Pricing
Describe the characteristics of effective pricing.
The characteristics of pricing include being realistic, flexible, and competitive. Customers associate price with quality—if the price is high, the quality is high; if the price is low, the quality is low. So, businesses must set prices that are realistic to customers—neither too high nor too low. Another characteristic of effective pricing is flexibility. Because pricing is a tug-of-war and a constant quest for balance, businesses must be willing to adjust their prices as necessary. These adjustments may be increases or decreases, depending on the circumstances the business faces. When a similar product is offered by com- petitors, a business needs to be aware of the prices others are charging. If not, the business will probably lose customers because its prices are not competitive.
Explain what is being priced when prices are set for products.
When prices are set for products, their quality, materials, distribution, etc. are being priced.
List factors that affect a product’s price.
Factors that affect a products price are:
• Costs
• Supply and demand
• Economic conditions
• Competition
• Government regulations
• Channel members
• Company objectives and strategies
Describe how pricing affects product decisions.
Pricing affects product decisons in research, materials used in production, profit decisions, and customer decisons. Pricing affects the type of research conducted, the length of the research project, and the amount of money spent on research. The quality of materials used in production is reflected in the product’s price. Companies, therefore, must decide what materials to use in the production of their products. Companies must first determine if there is a market for the product and if there will be sufficient demand for it. Before introducing a new product, a company must first determine if it will be profitable. Different companies seek to attract dif- ferent types of customers. Low prices attract customers who are looking for bargains, while high prices attract customers looking for prestige and high quality. A company’s pricing strategies will determine the type of customers its products attract.
Explain how pricing affects place (distribution) decisions.
The cost of each type of transportation varies. Companies will choose the method that fits within their budget. Marketers must also consider time when it comes to distribution channels—one channel may be cheaper but might take longer for products to get to their destinations. This factor will have an impact on pricing decisions.
Describe how pricing affects promotion decisions.
Pricing affects promotion decisions in the following ways: choice of medium, the amount of money spent, and the time allocated to the promotion. Products with very low profit margins are usually promoted in lower priced media. Products that have high profit margins are usually promoted in a combination of media, including radio, television, newspapers, and magazines. Most companies have promotional budgets. The amount of money spent on an advertising campaign is built into the cost of the product. The higher the promotional budget for a good or service, the higher the price of the good or service for customers. Since the cost of promotion is built into the cost of the product, goods and services tend to cost more when they are promoted over a long period of time.
Explain pricing objectives.
Pricing objectives or goals are the guiding influences in how marketers go about making pricing decisions. They may relate to profitability— making as much profit as possible or simply covering costs. They may relate to sales—selling as many units as possible or gaining a certain market share. Objectives may also relate to the competition—keeping prices competitive is very important in many industries, such as the airline industry. Companies keep a variety of pricing objectives in mind when making pricing decisions. These goals greatly influence final price decisions.
The characteristics of pricing include being realistic, flexible, and competitive. Customers associate price with quality—if the price is high, the quality is high; if the price is low, the quality is low. So, businesses must set prices that are realistic to customers—neither too high nor too low. Another characteristic of effective pricing is flexibility. Because pricing is a tug-of-war and a constant quest for balance, businesses must be willing to adjust their prices as necessary. These adjustments may be increases or decreases, depending on the circumstances the business faces. When a similar product is offered by com- petitors, a business needs to be aware of the prices others are charging. If not, the business will probably lose customers because its prices are not competitive.
Explain what is being priced when prices are set for products.
When prices are set for products, their quality, materials, distribution, etc. are being priced.
List factors that affect a product’s price.
Factors that affect a products price are:
• Costs
• Supply and demand
• Economic conditions
• Competition
• Government regulations
• Channel members
• Company objectives and strategies
Describe how pricing affects product decisions.
Pricing affects product decisons in research, materials used in production, profit decisions, and customer decisons. Pricing affects the type of research conducted, the length of the research project, and the amount of money spent on research. The quality of materials used in production is reflected in the product’s price. Companies, therefore, must decide what materials to use in the production of their products. Companies must first determine if there is a market for the product and if there will be sufficient demand for it. Before introducing a new product, a company must first determine if it will be profitable. Different companies seek to attract dif- ferent types of customers. Low prices attract customers who are looking for bargains, while high prices attract customers looking for prestige and high quality. A company’s pricing strategies will determine the type of customers its products attract.
Explain how pricing affects place (distribution) decisions.
The cost of each type of transportation varies. Companies will choose the method that fits within their budget. Marketers must also consider time when it comes to distribution channels—one channel may be cheaper but might take longer for products to get to their destinations. This factor will have an impact on pricing decisions.
Describe how pricing affects promotion decisions.
Pricing affects promotion decisions in the following ways: choice of medium, the amount of money spent, and the time allocated to the promotion. Products with very low profit margins are usually promoted in lower priced media. Products that have high profit margins are usually promoted in a combination of media, including radio, television, newspapers, and magazines. Most companies have promotional budgets. The amount of money spent on an advertising campaign is built into the cost of the product. The higher the promotional budget for a good or service, the higher the price of the good or service for customers. Since the cost of promotion is built into the cost of the product, goods and services tend to cost more when they are promoted over a long period of time.
Explain pricing objectives.
Pricing objectives or goals are the guiding influences in how marketers go about making pricing decisions. They may relate to profitability— making as much profit as possible or simply covering costs. They may relate to sales—selling as many units as possible or gaining a certain market share. Objectives may also relate to the competition—keeping prices competitive is very important in many industries, such as the airline industry. Companies keep a variety of pricing objectives in mind when making pricing decisions. These goals greatly influence final price decisions.