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Tuesday, 16 September 2014

PRICE in your Marketing Mix or why an Apple I-Phone6 costs more in UK than USA, and why there are unified grocery prices across the UK

This week – fruitsofsuccess- is celebrating Marketing Week. There will a new post on a marketing related topic each day. Today’s subject is....

Price
Pricing is one of the components of the marketing mix which offers  flexibility to the marketer. It was much in the news last week when we saw the showbiz glitz of the Apple launch for the I phone 6 in California.

Yet the price in the UK high street will be substantially higher than in the United States.

The Consumers' Association Which ? pointed out :-

The basic model I Phone6  will cost Britons £539 or £449 excluding VAT compared to in the states at £ 123 !

Similarly at the top end of the range Brit will be set back £ 789 or £657.50 excluding VAT but in the States the model will be available at £305.

Apple failed to respond to request for a comment on the evening of September of September 12th.

As I noticed in my recent trip to Chicago last week, local taxes in the USA are not included in the advertised price in America. So the differential between UK and USA will be less than the Which ? figures.

Unintended consequences of the Scottish referendum - Grocery Prices


A Sottish Saltire - cross of St Andrew draped over a bannister
 at London's Trafalgar Square during yesterday evening's rally
 for https://www.letsstaytogether.org.uk/ 15th September 2014

A UK-wide campaign that gives a voice 
to everyone who doesn't have a vote
 in the decision to break up Britain.
Whilst here in the UK if Scotland votes Yes in the Independence Vote on Thursday  they could well find they will be paying more for their grocery bills.

A number of the larger Supermarket chains have warned that the changes in regulation and transport costs  could lead to higher prices north of the border.

One of the advantages of the Union has meant the benefit of stable pricing across the whole of the UK. Retailers such as ASDA and Sainsbury have indicated that they will have to reflect higher prices.

So let's take a closer look at PRICE from a marketing perspective


The price charged by a company will need to complement the other elements of your Marketing Mix and will depend on your company's marketing objectives. 

These could be to:

·         maximise volume

·         maximise turnover

·         maximise market share

·         maximise profits

·         develop a particular market image

·         cream off the most profitable parts of the market

·         flood the market

·         hit the competition

·         get established in the market

·         equate supply and demand

There are broadly three different approaches to setting prices:

·       the economist's


·         the accountant's


·         the marketer's

1. The Economist's Approach

Economics is based on the theory of supply and demand.  It is obvious that in the long run the market price of any product, commodity or service must suit both its vendors and its purchasers.  Otherwise over supply or unsatisfied demand will result. 

This leads to the theory of Equilibrium Pricing, where prices are set such that supply and demand tend to equate.  If demand exceeds supply then the price is adjusted upwards so that more people want to supply the commodity and less people want to buy it.  Vice versa if supply exceeds demand.

This is best exemplified by the commodity markets, stock exchanges and money markets, where prices are set by dealers in order to try and balance their books (i.e. have the same amount available as they can sell).  In these cases it is the only practical way to price.


Pricing at a Sunday Farmers Market in Parsons Green  SW London
Volume discount, Special Price today,
2. The Accountant's Approach

Cost-Plus-Pricing is based on the premise that if a business is to survive and prosper it must sell its products at what it costs to produce them plus something extra for profit (hence 'cost-plus').

There are a number of variations on the underlying theme, the most common being:

·         VARIABLE COST PLUS PRICING; this consists of totalling only the variable costs of providing the product and using this total as the cost base, adding a certain percentage to cover fixed costs and provide for profit.


·         PRODUCTION COST PLUS PRICING; in this situation the actual production cost total is used as the base, after apportioning all production overhead expenses to the various units of output.  A certain percentage is then added to cover selling and administrative expenses and to provide for profit.


·         TOTAL COST PLUS PRICING; here all the organisation's costs are allocated to units of output, using absorption costing techniques where appropriate.  The percentage to be added then only has to provide for profit.


Although cost-plus pricing is probably the most used pricing system of all, it does suffer from the very serious defect that it takes no account at all of the market.



CONTRIBUTION PRICING relates the total contribution (i.e. sales less variable costs) earned at different prices/sales volumes to the fixed costs of running the business; this way the profits which will be earned at different prices can be estimated.  A pricing decision can then be made based on the company's profit objectives and relative risks and rewards of selling at different prices.


OPPORTUNITY COST PRICING is used where there are (at least potentially) different mutually exclusive opportunities to sell the same product or service.  The price quoted is based on the cost to the supplier of not being able to sell or utilise the product or service elsewhere.


3. THE MARKETER’S APPROACH

This is based on the idea that for every product there is a price which the market will bear.  There are different pricing systems resulting from this:


At a Sainsburys Store the battle of the single delivery
 coffee  pod consumables
Top shelf                                                      
 Carte Noire No 7 espresso 10 x 53 g £2 Special Offer
Duralit  Lungo Americano 10 pods £2.50
Middle Shelf                                                    
Nescafe  Cappucino, Latte Machiato,Americano, Chocolino,
8 pods and 16 pods  £ 3.75  ( Brand leader)
Lower Shelf                                                    
Tassimo  Costa  Carte  8 pods
Cappucino, Latte , Americano
COMPARATIVE PRICING or COMPETITIVE PRICING where prices are set respectively around or below the price which competitors are charging.  It may be policy to charge the same, a bit less or a bit more.  Whatever the policy is, it must be linked in with the rest of the company's marketing strategy.  There is a danger however, that a profitable price for one company is a disastrous price for another company whose cost structure is very different.


CUSTOMARY PRICING where the market has established a certain set of prices or an acceptable range of prices for a product.  Any producer who does not conform to the established range runs the risk of either being labelled 'cheap and nasty' if pricing is too low, or being accused of 'trying it on' if overpricing.



DIFFERENTIAL PRICING is based on the technique of 'market segmentation'.  Different types of customer (or potential customer) can be approached and sold to in different ways and at different prices.  Price is only one part of the total offer and differential prices can be justified (or disguised) by an effective marketing plan.


VALUE-IN-USE PRICING where prices are set by estimating how much the product is actually worth to the consumer in terms of gain or saving of money.  This may bear no relation at all to the cost of the product.


PSYCHOLOGICAL PRICING where a price is designed to have a particular psychological impact (or lack of impact) on customers.  For example to make the price appear lower than it really is, to make the quality seem higher than it really is or to imply exclusivity.


At a railway station Mars Vending Machine (left)
price a standard Mars Bar at 90p
Twix at 90p
Packet of Maltesers at 90p
Similarly the Drinks machine (left)
330 ml can of Pepsi at £1.00
Lipton Iced Tea lemon  500ml at £1.50



Related Links on Marketing






CONVENIENCE PRICING
sets prices literally for the convenience of the customer.  For example pricing in round number amounts in retail stores or in single coin amounts in vending machines (see left). Sales by the economy airlines for on board food and drinks.

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