Pricing Decision
Beth senga
Expected learning outcome
Discuss how price affects the value of the
organization’s products or services
Explain the primary factors to consider in
pricing
Compare common pricing strategies
Identify the ethical issues related in
pricing
Meaning of price
• In the narrowest sense, price is the amount of
money charged for a product or service or what
a customer pays for the product.
• Price goes by many names, you pay rent for
your apartment, tuition for your education, fees
for medical services from the doctor or dentist,
fare for transportation services, interest for the
money borrowed from the bank, premium
charged by insurance companies etc.
Significance of price in Relation to marketing mix
• Price is the only element in the marketing mix
that produces revenue, as all the other
elements produce costs.
• Price is also one of the most flexible elements
of the marketing mix, in that it can be changed
quickly, unlike product features, promotion
and distribution channels.
Significance of price in Relation to
marketing mix
• Price also has a psychological (emotional)
impact on consumers in that it is perceived to
go hand in hand with value and quality. It can
be used symbolically.
Importance of pricing
• Price is important to the consumer as it help
him/her to assess the value of the product
bought. Typically, the higher the price, the
better the quality is perceived to be.
• Price regulates the economy are restrictions
imposed by governments to ensure that goods
and services remain affordable.
• A products price has a strong effects on the
sales received
• Pricing also makes customers confident about
the quality of goods they buy
• Price has a strong effect on sales and
consequently company’s revenue and profits.
Factors influencing pricing decisions
• They can be classified as internal and external factors.
• Internal factors
• These are those factors that are within the control of
the organization. They include:
• Costs
• This is the most important factor when pricing. These
costs include the production (e.g. raw materials, labor
etc) and marketing costs like advertising, selling, sales
promotions, distribution among others.
Internal factors
• Marketing goals and objectives
• Many companies have marketing goals and
objectives and pricing contributes its share in
achieving these goals. The clearer a firm’s
objectives, the easier it is to set price.
Internal factors
• Marketing mix strategy
• The firm’s marketing mix strategy will affect
the prices the firm will charge for its products.
This is because the aspects of the marketing
mix must be consistent if the firm is going to
achieve its marketing objectives
• .
Internal factors
• Organization employees
• The firm’s employees (such as sales managers,
marketing managers, salespeople, product
managers, accountant, Company CEO etc)
influence the prices that the firm’s charge.
Depending on their interests and objectives
they will advocate for specific price ranges
• Product differentiations- this is where by the
product has got some special features and
because of that it determine the pricing of the
product.
External factors
• External factors
• These are those factors that are beyond the
control of the organization, but they have to be
considered in deciding on the price. They include:
• Demand
• In consumer marketing, customers influence the
price set by the marketer. If consumers consider
the value of a product worth the price, then they
will demand more of the product and vice-versa.
• Competition
• No manufacturer can fix his price without
considering competitors prices, unless monopoly
exists
• Distribution channels
• Marketers must anticipate how retailers and
wholesalers will react to their pricing strategies.
Every middleman or intermediary in the
distribution channel adjusts the price for services
rendered
• Legal Constraints
• Government interference such as control of prices,
levying of taxes etc are other considerations which
affect the pricing of products.
• Consumer price perceptions
• Based on their past performance, consumers
develop expectations regarding the price levels.
They judge prices as too high or too low based on
those expectations. They also use price as an
indicator of quality
• Economic influences
• Inflation, recession and shortages have a direct
influence on prices. In inflationary periods
prices are very high because of shortage of
raw materials. Shortages of such products like
oil also drive prices high because of increased
costs. In recession, marketers face pressures to
cut prices to remain competitive because of
decreased demand of products.
Approaches to pricing
• Cost – Plus pricing the company counts their
costs of production and sets prices and then adds
a reasonable margin profit.
• Demand based Pricing This is pricing approach
based on the level of demand for the product
• Competition based pricing .This is one of the
most direct methods of determining a products
price as it is based on what competitors charge.
Marketing strategies for selling new products
• Pricing of new products is a big problem faced by
organizations. Pricing of a new product is important in two
ways:
• It affects the quantity of the product to be sold,
• It determines the amount of revenue for the firms’
• There are two options available for pricing a new products:
• Skimming price
• This involves setting the highest initial prices that
customers who really desire the product are willing to pay
• Penetration pricing
• This involves setting a low initial price on a
new product to appeal immediately to the
mass market. The price is also set low to deter
competition entry. It is the exact opposite to
skimming pricing.
Other pricing strategies
Discriminatory pricing
• Price discrimination occurs when a company sells
a product or service at two or more prices that
do not reflect a proportional difference in costs.
Psychological Pricing.
• This approach is used when the marketer wants
the consumer to respond on an emotional,
rather than rational basis. For example Price
Point Perspective (PPP) 299 shsetc .
Other pricing strategies
Product Line Pricing.
• Where there is a range of products or services the
pricing reflects the benefits of parts of the range.
For example car washes; a basic wash could be 500,
a wash and wax 700 and the whole package for
1200.
Geographical Pricing.
• Geographical pricing sees variations in price in
different parts of the world or different
geographical location
Other pricing strategies
Professional pricing
• It’s used by people who have great skills,
qualifications or experience in particular field e.g.
lawyers, accountant’s doctors and consultant’s
management.
Promotional pricing - It could be lowered prices for
products, sellers, uses special events like Christmas,
Easter. Psychological discounting is embraced
whereby you are told the price was e.g. 1000 current
is 9999ksh.
Ethics and regulations in pricing
• In most economies pricing practices are regulated
by the government than any other aspect of the
marketing mix.
• In most economies four areas of pricing are taken
to be illegal and unethical. These are:
• Price fixing
• This occurs when firms in the same industry form an
agreement to set prices at a certain levels. It is
prohibited because it restricts price competition.
suggested price and not to be reduced.
Ethics and regulations in pricing
• Deceptive pricing
• This occurs where the marketer sets prices to deceive
customers and to take advantage of them.
• Discriminatory pricing
• This occurs when the company charges the same product
different prices to different customers without any cost
justification.
• Unfair pricing
• This occurs when the company uses price to drive
competitors out of business. It happens when the
companies charges a very low price often below the cost
