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One of the four points in the Marketing Mix is pricing. The price is an important instrument in marketing-mixes, because it stands in direct connection with the turnover, revenue and market shares. Price changes are simple to make, but their effect is frequently underrated (=häufig unterschätzt). Therefore the other instruments in marketing-mix shouldn't be neglected (=vernachlässigt): the product, place and promotion.
The customers should buy your product because of your good cost-performance ratio and not because you're the cheapest. Price competition ruins your chances for success for a long term.
So, you have to find the correct price for your product. That does not have to be the lowest. Customers are probably ready to pay a higher price, when they have the feeling, that they have bought something special.
There are no guidelines given how to make a price. Here is a listing from a general proceeding to make a price for a product:
Develop marketing strategy - perform marketing analysis, segmentation, targeting, and positioning.
Make marketing mix decisions - define the product, distribution, and promotional tactics.
Estimate the demand curve - understand how quantity demanded varies with price.
Calculate cost - include fixed and variable costs associated with the product.
Understand environmental factors - evaluate likely competitor actions, understand legal constraints, etc.
Set pricing objectives - for example, profit maximization, revenue maximization, or price stabilization (status quo).
Determine pricing - using information collected in the above steps, select a pricing method, develop the pricing structure, and define discounts.
Marketing Strategy and the Marketing Mix
Before the product is developed, the marketing strategy has to determine (=bestimmen) in which target market the product comes. There usually is a relationship between product quality and price, so price is an important point in positioning.
Pricing is a part of Marketing Mix, therefore it often depends on other decisions within other ranges.
Estimate the Demand Curve
You have to estimate the Demand Curve, because you have to know how much your product is inquired (=nachgefragt) on the market.
For existing products, you can do experiments with the prices. You give your customers a discount of 10%; when you see that the demand grows more than 10%, you have an elastic demand. Otherwise it's an inelastic demand.
Calculate Costs
The total unit cost (=Gesamtstückkosten) of producing a product is composed of the variable costs of producing each additional unit and fixed costs that are incurred regardless of the quantity produced. The pricing policy should consider both types of costs.
Environmental Factors
The companies should be informed about the prices on the market, to make good prices. It's not allowed to make price-fixing arrangements with other companies. To prevent price wars, the product shouldn't be set too low or too high, because this can be checked from the Consumer authority. That may not be in the best interest of either side. It's also not allowed to make dumping.
Pricing Objectives
To determine the optimal pricing, the following steps must be obeyed (=befolgen).
· Current profit maximization - to maximize the current profit, you have to look to your revenues and try to keep your costs lower. But this is not the key for maximizing the profit for a longer time.
· Current revenue maximization - to maximize the current revenue, you have to increase the market share, lowering your costs. So you can maximize your revenue from long-term profits.
· Maximize quantity - to maximize the quantity, you have to decrease long-term costs by maximizing the number of units sold and/or the number of customers served.
· Maximize profit margin - try to maximize the unit profit margin, recognizing that quantities will be low.
· Quality leadership - use price to signal that you have high quality and try to position the product as the quality leader.
· Partial cost recovery - an organization that has other revenue sources may seek only partial cost recovery.
· Survival - in situations such as market decline and overcapacity, the goal may be to select a price that will cover costs and permit the firm to remain in the market. In this case, survival may take a priority over profits, so this objective is considered temporary.
· Status quo - the firm has to find a price stabilisation in order to prevent price wars and they have to get an average profit level.
For new products it is very important to try to maximize the market share and the profit margin.
Pricing Methods
Cost-oriented pricing: you have to be informed about the whole costs from your product. The costs are divided in fixed (rent, wages) and variable (wood, oil) costs, into unit costs and total costs, in direct costs and overhead costs.
BREAK even POINT analysis: finds out, how large the sales volume must be, to come into the profit area.
Demand-oriented pricing: considers first the price conceptions of the customers. A high price is justified by the additional benefit of the product.
Competition-oriented pricing: addresses itself to the industry price; Price leader out.
Further Price Strategies:
Psychological price fortress: Impression of the scarce calculation is aroused.
High price strategy: Product aims at customers with elevated requirements.
Low price strategy: Product aims at price-conscious customers.
Market absorption politics: High prices during the introduction on the market
Market penetration politics: Low prices during introduction on the market.
Price Discounts
The normally quoted price to end users is known as the list price. Every salesman has a financial scope when he offers a product. There are some different kinds of discounts:
· Quantity discount offered to customers who purchase in large quantities.
· Cumulative quantity discount - offered to customers who purchase in large quantities over the year.
· Seasonal discount - offered to customers who purchase early. for example: advance sale of ski tickets
· Cash discount - extended to customers who pay their bill before a specified date.
· Trade discount - offered to retailers, who maybe can't buy in the same dimension as others.
· Promotional discount - a short-term discounted price offered to stimulate sales.
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