Required Readings Read: Ch. 12, 13 and 14 | Kotler, P., & Keller, K. (2011). Marketing Management (14/e Edition) Upper Saddle River, NJ: Prentice-Hall.
In light of the discussion question one, how might the pricing strategy that you are suggesting put your company ahead of the competition? Also, how will your pricing strategy not only attract new customers, but also retain customer loyalty? How do you know? Fully explain.
Welcome to unit five. In this unit we will examine product and product classifications. Further we will identify internal and external factors when making pricing decisions. And also learn how prices are adjusted to fit certain market situations.Begin our lecture by looking classification of consumer goods.There are four basic types of consumer goods. Shopping, specialty, convenience, and unsought goods. These goods differ by the effort that consumers spend on decision, he attributes used to purchase and the frequency of the purchase.Shopping goods are goods where consumers compare alternative products based on price, style, or quality. Convenience goods or the goods that consumers frequently purchase or purchase with minimal effort in shopping. Specialty goods are goods that customers make a special effort to obtain and are generally a bit more unique than other goods. Unsought goods are the goods that the customer may not know about, nor are they necessarily goods or items that the customer initially wants.Each good classification may vary contingent on consumer viewpoint. For instance, one consumer may consider an item a shopping good and go from store to store before actually making a purchase or making a decision choice. On the other hand, and other consumer may consider a certain product a specialty good and will only purchase a good that carries a certain brand name simply by the fact that it is considered by the consumer a specialty good.Classification of Business GoodsBusiness goods are the sale of industrial goods and usually are a result of demand. For instance, if a consumer requires a specific brand of a company must increase it’s a level of inventories of that certain brand. Many times business goods will sell based consumer demand. Heavy equipment, business machines, or a fleet of automobiles could be an example of a business good.Next we will take a look at production goods. Production goods are those goods utilized in the production process and the final product is known as a production good. This includes raw material such as wood or various parts. For instance, companies that manufacture parts for refrigeration units, microwaves, automobiles, or other items are actually producing a component part and not the end product. Marketing will seek to market such a production good with a primary focus on quality, service, delivery in price and are generally bought from and sold to industrial companies.One of the classification of business goods are also known as support goods. These are goods manufactured the sole purpose of producing other goods or services. Support goods may consist of supplies, accessories, or installations.Installations are identified as fixed equipment or buildings and a significant amount of revenue is required in order to purchase them. Usually, an industrial buyer will work through a building contractor or a manufacturing company through sales personnel. Generally, bidding for installations is highly competitive and is the norm in this class of business good.Industrial services are considered intangibles but they are of value to the industrial buyer. This category generally includes consulting, legal services, tax services, or maintenance and repair.Supplies consist of items such as envelopes, letterhead, business cards, paperclips cleaning items mops and brooms and are generally purchased very easily with minimal decisions sequence.Accessory equipment is usually purchased through distributors who sell to quite a number of various companies. For the most part accessory equipment consist of small-order sizes and may items such as Office Equipment or tools or other items categorized as accessory equipment.Unit five part twoNature and importance of priceIn this portion of the lecture we will focus our attention on the nature and importance of price. Prices paid for whatever services or goods received by the purchaser. For instance, you make payments on your mortgage or rent. You pay your car payment, you pay your college tuition, you are charged a fee for professional services and when you go to work tomorrow you will be paid a paycheck in accordance with your wages. Whatever the scenario, there is generally a set price in order to obtain something or receive the benefit of something whether it be a good or service. Whatever the amount is it identified as price.What Is a Price?In the current market environment prices considered the amount of money paid for a product are service. Earlier forms of exchange were in the form of a partner method – an exchange of one good for another. The commonly used medium of exchange known today is obviously money. A prices generally considered an indicator of value. From a consumer’s standpoint it is the amount that the consumers willing to pay for a product or service. If the value increases in the product are service and so does the money that is paid out for the product are service. On the other, if the value of the product are service decreases than a lower amount of money is exchange for the product or service.Price in the Marketing Mix
In an earlier lecture we discussed the marketing mix if you remember, price as a part of the marketing mix. And the marketing mix price is absolutely crucial as it has a direct impact on a firm’s profit. The level of price also has a direct effect on the amount of product that is actually sold. Pricing affects the total sales and the total cost of a firm and is one the most crucial decisions that company executives must make in order to keep their businesses running in a state of profitability.
PRICING OBJECTIVES AND CONSTRAINTS
Marketing management must determine pricing constraints and objectives that will narrow the range of choices. Oftentimes, corporate goals will reflect a set price. And pricing constraints will be strongly influenced by the condition of the market.
Let’s take a look at pricing objectives. Pricing objectives involves the role of price of a product in accordance with an organization’s marketing plan. Pricing objectives are carried throughout the organization and many times are for marketing managers who may be responsible for a product or brand. Depending on the financial status of the company the objectives may change. The overall success of products in a market segment will have a bearing on price objectives as well.
Different objectives will relate to a company’s profit. Such profit is often measured by the company’s return on assets or return on investment. These objectives have varying implications for setting price in accordance with the organization strategy. When a company is managing for long-run profits they may for awhile give up immediate profits so that they may have a greater dominance in the market share. In this scenario, pricing is placed deliberately low compared to the products overall cost and development because the business is not looking in the immediate for a quick profit but has its sights set on profits later on down the road due to obtain a high market share.
Maximizing current profit is commonly used by companies because the financial performance of a company can be measured quickly. Firms that look for an immediate profit are often firms that are running for a short run or short lived profit. Some companies have been aggressive at maximizing profit for the short term and then quickly go out of business, while other firms have concentrated on the long-term seeking to have a long-term and dominant position in the marketplace.
If a company is able to become profitable enough to remain in the long term they may choose to increase sales revenue which in turn will also increase market share and potential profit. Moreover, objectives related to sales revenue can be advantageous to a company as the company attempts to advance in the market. The marketing department of the company would then be responsible for the company’s profit objectives. On the other hand, reducing price on a product may increase sales revenue yet at the same time reduce the sales revenue of related products.
Market ShareSo what is a market share? Market share is a business’ sales revenue or unit sales ratio compared to sales revenue of the unit sales of its competitors in the market. Many times, businesses will pursue market share objectives when the market is declining more remains flat for a period of time. This can be done through drastic price cutting although not always profitable it has been done substantially in the past. A prime example of this may be when a company has a large percentage of the market and in order to maintain a large percent is aggressively cuts prices in order to maintain a high market share. Such a strategy does not at all mean profit, and many times it can mean losses as well.
Businesses will also use quantity as a pricing objective. This is when a business will use unit volume by selling a variety of products and various prices and will attempt to match its volume with customer demand, production capacity, and price. However, using this pricing objective can be counterproductive if there is a high level of unit sales of the drastic decrease in price as it will also decrease profits in this scenario.
Businesses at times face survival problems due to the fact that competing firms who are able to sell high volume at a discounted price are in the market. A good example of this would be firms like Wal-Mart or Target that have brought substantial discounts to unit prices and as a result, have caused other firms to go out of business.
It’s important to know that a company must be well aware of the prices that are set of its competitors. Further, they must also anticipate potential prices that competitors may set in the future. Being aware of a competitor’s price is very important as the change in price by competitor can directly impact the level of sales that a company will have due to the variance in price initiated by a competitor.
Companies must also estimate the demand of their product. Also, many need to be careful not to raise prices too high otherwise they run the risk of losing consumers. For instance, a specific product that is repeatedly bought by consumer has a raise in price. The question is, how high can the price go before the consumer quits buying? On the other hand, if a product has a decrease in price a consumer may be more inclined to purchase more of a product. The lower the price, there’s the possibility of a higher demand. On the negative side, the lower the price a higher level of possibility that the company will decrease in its profits. As such, it is important that marketers estimate the demand in order to set the appropriate price and still maintain a profit.