4.2 The marketing mix

4.2.1 Price

Pricing strategy

It is one of the vital elements of marketing mix. Pricing is difficult and it reflects the relationship of demand and supply. Pricing a product too low or too high may incur loss for the business, hence, pricing strategy helps the firm to choose the right price for a product.

Types of pricing strategy

Cost-orientated pricing

·        Cost-based pricing / Cost plus pricing

The price of the product is set by adding a mark-up (profit percentage) to the production cost. The objective of this strategy is to cover the cost of production but it ignores the market dynamics. E.g. a product cost $100 to produce and the firm decides to earn 20% profit, thus the price becomes $120.

Market-orientated pricing

·        Skimming/ Creaming pricing

If the product is unique in the market then businesses set high price. The objective is to earn tremendous profit initially, i.e. charging premium price at the launch and lower at the end of the product’s life cycle. E.g. pharmaceutical companies sell new drugs at high price, also technological items like new games, etc charge higher price initially and reduce price after a tenure of 5 years, etc.

·        Penetration pricing

When a company is new in the market it sets low price. The objective is to persuade customers to increase sales by capturing the market share. E.g. TV satellite companies set low price to get subscribers then increase the price as theirs customers base increase.

·        Psychological pricing

The seller considers the psychology or the perception of target market. E.g. especially in telemarketing, the sellers charge $199 instead of $100 to create a perceived value for the customers that he/she is paying lesser.

·        Loss leaders

Products are sometimes sold at the price which is in fact lower than their production cost. The objective is to persuade customers. E.g. superstores loss making product line, etc adapt loss leader strategy.

·        Discounts & sales

To encourage bulk buying businesses offer trade discounts. Cash discounts are also offered to the debtors for prompt payment. Sales with free coupons and price cut-off are given to dispatch the old stock of goods or to sell things which are not in demand any longer. E.g. during winter ice-creams are seen to be offered at lower price.

·        Competition pricing

This strategy is following/ imitating the competitors’ pricing strategy, i.e. charging same price like of the rivals. The objective is to avoid the price wars as it is mostly seen in fiercely competitive market. E.g. telecom industry, beverage industry, etc.

 

·        Predatory/ Destroyer pricing

To drive out competition sometimes businesses lower their price to such extent that the rival is driven out of the market for facing devastating loss.

Price elasticity of demand

Elastic                                                                                                                     

·         Greater change                                                

·        



Non-essential items                                                

·         Too many substitutes

·         Luxury items                                                                         

·         Others

Inelastic                                            

·         Smaller change

·         Essential items

·         No substitute                                                    

·         Habits

·         Others                                                                        

4.1 The market

Market

Market is a mechanism where buyers and sellers interact to exchange the ownership of commodities. Market may either be:

·         a marketplace where people physically come together to exchange goods and services, eg, shopping malls, super markets, boutique store, stock market, etc.

·         a virtual market wherein buyers and sellers buy and sell commodities in an online market through the aid of internet.

Marketing

Marketing is a concept of satisfying needs and wants of customers.

Evolution of marketing / Product vs Market orientation

·       The production orientation era

Demand > Supply

For much of the industrial revolution goods were generally scare and the focus of marketing was on production. Producing at lowest possible cost, reducing distribution cost and opening new markets were considered to be marketing management.

·       The sales orientation era

Supply > Demand

From the start of the 20^th century following the Second World War competition grew and the focus of marketing turned to selling. Communications, advertising and branding were of vital importance to sell the increasing outputs in increasingly crowded market.

·       The market orientation era

From the 1960s onwards the markets have mostly become saturated, where there is intense competition for customers as the size of the market remains stagnant. In modern days marketers research markets by carry on surveys, etc to find out the needs and wants of customers. They are also immensely interested in brandings and ensuring employees understand marketing. Unlike the prior concepts, here the ultimate aim of marketing is to satisfy the customers by giving emphasis on the marketing mix.

Marketing objectives

Marketing objectives are goals set by a company to promote its products or services to the potential customers to achieve within a particular time period. Marketing objectives include:

·         Increasing product awareness

·         Providing information about product features

·         Increasing market share

·         Rebranding a product

Marketing strategies / plan

Marketing strategy is a set of plans which helps to achieve the marketing goals. The marketing strategies include:

·         Raising the price

·         Improving packaging

·         Offering special offers available

·         Distributing through exclusive outlets

Market share

The percentage of an industry or market’s total sales captured by a particular company or brand. It shows the size of a company to its market and competitors.

The formula:

Market share = (Total product or business sales / Total sales in the whole market) x 100

Marketing mix / 4Ps

·         Product

·         Price

·         Promotion

·         Place