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PRICING

sitinurazani@pmj.edu.my

TOPIC 6

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CHAPTERS OUTLINE

At the end of this topic, student will be able

to:

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S$'(!)!(A**+

The amount of money

charged for a product

or services.

Example : RM1.00 for

a pen.

$!('DEF!T"!

(-MM-N*+

The sum of values that

consumer exchanged

for the #enefits of

having or using aproduct or services.

DEFINITION OF PRICE

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A firm introducesits product to

new distributionchannel or

geographicalarea

A firmdevelops oracquires a

new product

A firm enters

bids on newcontract work

1 $ %

INTRODUCTION

Pricing is a problem when a firm has to set aprice for the first time. This happens when:

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Firm's has to consider many factors that willaffect the pricing decision:

PRICE DECISIONS

!TER!&' F&(T"R

• Mar)eting *trategy• +ricing "#,ective• Mar)eting Mix

*trategy• "rgani-ational

(onsiderations

ETER!&' F&(T"R

• Mar)et / Demand• (ompetitors

*trategy / +rice

• Economic (ondition• overnment /

*ocial (oncern

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INTERNAL FACTORS

AFFECTING PRICE DECISIONS

INTERNAL FACTORS

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efore setting the price! company must decideon its strategy for the product. "f the targetmarket and positioning has been selectedcarefully! then the overall marketing mi# strategy

including price will be fairly straightforward.

$#ample: %hen T&&TA introduced its ($)*+brand! the aim is to compete with $uropean

lu#ury,performance cars. +o! it-s require them tocharge at higher price level.

1. MARETING STRATEG!

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PRICING

O"#ECTI$ES

Sur%i%&l

M&'i(u(curren)pr*+i)

M&r,e)-&re

le&der-ip

Pr*duc)/u&li)0

le&der-ip

. PRICING O"#ECTI$S

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To keep plant operating inventories turningover! they will often cu) price-.

Profits are less important than survival. As longas prices cover variable costs and some fi#edcosts! the companies stay in business.

Survival 

&ver

/apacity

"ntense

/ompetition

/hanging /onsumer

%ants

/ompanies pursues survival as their ma0or ob0ective if plagued with:

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1any companies try to set the price that willma#imi2e current profits.

They estimate the demand and costs associatedwith alternative prices and choose the price thatproduces (&'i(u( curren) pr*+i)! c&- +l*2!or r&)e *+ re)urn *n in%e-)(en).

Max. Current Profit 

&ther 1arketing1i# 3ariables

(egal 4estraint&n Price

/ompetitor-s4eaction

These make the company ignore the effects of:

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+ome companies will set a price as low aspossible to become a market share leader.

They believe that company with largestmarket share will en0oy )e l*2e-) c*-) andige-) l*ng3run pr*+i).

ecoming a market share leader means:

A leader for a specific product category.

/ontinuous demand in long,term period.+ales volume is higher than competitors.

Market Share Leadership

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A company might aim to be the product,qualityleader in the market.

This normally calls for charging high price tocover iger per+*r(&nce /u&li)0 and igc*-) *+ R4D.

Product ‘Q’ Leadership

5ational! build high quality

washing machines and pricesthem at 41677 more thancompetitors- washing machines.+o! this makes 5ationalproducts are of better quality inthe eye of the customers.

'AM$*'

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Price is influenced by the other marketing mi# strategy:

PRODUCT5 Product factors such as features! design!quality! si2e! technical e#pertise! raw material etc.1any consumers use price as an indicator of product

quality. +o! the quality of product must suits with theprice suggests.

PROMOTION5 The firm-s decision on theirpromotional mi# strategy will also influence the

pricing decision. PLACE5 The distribution channel management such

as warehouse! transportation! distance ! resellermargin etc will influence the price decision.

. MARETING MI7 STRATEG!

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8. ORGANI9ATION CONSIDERATION

/ompanies handle pricing in a variety of ways. "n-(&ll c*(p&nie-! prices are often set by topmanagement rather than by marketing orsalespeople.

"n l&rge c*(p&nie-! pricing is typically handled bydivision and product,line managers.

"n indu-)ri&l (&r,e)! salespeople may allowed tonegotiate with customers within certain price range.

8ere! top management sets the general pricingob0ectives and policies and often approves the pricesproposed by lower levels management.

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E7TERNAL FACTORS

E7TERNAL FACTORS

AFFECTING PRICE DECISIONS

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1:&;. MARET

MARKET NATURE EFFECT ON PRICE EXAMPLE

PURE

COMPETITION

Many buyers &

sellers trading in

unifr!

"!!dity

Cannt si!#ly "$arge !re

r less be"ause buyers %ill

easily "an btain fr!

ant$er sellers

$eat' sugar

MONOPOLI(TI

C

COMPETITION

Many buyers &

sellers trade

)er a range f

#ri"e

A range f #ri"e ""urs

be"ause sellers "an

di*erentiate t$eir *ers t

buyers

Fd' drin+s'

beauty

OLI,OPOLI(TI

C

COMPETITION

Fe% sellers %$

$ig$ly sensiti)e

t ea"$ t$er-s

#ri"ing

Pri"e "$anges %ill "ause

"!#etitr t res#nd by

l%ering #ri"e r

in"reasing ser)i"es

Cars'

"!#uters

PURE

MONOPOL. 

Cnsist f ne

seller

Pri"ing is $andled

di*erently in ea"$ "ase

TN/' A(TRO

PRICING IN DIFFERENT T!PE OF MARET 5

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1:

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. COMPETITOR>S STRATEG! 4 PRICE

The company also needs to benchmark its costsagainst its competitors- costs to learn whether it isoperating at a cost advantage or disadvantage. Firmswith larger si2e plant! having more facilities andequipment! e#perienced in the market surely will havecost advantage compare to other smaller firms. $#ample : T&&TA compare to P$4&9*A

The company also needs to learn the price! /u&li)0 *++er of the competitors. /onsumer will base their 0udgments of a product-s value on the price that

competitor-s charge for similar product. $#ample: A consumer who is thinking to buy /anon digital

camera evaluate price! quality and offer of comparable productsuch as odak! 5ikon! +ony etc.

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. ECONOMIC CONDITIONS

+everal economic factors will strongly affectthe company pricing decisions including: $conomic boom

$conomic recession

"nflation

"nterest rate etc

Those factors will affect on: The cost of production

/onsumer perception on product-s price and value /onsumer buying power

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8. GO$ERNMENT

All the price should be follows the rules andregulations imposed by the government.

%ill the government intervene and prevent this

price from being charged;

$#ample:

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?. SOCIAL CONCERN

"n setting price! company usually are not free

to charge whatever prices they wish. 1anyfederal! state and even local laws govern therules of fair play in price to protect thebusinesses and consumers.

Few illegal pricing strategy includes:

Price3+i'ing = sellers must set pricewithout talking to competitors.

Pred&)*r0 pricing = selling below cost toputting out competitors from the market.

Price di-cri(in&)i*n = ensuring seller willoffer same price to the customer.

Decep)i%e pricing = retailer purposely set

 >high- regular price then announce >sale-SNM/!S"#/$M"%"&

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MARET3PENETRATION PRICING

4 MARET3SIMMING PRICING

NE@ PRODUCT PRICING STRATEG!

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MARET PENETRATION

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1arket penetration pricing usually use as new,product pricing strategies.

They -e) l*2 ini)i&l price to penetrate themarket quickly deeply ?attract large no of buyer

 @ high volume. The high volume will results lowercost in return.

MARET PENETRATIONPRICING

The market is highly price sensitive

Production distribution costs fall with e#perience gained

(ow price discourages actual and potential competition

Followingcondition favor

setting a low price

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1any companies favor setting high prices to-,i(B the market.

$#ample: %hen +&5 first introduced their first89T3 to Bapanese market.

1arket skimming makes sense under thefollowing conditions:

A sufficient number of buyers have a high current demand.

The unit costs of producing a small volume are not so much higher

that they cancel the advantage of charging what the traffic will bear.

The high initial price does not attract more competitors.

The high price communicated the image of superior product.

MARET SIMMING PRICING

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sitinurazani@pmj.edu.my

han0 +ou 1