Marketing Mix – Price
Introduction
The main objective, target of the manufacturer and the demand of the product together with the production cost, the needs of the customers, and the external environment which includes, competition, the existing conditions of the economy, government regulations, aspects of the product mix, the current and conditions of the products life circle, its promotion and distribution strategy are some of the factors to consider before deciding on the pricing strategy. If it’s a Multinational Corporations then the firm must consider other global factors and the target market.
To set the price of Aspirin, the cost-plus pricing can be used. The cost of manufacturing the product plays an integral part when determining the price of the product. The product development, packaging needs, testing and other related costs have to be considered. For instance, when a new drug is being introduced into the market, its marketing and distribution costs are much higher and they are likely to influence the cost of the product to be high. Cost- plus method of pricing takes care of the costs of the processes involved in the manufacturing process. There is also a profit margin that can be utilized to calculate the real cost of the product and how much it should be sold to achieve the desired profit margin.
Pricing Methods
Cost- Plus pricing method
Production costs are calculated and then the profit margin is determined. For example, if the production costs of a particular product is $100 and the company wants a 20% profit then they will charge $120.
Targeted Return pricing Method
The total investment costs are calculated and determined. The price is then set at a rate that is above the ROI (Return-On-Investment) For example, if you have invested $50,000 in a project and the volume of sales is $1000, then the price of each unit should be above $50. That’s from $51 dollars and above.
Value Based Pricing
Value based pricing involves pricing the products based on the real value it creates for the client. For instance if a personal counseling session is worth two sessions for the client then he should be charged accordingly.
Psychological Pricing
Psychological pricing involves pricing the products in a way that it receives a positive response from the clients. For example, pricing a product $199.99 receives a better response than pricing it $200.00 Also pricing the products at a lower value it may give a negative signal as people associate very low prices with poor quality while higher prices are normally a sign of superior quality. This is applied while positioning the product in the market.
When making a decision to charge product prices, the company must consider other factors besides setting an objective of the price charge. The demand of the product, the offerings production cost, the needs of the customers, the external environment which includes, competition, the existing conditions of the economy, government regulations, aspects of the product market mix, the current and conditions of the products life circle, its promotion and distribution strategy are some of the factors to consider. If the firm is considering selling its products in the global market, then research on other factors must also be undertaken. For instance, political factors and the nature of the international competition. (Kotler, P & Armstrong, 2010)
Customers play a very big role in the determination of prices. The response of the buyers must be taken into account when deciding the price change of a product. How they perceive the value of the product, how sensitive they are and their number, the size of the existing market and how much the average customer is willing to pay for that particular product. This involves a lot of positive judgment and also research work. Price elasticity or customer’s sensitivity to the changes of the price will also determine the eventual demand of the product.
Competitors’ prices have to be considered. If a trouser costs less than 30% of its rival’s prices then most customers will definitely go for the cheaper one as its more affordable if they are of similar quality. (Kotler, Keller, Brady, Goodman & Hansen, 2012)
The economy has an effect on the overall price changes. When there’s a lot of unemployment and the economy is very weak most companies lower their prices. (Sullivan, Sheffrin, 2003)
To conclude, the cost of the product plays an integral part when determining the price of the product. The product development, packaging needs, testing and other related costs have to be considered. For instance, when a new product is being introduced into the market, its marketing and distribution costs are much higher and they are likely to influence the cost of the product to be high.
References
Kotler, P. & Armstrong, G. (2010) Principles of Marketing. 13th edition. London: Pearson Education Ltd.
Kotler, P., Keller, K. L., Brady, M., Goodman, M. & Hansen, T. (2012) Marketing Management. 2nd edition. Essex: Pearson Education Limited.
Sullivan, Sheffrin, S (2003). Economics: Principles in action. Upper Saddle River, New Jersey
Pearson, Prentice Hall.
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