Other factors affecting pricing
…continued
2. Marketing Boards
• Organizations designed to help market or sell
commodities
–
–
–
–
Advertise
Provide marketing info
Conduct research
Charge a fee to all producers
Example:
• Often set the price of
commodities
• Sometimes set the quantity
• Quota: Legal amount of a
commodity that one producer
can make
– Quota can be bought and sold
3. Product Positioning
• Premium Pricing: High-pricing strategy
used to position a product as a luxury
Example:
• Discount Pricing: Reduced price from what
a customer would expect to pay
Example:
4. Consumer Demand
• Price Elasticity: How much can a price be
increased before customers stop buying
Elastic
Inelastic
Customers will pay
higher prices
Customers will NOT pay
higher prices
5. Competition
• Forces sellers of similar products to
remain close in pricing
Example:
Pricing Strategies
Pricing Strategy: A plan developed by a
business to make sure its product prices
meet marketing objectives
3 main strategies…
1. Market Skimming
Market Skimming: Setting an initially high
price before competitors enter the market.
Then lowering the price as competition
increases or new technology emerges.
Example
Advantages
• Business tries to recoup its R&D costs
before competitors copy (break even
sooner)
• Can limit demand until production catches
up
Disadvantage
• Competitors can undercut price, don’t have
the same R&D costs
More examples of Market Skimming
First Battery-Powered Calculator (1970)
$1,200
$5,800 today
First VCR (1972)
$5,000
$22,600 today
First portable radio (1937)
$350
$4,600 today
2. Penetration Pricing
Penetration Pricing: Setting an initially low
price to attract customers
• Usually happens when VC are low and R&D costs
(FC) are high
• Taken to the extreme, it becomes predatory pricing
Advantages
• Keep competitors out
• High sales volume
• Economies of scale
Disadvantage
• Need to sell huge volume to hit break-even
point
3. Competitive Pricing
Competitive Pricing: Closely following the
prices of competitors. Typically, pricing
follows the market leader who sets a
benchmark price
Example
3. Competitive Pricing
• Because price is not a major competitive
advantage, the battle for market share is fought
with advertising, promotion, distribution, &
unique product features
• Some retailers have a competitive price police –
they advertise that they will not be undersold
and that they will match or beat any advertised
price offered by their competitors
– The onus is on the consumer to prove that there is a
price difference
Advantage
• Will not be undersold by competition
Disadvantage
• Cannot use price to position your products
Homework
• List 5 items you buy regularly and the
price you normally pay
– At what price would you be willing to buy
more of the product?
– At what price would you buy less?
• List the three main pricing strategies, and
explain when a marketer would use each