Price
Pricing is one of the components of the marketing mix which offers flexibility to the marketer. It was much in the news last week when we saw the showbiz glitz of the Apple launch for the I phone 6 in California.Yet the price in the UK high street will be substantially higher than in the United States.
The Consumers' Association Which ? pointed out :-
The basic model I Phone6 will cost Britons £539 or £449 excluding VAT compared to in the states at £ 123 !
Similarly at the top end of the range Brit will be set back £ 789 or £657.50 excluding VAT but in the States the model will be available at £305.
Apple failed to respond to request for a comment on the evening of September of September 12th.
As I noticed in my recent trip to Chicago last week, local taxes in the USA are not included in the advertised price in America. So the differential between UK and USA will be less than the Which ? figures.
Unintended consequences of the Scottish referendum - Grocery Prices
 |
| A Sottish Saltire - cross of St Andrew draped over a bannister at London's Trafalgar Square during yesterday evening's rally for https://www.letsstaytogether.org.uk/ 15th September 2014
A UK-wide campaign that gives a voice
to everyone who
doesn't have a vote
in the decision to break up Britain.
|
A number of the larger Supermarket chains have warned that the changes in regulation and transport costs could lead to higher prices north of the border.
One of the advantages of the Union has meant the benefit of stable pricing across the whole of the UK. Retailers such as ASDA and Sainsbury have indicated that they will have to reflect higher prices.
So let's take a closer look at PRICE from a marketing perspective
The price charged by a company will need to complement the other elements of your Marketing Mix and will depend on your company's marketing objectives.
These could be to:
·
maximise
volume
·
maximise
turnover
·
maximise
market share
·
maximise
profits
·
develop
a particular market image
·
cream
off the most profitable parts of the market
·
flood
the market
·
hit
the competition
·
get
established in the market
·
equate
supply and demand
There are broadly three different approaches to
setting prices:
· the
economist's
·
the
accountant's
·
the
marketer's
1. The Economist's Approach
Economics
is based on the theory of supply and demand.
It is obvious that in the long run the market price of any product,
commodity or service must suit both its vendors and its purchasers. Otherwise over supply or unsatisfied demand
will result.
This
leads to the theory of
Equilibrium
Pricing, where prices are set such that supply and demand tend to
equate. If demand exceeds supply then
the price is adjusted upwards so that more people want to supply the commodity
and less people want to buy it. Vice
versa if supply exceeds demand.
This
is best exemplified by the commodity markets, stock exchanges and money markets, where prices are set by dealers in order to try and
balance their books (i.e. have the same amount available as they can
sell). In these cases it is the only
practical way to price.
 |
| Pricing at a Sunday Farmers Market in Parsons Green SW London Volume discount, Special Price today, |
Cost-Plus-Pricing is based on the premise that
if a business is to survive and prosper it must sell its products at what it
costs to produce them plus something extra for profit (hence 'cost-plus').
There
are a number of variations on the underlying theme, the most common being:
·
VARIABLE COST PLUS PRICING; this consists of totalling
only the variable costs of providing the product and using this total as the
cost base, adding a certain percentage to cover fixed costs and provide for
profit.
·
PRODUCTION COST PLUS PRICING; in this situation the actual
production cost total is used as the base, after apportioning all production
overhead expenses to the various units of output. A certain percentage is then added to cover
selling and administrative expenses and to provide for profit.
·
TOTAL COST PLUS PRICING; here all the organisation's costs are
allocated to units of output, using absorption costing techniques where
appropriate. The percentage to be added
then only has to provide for profit.
Although
cost-plus pricing is probably the most used pricing system of all, it does
suffer from the very serious defect that it takes no account at all of the
market.
CONTRIBUTION PRICING relates the total
contribution (i.e. sales less variable costs) earned at different prices/sales
volumes to the fixed costs of running the business; this way the profits which
will be earned at different prices can be estimated. A pricing decision can then be made based on
the company's profit objectives and relative risks and rewards of selling at
different prices.
OPPORTUNITY COST PRICING is used where there are (at
least potentially) different mutually exclusive opportunities to sell the same
product or service. The price quoted is
based on the cost to the supplier of not being able to sell or
utilise the product or service elsewhere.
3. THE MARKETER’S APPROACH
This is based on the idea that for every product
there is a price which the market will bear.
There are different pricing systems resulting from this:
 |
| At a Sainsburys Store the battle of the single delivery coffee pod consumables Top shelf Carte Noire No 7 espresso 10 x 53 g £2 Special Offer Duralit Lungo Americano 10 pods £2.50 Middle Shelf Nescafe Cappucino, Latte Machiato,Americano, Chocolino, 8 pods and 16 pods £ 3.75 ( Brand leader) Lower Shelf Tassimo Costa Carte 8 pods Cappucino, Latte , Americano |
CUSTOMARY PRICING where the market has established a certain set
of prices or an acceptable range of prices for a product. Any producer who does not conform to the
established range runs the risk of either being labelled 'cheap and nasty' if
pricing is too low, or being accused of 'trying it on' if overpricing.
DIFFERENTIAL PRICING is based on the technique of 'market
segmentation'. Different types of
customer (or potential customer) can be approached and sold to in different
ways and at different prices. Price is
only one part of the total offer and differential prices can be justified (or
disguised) by an effective marketing plan.
VALUE-IN-USE PRICING where prices are set by estimating how much
the product is actually worth to the consumer in terms of gain or saving of
money. This may bear no relation at all
to the cost of the product.
 |
| At a railway station Mars Vending Machine (left) price a standard Mars Bar at 90p Twix at 90p Packet of Maltesers at 90p Similarly the Drinks machine (left) 330 ml can of Pepsi at £1.00 Lipton Iced Tea lemon 500ml at £1.50 |
CONVENIENCE PRICING sets prices literally for the convenience of the customer. For example pricing in round number amounts in retail stores or in single coin amounts in vending machines (see left). Sales by the economy airlines for on board food and drinks.
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