When it comes to making buying decision, for example to buy a new car, the consumer is facing a numerous variety of prices for only one product. He or she has to decide whether to take the newest launched model or either the traditional one, with or without an insurance package, delivery or even buy from the internet. Naturally the consumer is reluctant to buy expensive products, when the run on
cheap ones are omnipresent in today’s market. Companies try to undercut one another and conduct themselves in would-be price battles. But all this is owed to the fact that on the one side the consumers have decreasing real earnings, which lead to a higher price sensibility, and on the other side the companies look at
saturated markets. These markets and their exhausted possibilities to differentiate the products cause a mass competition with the active implementation of pricing as a part of the marketing mix and as a competition instrument. This trend can not only be identified in the business to consumer (B2C) market, but it can also be found in
the business to business (B2B) market. In addition an increasing consolidation processes in large parts of the industry and retailing business is recognizable by applying purchasing agents to trade cheaper prices by using their power of demand. Classical examples are the two big discounters like ALDI and LIDL, when it is obvious that they pass over these good conditions to their consumers and use
this advantage in competition for their own business. Furthermore the internet with an increasing number of price comparison websites also contributes to this fight for the right price by offering price and product comparisons which hamper the strategies for a better price differentiation. A company’s survival and growth in such
challenging and competitive environment depends among other things on the effectiveness of its applied pricing policy.
Table of Contents
1. Introduction
2.1 Concept of Pricing Policy
2.2 Goals of Price Policy
2.3 What is a Price?
2.3.1 Definition of Price
2.3.2 Price and Consumer Value
2.3.3 The Drivers of Price
3. Methods of Setting Prices
3.1 Cost Orientated Pricing
3.2 Competitor Orientated Pricing
3.3 Customer Orientated Pricing
4. Price Strategies
4.1 New-Product Pricing Strategies
4.2 Price-Adjustment Strategies
4.3 Other Strategies
5. Ethical Constraints on Pricing
6. Results and Conclusion
Objectives & Topics
This work aims to analyze the role of pricing within the marketing mix, evaluating how companies can effectively manage price setting to achieve competitive advantages and profitability. It explores the interplay between cost-based, competitor-based, and consumer-oriented pricing methods while addressing the increasing importance of ethical considerations in modern globalized markets.
- Fundamental concepts of pricing policy and goals.
- Methods for price setting (cost, competitor, and customer orientation).
- Strategies for new products and price adjustments.
- Ethical constraints and responsibilities in pricing decisions.
- Impact of the marketing mix on organizational revenue.
Excerpt from the Book
3.1 Cost Orientated Pricing
Cost-plus pricing is a part of the cost-based pricing which means that the costs of a product set the bottom of the possible price for a good (Armstrong and Kotler 2009, p. 294). To understand the cost-plus pricing it makes sense to have a brief look at the most important types of cost at first. The most common differentiation of costs is the classification of fixed, variable and total costs. Fixed costs do not change with the amount of produced goods e.g. rent or interest bills. Variable costs change with the produced amount e.g. a company which produces more cars need more raw materials. Total costs are the sum of fixed and variable costs. Once a company has identified its cost, it can start with pricing.
The cost-plus pricing is, according to Nagle and Holden, “the most common pricing procedure” (2002, p. 2) but at the same time the key to a middle-rate performance because it excludes the consumer and competitor view. Dolan and Simon also mention that this method is the most popular one (1996, p. 37). It is also the simplest method of price setting because the company just has to calculate the costs of a product and add a markup e.g. 50%. Markups can be made in different ways e.g. absolute markups or a certain percentage of the total costs. But as mentioned before, this method does not work very well because it is not geared to customers or competitors (Armstrong and Kotler 2009, p. 295).
Summary of Chapters
1. Introduction: This chapter highlights the challenges of modern market conditions, defining pricing as a critical instrument in the marketing mix that influences consumer behavior and corporate survival.
2. Fundamentals of Policy Pricing: It establishes the conceptual framework, defining pricing in relation to the four Ps and identifying key drivers such as costs, competition, and consumer perception.
3. Methods of Setting Prices: This section details three primary approaches to pricing, specifically cost-orientated, competitor-orientated, and customer-orientated methods, along with their advantages and risks.
4. Price Strategies: The chapter focuses on specific tactics for launching new products, such as skimming and penetration, as well as broader price-adjustment strategies for existing goods.
5. Ethical Constraints on Pricing: It examines the moral dimensions of pricing, arguing that ethical considerations are increasingly vital for companies operating in a customer-driven, global environment.
6. Results and Conclusion: The concluding chapter synthesizes the findings, emphasizing that a successful pricing policy must balance all influencing factors to ensure sustainable profitability.
Keywords
Pricing Policy, Marketing Mix, Cost-plus Pricing, Competitive Advantage, Consumer Value, Market Segmentation, Price Skimming, Penetration Pricing, Price Sensitivity, Ethical Constraints, Revenue Management, Price Adjustment, Strategic Management, Global Market, Product Life Cycle
Frequently Asked Questions
What is the primary focus of this work?
This assignment examines "Price" as a fundamental parameter within the marketing mix, analyzing its strategic importance for corporate profitability and competitiveness.
What are the central themes discussed?
The central themes include the theoretical framework of pricing, various price-setting methods, strategic approaches for new and existing products, and the role of ethics in pricing.
What is the core objective of the research?
The core objective is to provide a comprehensive analysis of how companies can determine appropriate pricing strategies that satisfy customer needs while remaining cost-effective.
Which scientific methods are employed?
The assignment is based on extensive literature research, synthesizing academic insights from marketing experts to evaluate different pricing models and strategies.
What topics are covered in the main section?
The main section covers the fundamentals of pricing policy, methods of setting prices, specific pricing strategies like skimming and penetration, and an analysis of ethical constraints.
Which keywords best characterize this work?
Key terms include Pricing Policy, Marketing Mix, Competitive Advantage, Consumer Value, and Ethical Constraints.
How does cost-based pricing differ from customer-oriented pricing?
Cost-based pricing is focused on internal costs plus a markup, often ignoring market demand, while customer-oriented pricing is based on the perceived value the customer derives from the product.
Why is the ethical dimension of pricing increasingly important?
As markets become more globalized and customer-driven, consumers are more aware of business practices, making the perceived fairness of pricing a key challenge for modern companies.
- Quote paper
- Michael Kemmer (Author), Antje Boden (Author), 2009, “Price” as one Parameter in the Marketing Mix, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/197106
