4. Marketing Objectives & Marketing
Mix Strategies
• Survival: companies strive to survive against intense
competition and changing consumer wants. The
company stays in the business so long as the prices
cover variable costs and some fixed costs.
• Maximum current profit: companies estimate the
demand and costs associated with alternative prices
and choose the price that produces maximum profits,
cash flows and return on investment.
• Maximum market share: companies believe that a
higher sales volume will lead to lower unit costs and
higher long run profits. Hence they set the lowest
price……often termed as penetration pricing
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5. Marketing Objectives & Marketing
Mix Strategies
• Maximum market skimming: here the company
unveiling the new technology favor setting high prices
to maximize market skimming. Here the price start high
and slowly drop over time.
• Product quality leadership: here in some brands
position themselves as leaders in quality with a
premium pricing and a very loyal customer base . For
instance MERCEDES AND BMW CARS, TAJLUXURY
HOTELS.
• OTHER OBJECTIVES: Non profit and public
organizations may have other objectives. For example a
university, a charitable hospital, social institutions etc.
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7. Costs
• Depends on it product life cycle
• The costs of the product—its inputs—including the
amount spent on product development, testing, and
packaging required have to be taken into account when
a pricing decision is made. So do the costs related to
promotion and distribution.
• For a product to be profitable it must attain a break
even point
• Its where a company recovers the money it has spend
on a product and start attaining profits
• Break even point is generally attained during growth or
maturity stage
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8. Costs
• Total cost = Fixed cost + Variable cost
• Company tries to attain lower fixed cost per product by
increasing its sales
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9. Organizational Consideration
• It is the duty of the management who sets the price
• Management must decide who within the organization
should set prices. Companies handle pricing in a variety of
ways.
• For Small companies: CEO or top management
• For Large companies: Divisional or product line managers
• Price negotiation is common in industrial settings
• Some industries have pricing departments.
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10. Organizational Consideration
• In industries in which pricing is a key factor (aerospace,
steel, railroads, oil companies), companies often have a
pricing department to set the best prices or help others in
setting them.
• This department reports to the marketing department or
top management.
• Others who have an influence on pricing include sales
managers, production managers, finance managers, and
accountants.
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12. Nature of Market and Demand
• In a perfect competition where the goods are similar and
customers can switch from one product to another, the
prices should be kept low or risk losing customers to
competitors.
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13. Nature of Market and Demand
• In a monopolistic competition, where goods are similar
with many market players but slight differentiation is
possible, the product can be priced at small premium.
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14. Nature of Market and Demand
• In a Oligopolistic competition where a few players
dominate the market, the price sticks at a certain level and
the company loses customers if it tries to increase price and
if it decrease price to attract customers, the competitors
will also decrease price leading to loss in revenue
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15. Nature of Market and Demand
• In a pure monopoly market, as there are no competitors,
the company can charge high premium charges. In real,
pure monopoly seldom exists.
• When a new product is launched by Apple, it is priced high
till the competitors introduce similar products at which
point Apple reduces the price drastically
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16. Competition
• Consider competitors’ costs, prices, and possible reactions
when developing a pricing strategy
• Pricing strategy influences the nature of competition
– Low-price low-margin strategies inhibit competition
– High-price high-margin strategies attract competition
• Benchmarking costs against the competition is
recommended
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17. Other Environmental Factors
Factors
Influencing
Pricing
Price Quality
Relationship
Product Line
Pricing
Explicability
Competition
Negotiating
Margins
Effect On
Distributors
& Retailers
Political
Factor
Earning Very
High Profits
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Price is not determined by a simple step rather there are many factors affecting pricing decisions.
The reason is that the price is a very sensitive issue for the customers in their purchasing behavior.
Following are the two main factors that affect pricing decisions.
1– Internal Factors
2- External Factors
Internal Factors:
Internal factors are those factors that are related to the internal environment of the business. This means that the issues that prevail within the business organization and upon which the organization has control are included in this category. Internal factors further include the following.
Marketing Objectives & Marketing Mix Strategies
Costs
Organizational Considerations
Each of these is discussed one by one.
Price can be used to accomplish other objectives for a business. Example include lowering of price to avoid increasing competition, keep prices competitive to make market stable and avoid government intervention, to increase demand by lowering prices etc. In short the decisions taken in respect of price affect other marketing mix variable decisions and so all of these decisions should be consistent with one another to make a marketing program effective. The business should also keep its product as differentiated and set relatively high price for the uniqueness of its product. In this way price is based on many non-pricing factors.
Cost is the fundamental element in setting prices for a product or service. The simple rule is that the business charges such price that should not only cover all of the costs incurred in manufacturing, distribution and promotion of the product or service, but also provide a fair return on the invested money. If a business has low costs, then it can increase its sales and profit by lowering the price of its product or service.
Kinds of Costs:
Generally there are two major types of costs which are as follow.
a) Fixed Cost
b) Variable Cost
Fixed Cost:
The fixed cost is such cost that remains fixed and does not change with the changing level of production or sales. The total fixed cost remains same but fixed cost per unit may change. The example includes rent paid for the building, interest paid on loan, salaries to employee staff etc.
Variable Cost:
The variable cost is that kind of cost which changes with the change in the level of production and sales. Although the total variable cost change but the unit variable cost remains the same. For example, each car produced includes the variable cost of tires, metal sheets, Misc items etc that change with the increase or decrease in the quantity of production and sales.
The management of the business should ascertain different level of costs with respect to different levels of production and sales so that the lowest cost can be attained for the determination of effective prices for the manufactured products or services.
This factor includes the fact that who should be given the responsibility to set the price within the organization.
There many ways to deal with such an issue.
In smaller businesses, top management is responsible for setting the price of the product.
On the other hand, in large organizations product line managers or divisional manager has the authority to set price for the product or service.
In case of industrial markets, salespersons handle the pricing of product by negotiating with the customers within the pre-specified range of prices.
In certain price sensitive industries (Oil Companies, Aerospace etc) have a separate pricing department that can either directly determine the best price or facilitates the pricing process of the business. In some firms, top management like the proposed prices of the lower level employees like salespersons etc.
