Nature and Scope of the Pricing Function-
Pricing is determining and collaborating the value of products and services to prospective customers. Pricing is one of the nine functions of marketing. Pricing is very significant because one of the main goals of a business is to generate money and profits, which relate directly to the pricing marketing function.
Why is Price an Important Marketing Tool?
Price is an important marketing utensil because it is valuable to the producer and consumer. The producer of a product has to charge a price high enough to make a profit. Low and high prices can be good or bad for a company because it depends on the customer satisfaction and value of the product or service. Price adjustability is one of the easiest marketing decisions for a business to make. It is as simple as adding a new price on the shelf.
How the Elasticity of Demand Relates to Pricing Decisions-
Pricing decisions are often based off scarcity, supply and demand, and economic utility.
Elastic demand- a price decrease will increase total revenue. Elasticity of demand describes the relationship between changes in a product's price and the demand for that product. Elasticity is also based on the number of options for a product and readiness of customers to not purchase the products because of the price. An example is ice cream where high prices would decrease the amount of sales, and lower prices would increase the amount of sales because this type of product has many alternatives.
Inelastic demand- a price decrease will decrease total revenue.
Example- Eggs are purchased regardless of the price because of lack of alternatives.
Legal Considerations for Pricing and How the Government is Involved-
Government is involved is pricing to create fair competition among businesses. The government is also involved in promoting new products and services ideas. Patents are granted for twenty years to an inventor to give the person the chance to make a profit off an idea. Another method of protecting a product is a copyright. The government also regulates prices in many ways.
Price fixing- manufacturers and wholesalers of competing companies can't establish prices.
Price discrimination- the same price must be given to all customers.
Price advertising- prices and terms of credit must be accurate in advertising.
Bait-and-switch- businesses lure customers with low prices of an unavailable product.
Unit pricing- products must have a measurement to let customers compare prices.
Taxation- more taxes are given on harmful products. Taxes are reduced on products the government encourages consumers to purchase like ethanol-based gasoline.
Pricing Objectives-
The three pricing objectives are maximizing profits, increasing sales, and maintaining a particular company image.
Maximizing profits- charging the highest price possible that customers still willing to purchase at, this is usually done with a small target market and a unique product.
Increasing sales- companies with a large target market and inventory charge low prices; this helps them sell the highest possible volume of products. Some companies build an image based off price.
How Businesses Establish a Price Range for a Product-
Determining a price range includes many factors.
The maximum price- highest price a company can charge based off the customer satisfaction, demand, and alternatives. This it is found by marketing research.
Minimum price- lowest price that a company can charge based off the costs of the seller, and this should still result with a profit.
The break-even point- quantity of a product that must be sold for total revenues to match total costs at a specific price. The information used is the fixed, variable, and total costs, the product price, and total revenue. The breakeven point is calculated with the breakeven point equaling the total fixed costs divided by the price minus the variable costs per unit.
The price range can be sold at anywhere between the maximum and minimum price at the correct price based on the market conditions.
How to Determine the Selling Price-
Selling price- the price charged for a product or service. The largest part of the selling price for most products is the product cost, and the difference between the cost of the product and the selling price is known as the gross margin. The second component is the operating expenses which are all costs associated with actual business operations. The third component is net profit, which is the difference between the selling price and all costs and operating expenses associated with the product sold. Also, retailers use a markup that is used to set prices and it is an amount added to the costs of a product to determine the selling price. It is often a percentage versus a dollar amount. A markdown is a reduction from the original selling price, and it can be a percentage or dollar amount.
Pricing Strategies and Tools-
The product life cycle can use a skimming price.
Skimming Price- very high price designed to emphasize the quality of uniqueness of a product.
Penetration price- very low price designed to increase the quantity sold of a product by emphasizing the value, and companies also based prices off consumer purchase classifications.
Non-price competition- de-emphasizes price by developing a unique offering that meets an important customer need.
Price flexibility- involves a one-price policy, which means that all customers pay the same price.
Flexible pricing policy- allows customers to negotiate the price within a price range.
Price lines- distinct categories or prices based on differences in product quality and features.
Geographic pricing- includes free on board pricing, which identifies the location from which the buyer pays the transportation costs and takes title to the products purchased.
Zone pricing- different product or transportation costs are set for specific areas or zones of the seller's market.
Discounts and Allowances- reductions in a price given to the customer in exchange for performing certain marketing activities or accepting something other than what would normally be expected in the exchange. Common examples would include quantity discounts, seasonal discounts, cash discounts, trade discounts, trade-in allowance, advertising allowance, coupons, and rebates. Also added value examples would include buying two items and getting the third free, and incentives to get free tickets from frequent flyer programs.
Why is Extending Credit Important to the Marketing and Pricing Function?
Credit is an important, optional part of the price, marketing mix element. Credit makes it possible for more people to purchase products and services that are more expensive.
Consumer credit or Retail credit- credit extended by a retail business to the final consumer.
Trade credit- offered by one business to another business. Developing credit procedures includes developing credit policies, approving credit customers, and developing effective collection procedures.
Pricing is determining and collaborating the value of products and services to prospective customers. Pricing is one of the nine functions of marketing. Pricing is very significant because one of the main goals of a business is to generate money and profits, which relate directly to the pricing marketing function.
Why is Price an Important Marketing Tool?
Price is an important marketing utensil because it is valuable to the producer and consumer. The producer of a product has to charge a price high enough to make a profit. Low and high prices can be good or bad for a company because it depends on the customer satisfaction and value of the product or service. Price adjustability is one of the easiest marketing decisions for a business to make. It is as simple as adding a new price on the shelf.
How the Elasticity of Demand Relates to Pricing Decisions-
Pricing decisions are often based off scarcity, supply and demand, and economic utility.
Elastic demand- a price decrease will increase total revenue. Elasticity of demand describes the relationship between changes in a product's price and the demand for that product. Elasticity is also based on the number of options for a product and readiness of customers to not purchase the products because of the price. An example is ice cream where high prices would decrease the amount of sales, and lower prices would increase the amount of sales because this type of product has many alternatives.
Inelastic demand- a price decrease will decrease total revenue.
Example- Eggs are purchased regardless of the price because of lack of alternatives.
Legal Considerations for Pricing and How the Government is Involved-
Government is involved is pricing to create fair competition among businesses. The government is also involved in promoting new products and services ideas. Patents are granted for twenty years to an inventor to give the person the chance to make a profit off an idea. Another method of protecting a product is a copyright. The government also regulates prices in many ways.
Price fixing- manufacturers and wholesalers of competing companies can't establish prices.
Price discrimination- the same price must be given to all customers.
Price advertising- prices and terms of credit must be accurate in advertising.
Bait-and-switch- businesses lure customers with low prices of an unavailable product.
Unit pricing- products must have a measurement to let customers compare prices.
Taxation- more taxes are given on harmful products. Taxes are reduced on products the government encourages consumers to purchase like ethanol-based gasoline.
Pricing Objectives-
The three pricing objectives are maximizing profits, increasing sales, and maintaining a particular company image.
Maximizing profits- charging the highest price possible that customers still willing to purchase at, this is usually done with a small target market and a unique product.
Increasing sales- companies with a large target market and inventory charge low prices; this helps them sell the highest possible volume of products. Some companies build an image based off price.
How Businesses Establish a Price Range for a Product-
Determining a price range includes many factors.
The maximum price- highest price a company can charge based off the customer satisfaction, demand, and alternatives. This it is found by marketing research.
Minimum price- lowest price that a company can charge based off the costs of the seller, and this should still result with a profit.
The break-even point- quantity of a product that must be sold for total revenues to match total costs at a specific price. The information used is the fixed, variable, and total costs, the product price, and total revenue. The breakeven point is calculated with the breakeven point equaling the total fixed costs divided by the price minus the variable costs per unit.
The price range can be sold at anywhere between the maximum and minimum price at the correct price based on the market conditions.
How to Determine the Selling Price-
Selling price- the price charged for a product or service. The largest part of the selling price for most products is the product cost, and the difference between the cost of the product and the selling price is known as the gross margin. The second component is the operating expenses which are all costs associated with actual business operations. The third component is net profit, which is the difference between the selling price and all costs and operating expenses associated with the product sold. Also, retailers use a markup that is used to set prices and it is an amount added to the costs of a product to determine the selling price. It is often a percentage versus a dollar amount. A markdown is a reduction from the original selling price, and it can be a percentage or dollar amount.
Pricing Strategies and Tools-
The product life cycle can use a skimming price.
Skimming Price- very high price designed to emphasize the quality of uniqueness of a product.
Penetration price- very low price designed to increase the quantity sold of a product by emphasizing the value, and companies also based prices off consumer purchase classifications.
Non-price competition- de-emphasizes price by developing a unique offering that meets an important customer need.
Price flexibility- involves a one-price policy, which means that all customers pay the same price.
Flexible pricing policy- allows customers to negotiate the price within a price range.
Price lines- distinct categories or prices based on differences in product quality and features.
Geographic pricing- includes free on board pricing, which identifies the location from which the buyer pays the transportation costs and takes title to the products purchased.
Zone pricing- different product or transportation costs are set for specific areas or zones of the seller's market.
Discounts and Allowances- reductions in a price given to the customer in exchange for performing certain marketing activities or accepting something other than what would normally be expected in the exchange. Common examples would include quantity discounts, seasonal discounts, cash discounts, trade discounts, trade-in allowance, advertising allowance, coupons, and rebates. Also added value examples would include buying two items and getting the third free, and incentives to get free tickets from frequent flyer programs.
Why is Extending Credit Important to the Marketing and Pricing Function?
Credit is an important, optional part of the price, marketing mix element. Credit makes it possible for more people to purchase products and services that are more expensive.
Consumer credit or Retail credit- credit extended by a retail business to the final consumer.
Trade credit- offered by one business to another business. Developing credit procedures includes developing credit policies, approving credit customers, and developing effective collection procedures.