ABM 009 Business Enterprise Simulation

After product and place, pricing plays a key role in the marketing mix. The reason for this importance is,
price is a source of income and profit. Through pricing, the organization manages to support the cost of
production, the cost of distribution, and the cost of promotion
Price is the value measured in money term in the part of the transaction between two parties where the
buyer has to give something up (the price) to gain something offered by the other party or the seller
Pricing strategy, on the other hand, is the planning of prices, including the setting of discounts, in
considering items such as the price of competitive products, manufacturing and distribution costs, the firm’s
growth and profitability, customer wants, and the elasticity of demand

Marketing mix is composed of product, pricing, place and promotion and often marketers are more focused
on certain activities like promotion, product development and market research. These activities are indeed
more interesting part of the marketing mix as compared to pricing; however, pricing needs to be given
necessary attention since it will create an immense impact on the rest of the activities and the company

Changes in price can be A price below the A consumer will form a Sales promotion are
done when needed perceived value can perception about its often a short time price-
compared to changing lead to both a loss in quality and relevance as based offering such as a
the product or a potential additional soon as they see the percentage reduction or
distribution channel. revenue and a target price. Eventually, the a two in one type offer.
Though it is important audience that judges the decision to buy or not These are meant to
to plan for pricing quality of the brand may be based on the generate interest in the
changes and their through price points. If perceived value of the product or make use of
impact on the brand and this price is raised later entire product or a special occasion or
product perception, this on, the existing marketing mix offering. event. Used wisely, this
can still be customers may feel like But there is always a can be a useful method
accomplished much they are being unfairly danger that the first of increasing sales but
further than any other burdened. impression triggered by the company must avoid
changes A price set too high can price point will either temptation to offer these
result in potential make the rest of thee special prices too often.
buyers staying away offering irrelevant or it In this scenario, buyers
altogether. will be a biased will put off purchasing
assessment. the product till the next
sales promotion of price
reduction

Guide in pricing objectives

1. Profit maximization: keeping in mind revenue and costs, a company may want to maximize profits.
Profit maximization objectives should be a long term and not focus only on the short term.
2. Revenue maximization: with less focus on profits, a company may focus on increasing revenues in
order to increase market share and lower costs in the long term
3. Maximize quantity: a company may want to sell on the total number of units sold.
4. Maximize profit margin: another objective may be to increase the profit margin for each unit and
not focus on the total number of units sold
5. Quality leader: a company may want to use price to signal high quality and establish itself as the
quality leader
6. Partial cost recovery: if an organization has multiple revenue streams, it may bot be too focused on
recovering a hundred percent of its costs
7. Survival: sometimes, the best a company may want to do is cover costs and to remain in the market.
If the market is in decline or there are too many competitors, survival may take temporary priority
over profit
8. Status Quo: there may be a need to avoid a price wars with competitors. So a company may
maintain a stable price to continue a stable profit level.

Penetration Pricing
Skimming Pricing
Competition Pricing
Product Line Pricing
Bundle Pricing
Premium Pricing
Psychological Pricing
Optional Pricing
Cost Plus Pricing
Cost Based Pricing
Value Based Pricing
Here the business sets a low price to increase sales
and market share. Once market share has been
captured the firm may well then increase their price
The business sets an initial high price and then
slowly lowers the price to make the product
available to a wider market. The objective is to
skim profits of the market layer by layer
Setting a price in comparison with competitors. In
reality a firm has three options and these are to
price lower, price the same or price higher than
competitors
Pricing different products within the same product
range at different price points
The business bundles a group of products at a
reduced price. Common methods are buy one and
get one free promotions od BOGOF’s as they are
now known
The price is set high to indicate that the product is
“exclusive”
The seller here will consider the psychology of
price and the positioning of price within the
market place
The business sells optional extras along with the
product to maximize its turnover
The price of the product costs plus a set amount
based on how much profit that the company wants
to make. Although this method ensures the price
covers the production costs it does not take
consumer demand or competitive pricing into
account which could place the company at a
competitive disadvantage
This is similar to cost plus pricing in that it takes
cost into account but it will consider other factors
such as market conditions when setting prices
This pricing strategy considers the value of the
product to consumers rather than the how much it
 cost to produce it. Value is based on the benefits
it provides to the consumer
Day 15
Promotion includes all activities that involves communicating with the customer about the product and its
benefits and features.
Promotion does...
1. Create awareness- since you are new in the market, your target audience should be able to know that you
already exist!
2. Create interest- if your target audience already know that you exist, you establish that your product can
fulfill their need and make sure that they recognize that your product can do so
3. Provide information- promotions can also be a way to let your target audience know things about your
product like its benefits, features and uses of it to them. Using promotions, you can highlight the unique
features of your product to make it more attractive to them.
4. Stimulate demand – promotions could potentially increase your sales especially during holidays. You
could also attract your target audience by way of free taste or demonstration of your products
5. differentiate product – in situation where there are many competitors, promotional activities help you
differentiate your product to the rest of the market and make it stand out from the crowd
6. reinforce the brand – promotional activities may further strengthen your brand and its place in the market,
this helps turn a first-time purchaser into a life time purchaser

Major target/Promotional Mix

Any promotional activity is designed with a specific target audience in mind. The activity is therefore
created using messages cues and information that they will respond to. Realistically, the major portion of
any promotional budget is aimed at this specific target audience. However, there may be important fringe
groups who may have influenced over the intended target or stake in product

Target audience
These are the current customers of the product as well as the former customers and any potential new
customers. This activity is created for these people specifically

Influencer
People or organizations that may have their own sphere of influence over the target audience makes up this
category. If a positive impact is made on these people, they may use this influence to encourage sales. The
media, opinion leaders, trade associations and special interest groups are some of these influencers
Distribution channel
The product is handled and provided to the customer through this channel making them an important
category of targets. A retailer may choose to display a certain product in a more prominent position than
the others if they believe in the product and its benefits

Other companies
Communicating with other companies may open up opportunities to collaborate on joint ventures

5 different methods of promoting your product

Advertising – paid promotion with little or no personal message
Public relations and sponsorship – PR or publicity tries to increase positive mention of the product or brand
in influential media outlets
Personal Selling – opposite of the one directional promotional method, direct selling connects company
representatives with the consumer.
- This personal contact aims to create a personal relationship between the client and the
brand or product
Direct marketing – this channel targets specific influential potential users through telemarketing,
customized letters, emails and text messages
Sales promotions – these are usually short term strategic activities which aim to encourage a surge in sales.