Marketing Mix

2.1 marketing Mix

Product Attributes

Describe the main product features, major benefits received by those using the product, current branding strategies, etc.

Pricing

Describe pricing used at all distribution levels such as pricing to final users and to distributors, incentives offered, discounts, etc.

Distribution

Describe how the product is made accessible to final users including

channels used, major benefits received by distributors, how product is

shipped, process for handling orders, etc.

Promotion

Describe promotional programs and strategies in terms of advertising, sales promotion, personal selling and public relations, how product is currently positioned in the market, etc.

Services Offered

Describe support services provided to final users and distributors before, during and after the sale

2.2

General Price Approaches includes: (1) the cost-based approach (cost-plus pricing, break-even analysis, and target profit pricing), (2) the value-based approach

(perceived-value pricing), and the (3) competition-based approach (going

rate).

A. C ost-Based Pricing

1.Cost-Plus Pricing:

?The simplest pricing method is cost-plus pricing adding a standard markup to the cost of the product. At the same time, cost as a

percentage of selling price is another commonly used pricing

technique in the restaurant industry. This approach is generally

inadvisable as it ignores any current demand.

?Furthermore, competition is not likely to lead to the best price. If it is used, consider it as a more effective technique to develop a target

price; adjusting for specific items.

?Reasons for its popularity include the higher certainty of costs

versus demand, and a reduction in price competition.

2. Break-Even Analysis: Break-even analysis is where the company tries

to determine the price at which it will break even.

3. Target Profit Pricing targets a certain return on the investment. .

Additionally, hotels use the concept of contribution margin to set rates

when demand drops. Hotels will set low rates, rationalizing

(reasonable) that at least they are covering their variable costs. This

can be effective if it creates additional demand.

B. V alue-Based Pricing

Companies base their prices on the product's perceived value.

Perceived-value pricing uses the buyers' perceptions of value, not the

seller's cost, as the key to pricing. When quality is related to price, the

company using perceived-value pricing must learn the value in the

customers' minds for different competitive offers. One method of

identifying how much customers are willing to pay involves using a

technique called trade-off analysis. This information provides an idea of

which features add more value than they cost.

C. C ompetition-Based Pricing

1. Competition-based price is based on the establishment of price largely

against those of competitors with less attention paid to costs or demand.

The firm might charge the same, more, or less than its major

competitors.

2. The reasoning behind "going rate pricing" is that firms feel the pricing

represents the collective wisdom (knowledge) of the industry and

avoids harmful price wars.

OR

2.2

Because pricing is a dynamic process, companies must design a pricing structure that covers all their products and a variety of constantly changing conditions (such as changes that occur as the product progresses through the stages of the product life cycle). Two primary strategies (market-skimming and market-penetration pricing) are

thoroughly discussed in this content.

The marketer wishing to explore pricing strategy options will find a wealth of alternatives from which to choose. The first major option will be pricing with respect to the product mix. Numerous forms of product-mix pricing strategies are examined within the context of the competitive environment. Examples include product-line pricing, optional-product pricing, captive-product pricing, by-product pricing, and product-bundle pricing. The average marketer does not use all of these methods; however, by studying the options available, the marketer enhances his or her ability to be creative with respect to pricing within the context of the product mix.

Sometimes, however, the firm must make adjustments in their pricing process and strategy. These adjustments are made to account for differences in consumer segments and changing situations. Adjustments can occur through discounts and allowances or by the desire to segment markets by price. Additionally, price has a psychological aspect that allows for adjustments just as geographical, promotional, and international relationships can alter pricing methods and strategies.

Reactions to price changes must be carefully studied. The reactions come from the firm, the consumer, the distribution channel, and the competition. Response must be carefully measured and be appropriate if marketing success is to be achieved. In conclusion, the chapter also touches on public policy with respect to pricing. Pricing does not occur within a vacuum. Once a price has been made (or adjusted), other components of the environment are affected. The reader will find that this chapter provides an excellent reference base from which to develop sound pricing strategy and policy.