per cent as well.
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Which pricing strategy would you use?
e) A new brand of soap powder is launched (there are already many similar brands available).
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Which pricing strategy would you use?
f) Toys sold for $1.99 each
$1.99
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Activity 20.4 ++Pricing Strategy
Description
Examples of use
Advantages
Disadvantages
Cost-plus
Penetration
Skimming
Competitive
Promotional
Psychological
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Now your should be able to………•Understand how prices are determined in
the market•What influences demand & supply•Selecting suitable pricing strategies for
different business situations/objectives