PRICE is the sum of values that consumer's exchange for the benefit of having or using the product or service

Price is the only element within the marketing mix which CREATES REVENUE for an organisation -all other elements produce costs

Price still remains one of the most important elements determining company market share and profitability

• Firm's corporate and marketing objectives
• Firm's product range
• Existence or scope for unique sales propositions (USP)
• Degree of product differentiation
• Costs (own and competitors)
• Resources
• The firm's market position
• Previous strategies
• The nature of the market
• The nature and structure of competition
• Opportunities for market growth
• Demand elasticity's
• Consumers' perceptions and expectations
• The need for credit
• Government influences and constraints upon price
• Inflation rates
• The costs of raw materials and, when these are brought in from overseas, the effects of currency fluctuations
• Interrelationships within the product line

 (Most important: organisations corporate objectives/nature and structure of competition/product life cycle/legal considerations/consumers and their response patterns/cost)

• Too cost orientated
• Not revised often enough (not used tactically)
• Set interdependently of the marketing mix
• Not varied enough
• Reflect a defensive not offensive posture

• Prices may be higher than those of competitors, without a received increase in quality
• A given price may be acceptable in one market, but may be too high in another (or low)
• The price may be viewed by sections of the market as exploitative and the company consequently seen as untrustworthy
• Price differentials across the product line may be illogical
• The price may destabilise a previously stable market
• The price my lead to confusion within the market
• The price may damage/inhibit brand loyalty
• The strategy may well lead to an increase in buyers' price sensitivity

Price Elasticity Refers to the number of units demanded after a price change. Simply if the price is raised, demand goes down (but for essential goods this is not possible, i.e. electricity prices or petrol prices)

Elastic: No difference in demand

Inelastic: Demand should reduce (i.e. for luxury goods, i.e. motor cars)

• Short run profit maximisation
• Price set after product design and quality are fixed
• Assumes a 'Rational' consumer that can assess true quality

• Long term strategy for competing
• Price is a component in alternative positioning scenarios
• Adopts a descriptive view of the consumer that recognises heuristics in information processing (everyone processes information differently)

Pricing decisions Organisations are either PRICE TAKERS (unable/unwilling to adopt a proactive pricing stance) or PRICE MAKERS (able to determine the levels and patterns of price, which others then follow).

I.e. they have either a limited willingness and/or ability to control prices and therefore follow suit or their size and power allow then determining the prices others will follow

Methods of Pricing There are five methods split into two sections:

 Cost-Orientated Pricing:

• Target Return on Investment (ROI)

• Early Cash Recovery (ECR)

The second section is MARKET ORIENTATED

Take into account market and market-related factors. Determined by a combination of competitive forces and the customers perception of value

• Perceived Value Pricing

• Going Rate Pricing

• SURVIVAL (short-term objective, i.e. heavy competition, changing customer needs, too much production not enough sales. Reduce overheads, lower prices, but must cover variable costs)
• RETURN ON INVESTMENT
• MARKET STABILISATION (price as close as possible to nearest competition)
• MARKET SHARE LEADERSHIP (lower price due to economy of scale)
• MEETING/FOLLOWING COMPETITION
• PRODUCT DIFFERENTIATED (i.e. car manufacturing -add on purchases)
• MARKET SKIMMING (enter market with high price, lower as market matures)
• MARKET PENETRATION (adopt a far more aggressive approach)
• EARLY CASH RECOVERY
• PREVENTING NEW ENTRY (low price may prevent new entrants) 

Marketing Mix Strategy Price is a crucial product-positioning factor, which defines the products', market, competition and design

Must consider the total marketing mix when setting prices

Consumers and their response patterns Organisations need to understand as much as possible factors which will effect the levels and patterns of demand. Nagle (1987) suggested 9 principle factors:

1. Unique value effect (most distinctive a product is, less price sensitive buyers)
2. Substitute awareness effect (more aware of substitutes, greater price sensitivity)
3. Difficult comparison effect (more difficult to make direct comparisons, less sensitivity)
4. Total expenditure effect (lower expenditure to income, lower price sensitivity)
5. End benefit effect (as perceived benefits increase, price sensitivity reduces)
6. Sunk investment effect (when product is used in association with products bought previously, price sensitivity reduced)
7. Shared cost effect (price sensitivity lowers, when costs are shared with one or more parties)
8. Price-quality effect (greater perceived quality or exclusiveness, the lower price sensitivity)
9. Inventory effect (when product cannot be stored and consumption takes place immediately, price sensitivity again reduces)

** An organisation also must take account of competitor activity **

 Price as a Tactical Weapon

• Varying prices to reflect geographical differences
• Offering discounts
• Trade-in allowances
• Discriminatory pricing (people who will charge prices i.e. rock concert food and drink prices captive audience, will pay the prices at the concourse)
• Optional feature pricing (i.e. with motor cars)
• Hitting vulnerable competitors

 (Also refer to the Product Life Cycle Model)

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