MKC1200 Lecture Notes - Lecture 7: Pizza Hut, Down Down, Marketing Mix
26 May 2018
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MKC1200 Week 7 - Pricing Decisions
Week 7 - Pricing Decisions
What is Price?
●Price: the value exchanged for a product in a marketing transaction
○Eg: dental fees, rent cost, etc
○Most flexible element of marketing mix
○Relates directly to the generation of total revenue
●Pricing: the management of price
○Profit = TR - TC
○Profit = (Price*Quantity Sold) - Total Costs
Pricing Objectives
●Prices should be consistent with the goal and mission of the organisation
●Prices should be compatible with the company’s marketing objectives
○Profitability
○Ongoing survival (long term prosperity)
○Market-share leadership
○Positioning
○Other objectives
Ongoing Survival
●Eg: Apple phones are able to sell at higher prices than competitors because they have
a stronger brand name and loyalty
Market-share leadership
●Companies want to obtain dominant market share to get lowest cost and highest profit
in the long run
●Set prices lower than competition to gain market share
○Eg: Dominos launched price cutting campaigns to maintain larger market
share, pizza hut copied their strategy = price war that can damage overall
industry
Profitability
●Chase profits, choose price that will produce more cash flow, profit, and return on
investments
●Eg: Coles (Down Down) and Woolworths (Cheap Cheap) campaigns to gain market
share, now shifted to better service quality to communicate with the community
Positioning
●Price can signal quality/status of the brand
●Setting higher prices = signal high quality/standards of the brand image
○Can also help cover ROI
Price Ceiling and Price Floor
●Price Ceiling: value of the product to the customer
○Highest price they are willing to pay for the product
●Price Floor: minimum price that must be charged to cover costs
●Prices normally set somewhere between the ceiling and floor.
Selecting the Pricing Method
●Three major considerations
○Demand/Value based consideration: Organisation should select a price that
reflects the value of a product to the customer
○Cost based consideration: Organisation should ensure the value obtained from
the marketing exchange can cover the costs
○Competition based consideration: Competition offerings are crucial in pricing
decisions. Organisations must make pricing decisions to make their products
competitive in their marketplace
●Markets must choose one to decide pricing
Demand-Based pricing
●Demand: the relationship between price and the quantity that consumers are willing
to buy
●Factors affecting demand
○Economic conditions
○Consumer and business confidence
●Demand-based pricing: setting prices according to the level of aggregated or
individual customer demand in the market
●Demand curve: graph showing relationship between price and volume sold
●Success of this method depends on whether the marketer can accurately plot the
demand curve and predict price sensitivity.
Document Summary
Price: the value exchanged for a product in a marketing transaction. Relates directly to the generation of total revenue. Profit = (price*quantity sold) - total costs. Prices should be consistent with the goal and mission of the organisation. Prices should be compatible with the company"s marketing objectives. Eg: apple phones are able to sell at higher prices than competitors because they have a stronger brand name and loyalty. Companies want to obtain dominant market share to get lowest cost and highest profit in the long run. Set prices lower than competition to gain market share. Eg: dominos launched price cutting campaigns to maintain larger market share, pizza hut copied their strategy = price war that can damage overall industry. Chase profits, choose price that will produce more cash flow, profit, and return on. Eg: coles (down down) and woolworths (cheap cheap) campaigns to gain market share, now shifted to better service quality to communicate with the community.
