The Marketing Mix in Business and Business Studies A Level is very important both in the success and strategy of a Business and in the A level subject. This post has all you need to know about the Marketing Mix. This post covers PRICE.
The Marketing mix can be best described through one quote:
Putting the right product in the right place, at the right price, at the right time.
The Marketing Mix contains for main categories that all begin with the letter ‘P’:
– Product (or service)
Price in the Marketing mix is important. Having identified the right product to appeal to its target market, the business must set the right price. The ‘right’ price for a Versace handbag might be £1,200 – it is a great mistake to think that low prices or special discounts are the path to business success. With Price in the marketing mix, there is a lot to take into account before a business can finally decide what the price of their product or service will be. Now with any one element of the mix you must ask yourself questions to help identify it’s importance.
Customer Sensitivity to Price
Most consumers have an idea of the correct price for a product. They balance price with other factors such as:
- The quality of the product – usually, the higher the quality (if that may be real quality or perceived quality) the more premium the price is.
- How much the consumer actually wants for it – all purchases are personal and customers will pay more for goods they need or want.
For businesses, there are two types of price strategies: Price Skimming and Price Penetration. Which one?
Price skimming is setting the price high while Penetration is when a business sets the price of their product low.
Skimming is usually used by a business when the product has a unique selling point (USP) or the product is new and there will be no competition. Customers interested in the new product will pay this high price as they are also paying for the exclusivity. However, some customers may be put off by the ‘rip-off pricing’ and customers may be angry when the product is discounted after paying the high price.
Penetration is where you give the product a low price hoping that the the extra sales from penetration will counteract the low profit margin. Is it better to go for high price, low sales or low price high sales? Penetration’s high sales volume help to cut production costs per unit, as the producer can buy in bulk and therefore get purchasing costs down. However, low pricing can affect the brand image making the product look ‘cheap’, pricing on the basis of value for money can make customers more price sensitive and it may be harder to get your product into upmarket retailers as penetration usually involves mass-marketing pricing.
Within a market, there are two type of businesses:
This is where the price is set above the market level, leading the market. Price Leaders usually have a strong brand and very little effective competition. For example, Wrigley’s owns 90% of Britain’s chewing gum market share. Other brands have little choice but to charge at or below the level set by Wrigley’s.
This is when the price is set at the market level or at a discount (low price) to the market. This usually happens in highly competitive markets or in markets where one brand dominates. Branston Baked Beans when they launched back in 2006 priced themselves at 41p compared to Heinz, the price leader, setting their price at 44p.
Whatever the business chose (skimming or penetration), there are other tactics that should be considered. They can be part of normal pricing or be part of the promotional tactics:
This is where prices are set deliberately low – so low that the firm may make a loss on every unit sold. The idea to encourage customers to buy other products or complimentary goods that generate profit. For example, Tesco may sell a loaf of bread at 60p meaning each loaf they sell is a loss however, the customer may want to buy some chocolate or a newspaper while he or she is in their. The loaf is the loss leader while the chocolate and newspaper are the complimentary goods. Is this the best price strategy?
This is when pricing is set a level that seems lower to customers. Without thinking, the price of £9.99 seems a lot less lower than the price of £10.50, The loss of 51p is more than made up by the higher sales. Is this the best price strategy?
Special offer Pricing
Offers such as ‘Buy one get one Free’ although only short period help clear stock. Or this?