Part 2 of 4: “Price”Continuing our four-part series on the marketing mix, this time we will explore the pricing aspects of the marketing mix.
Price refers to the process of figuring the total cost of creating, and then setting a sales figure for a product, including discounts, to generate a return. Prices have not always been monetary; historically, products or services offered were negotiated, traded or bartered for something else. The basic element of price means what is agreed to be exchanged for one thing from another. In today’s language of commerce, this is defined primarily a financial transaction.
Setting price methods is considered a science. It is one of the most important parts of the mix because it generates turnover, moves inventory and hopefully a profit for the bottom line. The remaining 3 P’s (Product, Place and Promotion) are the variable cost. What it costs to produce and design a product or service, what it costs to inventory, distribute or place a product in the market and what it costs to promote it in order to generate buzz – all which hopefully lead to sales.
Price must support each of these other elements of the mix. Pricing is difficult and must reflect both the supply and demand of a sales relationship. Setting the price of a product or service too high or too low could adversely affect future sales.
Pricing should take into account the following factors:
• Fixed and variable costs
• Competition
• Company objectives
• Proposed positioning strategies
• Target market group and willingness to pay
Here are some examples of what can be applied individually, or combined:
1) Penetration pricing: the price is set low to increase sales and market share
2) Skimming pricing: the price is set high initially and then slowly lowered to make the product available initially to a select audience and then to a wider market (the objective is to skim profits of the market layer by layer)
3) Competition pricing: setting a price in comparison with the competition.
4) Product Line Pricing: different products within the same style or type have different price points. An example would be an industrial safety equipment distributor offering different gas detection instruments with different features at different prices. The greater the features and the benefits obtained, the greater the price. This maximizes inventory turnover and profit.
5) Bundle Pricing: the business bundles a group of products at a reduced price. An example would be to bundle a pair of prescription safety glasses, a dozen lens cleaning tissues and a breakaway neck lanyard.
6) Psychological pricing: Here the subliminal cost savings allows seller to apply the psychology of price and the positioning of price within the market. A hard hat sold for $19.95 looks better than $20.00 and the buyer believes they are getting a good bargain.
7) Premium pricing: the price set is higher to reflect the exclusiveness of the product. For example, Harley Davidson safety glasses compared to a similar safety eyewear.
8) Optional pricing: the business sells optional extras, warranties, repairs or servicing along with the product to maximize turnover. This strategy is used commonly within the technical, instrumentation or SCBA categories.
Source: www.learnmarketing.net
After looking at your marketing mix you may find discrepancies that surprise you. Always make sure that your marketing mix has a message that speaks in unison.
Since the early 1960’s, the marketing mix has been defined as a means to create, keep and satisfy a customer. It is common throughout the marketing industry that decisions are made following variations of four basic common denominators: product, price, place and promotion. Imagine them like four separate spotlights (see diagram). These parameters allow the marketing manager to focus and overlap each one towards the target market, more specifically, the customer that will bring in the most revenue or repeat business. Although highly subjective, this four-part series is designed to offer ideas on interpreting each category.
Next time, we’ll discuss the concepts of: Placing/Positioning
Todd Guenther, September 30, 2009
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