Factors that impact on pricing strategies

Teaching note : Factors that impact on prices

Internal Factor

1.Marketing objective

Survival
– aggressive competition
– downturn in industry
– obsolete product
– set price to break even
– cover costs
Current profit maximisation
– set high price
– may attract new entrants
Market share leadership
–set low price to gain large market share (market penetration)
Product quality leadership
–set high price
-infers high quality

2. Marketing mix strategy

Pricing must be carefully coordinated with other marketing mix elements.
–product
–placement
–promotion
Target costing is often used to support product positioning strategies based on price.
Nonprice positioning can also be used.

3. Costs

Types of costs
– Variable
– fixed
– Total costs
How costs vary at different production levels will influence price setting.
Experience (learning) curve effects on price.

4. Organisational considerations

Who makes the pricing decisions?
How are pricing decisions made?

External factors

1. The Market Type

Pure competition, Monopolistic competition, Oligopolistic competition, Pure Monopoly

2.Nature of demand for the products

What does the consumer consider to be value?
What value is placed on particular attributes/features?
What is the consumer prepared to pay?
Perceived value sets the ceiling for price.

3.Competitors and other external factors

– competitors’ prices
– economic conditions (impacts on purchasing power and quantity demanded)
– competitor’s reactions to price changes
– pricing legislation
– price discrimination
– re-sale price maintenance

Kotler 2005