Unit 1o. How toSeta Priceona Product
Unit 10. How to ◼ Set a Price on a Product ◼
HowtoSeta Priceona ProductPrice is one of the most importantmarketing variables in the marketing mix.Generally speaking,setting the rightpriceon a product is a four-step process(seeexhibitbelow):(SeeP176)Establishpricinggoals.EstimateDemand,Costs,andProfitsLChoose a price Strategy to help determine a base3.price.Finetune the base price with pricing tacticsThese four steps are discussed below
How to Set a Price on a Product Price is one of the most important marketing variables in the marketing mix. Generally speaking, setting the right price on a product is a four-step process (see exhibit below): （See P176) 1. Establish pricing goals. 2. Estimate Demand, Costs, and Profits 3. Choose a price Strategy to help determine a base price. 4. Finetune the base price with pricing tactics. These four steps are discussed below
Generally speaking,settingtherightprice on a productis afour-stepprocess.Choose aFine-tuneEstimatethe basepriceStrategyDemand,EstablishtohelpPrice withpricinggoalsdetermineCosts,andpricingtacticsa basepriceProfits
3 Establish pricing goals Estimate Demand, Costs, and Profits Choose a price Strategy to help determine a base price. Fine-tune the base Price with pricing tactics Generally speaking, setting the right price on a product is a four-step process
The first step in setting the right price istoestablishpricinggoals.Generallyspeaking,thepricing objectives fall into three categories:profitoriented,sales oriented,and status quo.Thesegoals are derived from the firm's overallobjectives.A good understandingof the marketplaceandofthe consumer can sometimes tell a manager veryquickly whethera goal is realistic.For example,iffirm A's objective of a 20 percent target return oninvestment(ROl),anditsproductdevelopmentand implementation costsare s5 million,themarket must berather large or mustsupport theprice required to earn a 20 percent ROI
◼ The first step in setting the right price is to establish pricing goals. Generally speaking, the pricing objectives fall into three categories: profit oriented, sales oriented, and status quo. These goals are derived from the firm’s overall objectives. ◼ A good understanding of the marketplace and of the consumer can sometimes tell a manager very quickly whether a goal is realistic. For example, if firm A’s objective of a 20 percent target return on investment (ROI), and its product development and implementation costs are $5 million, the market must be rather large or must support the price required to earn a 20 percent ROI
Assumethatcompany B hasapricingobjectivethat all new products must reach at least 15percent market share within three years after theirintroductionA thorough study of the environment mayconvince the marketing manager that thecompetition is too strong and the market sharegoal can't be met.All pricing objectives havetrade-offs that managers must weigh.A profitmaximization objectivemay require a biggerinitial investment than the firm can commit orwantsto commit
◼ Assume that company B has a pricing objective that all new products must reach at least 15 percent market share within three years after their introduction. ◼ A thorough study of the environment may convince the marketing manager that the competition is too strong and the market share goal can't be met. All pricing objectives have trade-offs that managers must weigh. A profit maximization objective may require a bigger initial investment than the firm can commit or wants to commit