MARKETING: PRICING METHODS AND STRATEGIES

Marketing: Pricing Methods And Strategies



Marketing: Pricing Methods And Strategies

Introduction

Marketing managers should put customers in central for making decisions. If organisation does not care about customers, it cannot achieve its goals and objectives. Marketing managers should always get the information about market by doing market research so that they can know about the trends of the market and views of the customers. (Kotler, 2008)

Factor Pricing

This is a modification of the cost plus pricing method. In this method a 'factor' (which is any number above 1) is applied to the initial costs to obtain a selling price. This method is often used when pricing menus and a different factor would be applied to each item. (Turner, 1997)

Break Even Pricing

This method is based on the demand for the product staying the same. It uses the variable costs, quantity sold and fixed costs to establish a price that will obtain neither a profit nor a loss. Theoretically if demand falls then a loss will be incurred and if demand increases then a profit will be gained. (Diesel, 2002)

PRICE = VARIABLE COSTS x QUANTITY SOLD + FIXED COSTS

QUANTITY SOLD

Actual Cost Approach

This method entails estimating a sales revenue, choosing a profit target, and removing costs involved (excluding actual product costs) this will give the total amount that can be spent on the product.

PRODUCT COST CEILING = SALES REVENUE - (DETAILED COSTS + PROFIT)

MARKET-ORIENTATED PRICING

The marketing manager wishes to use the market orientated pricing method. This form of pricing uses a mixture of demand, costs and competitors whilst still watching for the profitability. There are four different types of market orientated pricing, these are; Prestige, loss leader, Psychological pricings. There is also yield management which will be discussed further on. (Blois, 2000)

Prestige Pricing

This method ties together price and quality. For a high quality product, consumers will be prepared to pay more for it.

Loss Leader Pricing

This method can be practised where one product can create revenue from another product. (Turner, 1997)

Psychological Pricing

This method understands that customers have a set price range which they can spend within for goods or services. (Diesel, 2002)

Yield Management

Yield management involves a group of different pricing policies and classes which can be applied to a product or service throughout different seasons and market segments to maximise revenue. This is commonly used within the accommodation management and allows the room inventory to be managed effectively with the elasticity of ...