Pricing a Product explained by Professor Ken
Summary
TLDRThe video script discusses the importance of pricing as a sensitive aspect of the marketing mix. It introduces two key pricing strategies: penetration pricing, starting below market price and gradually increasing, and skimming, starting above market price and then lowering. The discussion emphasizes the need to consider product positioning, competition, costs, and consumer perception. It also highlights the importance of understanding costs to set prices and the role of market research in validating pricing assumptions for a marketing plan.
Takeaways
- 🔑 Pricing is the most sensitive element of the marketing mix.
- 🐬 Penetration pricing involves starting below market price and gradually increasing it.
- 🌊 Skimming pricing starts with a higher price than the market and then decreases over time.
- 🔄 Pricing strategy should consider the product life cycle and innovation.
- 📈 The three C's of pricing are Cost, Competition, and Consumer.
- 💰 Understanding Cost of Goods Sold (COGS) is crucial for setting prices.
- 🆚 Competition dictates how your product is priced in relation to similar products in the market.
- 👥 Consumer perception and acceptance ultimately validate your pricing strategy.
- 📊 Revenue can be forecasted by multiplying the estimated market size by units and price.
- 🔍 For new businesses, pricing assumptions should be based on research rather than intuition.
- 📈 A well-researched marketing plan is necessary to support pricing decisions.
Q & A
What are the four dials of the marketing mix mentioned in the transcript?
-The four dials of the marketing mix mentioned are Product, Promotion, Place, and Price.
Why is the price dial considered sensitive in the marketing mix?
-The price dial is sensitive because adjusting it can significantly affect the entire value chain. If the price is set too low, it can devalue the product; if it's set too high, it can reduce sales volume and potentially disrupt the company's operations.
What is penetration pricing and how does it work?
-Penetration pricing involves setting the product's price below the standard market price to penetrate the market. The idea is to gain market share initially and then gradually increase the price over time, possibly reaching or exceeding the market price.
What is skimming pricing and how does it differ from penetration pricing?
-Skimming pricing involves setting the product's price above the market price initially and then lowering it over time. This strategy is the opposite of penetration pricing, which starts with a lower price and increases it.
How often should a company review its pricing strategy according to the transcript?
-A company should review its pricing strategy regularly, potentially every six months or every year, to adjust to market conditions and consumer feedback.
What are the three C's of pricing mentioned in the transcript?
-The three C's of pricing are Competition, Cost, and Consumer. These factors influence how a company sets its prices and how those prices are perceived in the market.
Why is understanding cost of goods sold (COGS) important for pricing?
-Understanding COGS is crucial for pricing because it helps a company determine its break-even point and profit margins. It ensures that the company covers its costs and makes a profit while remaining competitive.
How does competition affect a company's pricing strategy?
-Competition affects pricing strategy because it influences how a company positions its product in the market. If competitors offer similar products at lower prices, a company may need to adjust its pricing to remain competitive.
What role does the consumer play in determining if a price is right?
-The consumer ultimately decides if a price is right based on their perception of value, quality, and their willingness to pay. Sales figures and market feedback from consumers can indicate whether a company's pricing strategy is effective.
How can a company forecast its revenue based on its pricing strategy?
-A company can forecast its revenue by understanding its target market size, estimating the number of units it expects to sell, and multiplying that by the price per unit. This provides a projected revenue figure that can guide business planning.
Why is it important for a new business to base its pricing assumptions on research rather than gut feelings?
-It's important for a new business to base its pricing assumptions on research to ensure that its pricing strategy is grounded in market realities and consumer behavior. This helps to validate assumptions and increase the likelihood of success.
Outlines
💹 Pricing Strategies in Marketing Mix
The paragraph discusses the importance of the pricing component in the marketing mix, alongside product, promotion, and place. It highlights that adjusting the price can significantly impact the entire value chain and the company's performance. Two main pricing strategies are explained: penetration pricing, where the product is initially priced below the market standard and then gradually increased, and skimming, where the product starts at a high price above market standard and then decreases over time. The paragraph also mentions the three C's of pricing: competition, cost, and consumer, emphasizing the need to understand these factors to set the right price. The speaker advises basing pricing decisions on research rather than intuition.
Mindmap
Keywords
💡Pricing
💡Marketing Mix
💡Penetration Pricing
💡Skimming
💡Product Positioning
💡Three Cs of Pricing
💡Cost of Goods Sold (COGS)
💡Revenue Forecasting
💡Target Market
💡Product Lifecycle
Highlights
Price is the last dial to touch in the marketing mix
Changing price affects the entire value chain
Pricing strategy can be sensitive and impactful
Penetration pricing involves starting below market price
Penetration pricing aims to increase market share over time
Skimming involves starting above market price and then lowering
Skimming is suitable for innovative or premium products
Product life cycle and innovation influence pricing strategy
Product positioning determines high or low price strategy
Three C's of pricing: Competition, Cost, and Consumer
Understanding costs of goods sold (COGS) is crucial for pricing
Competition dictates whether your pricing is competitive
Consumer perception ultimately determines if the price is right
Revenue can be forecasted by understanding target market size and price
For new businesses, pricing assumptions should be based on research
Pricing decisions should be data-driven, not based on intuition
A marketing plan should validate pricing assumptions with research
Transcripts
let's talk about pricing remember
i i try to explain there's four dials
the four ps there's
product which is number one right
there's promotion
there's place and now we have price
price is a big dial
that's the one i always like to touch
the last one
when you have to fix that marketing mix
you can you can
create new product you can adapt your
existing product
you can even change your method of
distribution
through place and you can even alter
your promotions
uh but when you touch the pricing dial
that's like the sensitive dial because
if you go too lower price
it affects everything the entire value
chain gets affected
if you go to higher price the value
chain gets affected right you could sell
less you can
really turn your company upside down so
you got to be very
careful with that when it comes to price
there's a couple of basic
strategies that i like to uh
employ one number one imagine a water
line
being here and when you if you're
if you're a dolphin and you're swimming
underwater eventually
you're going to break the water line
you're going to come up right
you'll penetrate the marketplace so
that's what i call penetration pricing
you want to price your product below
the standard price you're going up maybe
every year
every six months you're determining what
you're going up by
and then eventually you're going to be
at market price
and in some cases you might go above
market price
if you get the quality there the
opposite of that would
be skimming so again remember um that
that water line is straight
and you take a rock and you throw it on
the water line and it bounces right
after it stops bouncing what happens it
dips into the water
so now it goes down into the water so
you could price
above the market price
and then lower that price every six
months or every one year
whatever you decide to do eventually
you'll be at market price
but then soon you'll be below price now
that could be based on the product life
cycle that could be based on
your innovation there's a lot of
different factors that go into that
but that's sort of two ways that you
could put together
a pricing strategy there are a few more
but
i think those are the two main ones are
you above market price or below market
price
and that also is based on your product
positioning right where your product is
if your high quality high price low
quality
low price and then remember when it
comes when it comes to pricing
there's three c's that we talked about
what are the three c's when it comes to
pricing
competition is one cost right cogs are
another one
and consumer is the other one so if you
know your cogs if you know your costs
let's say you buy something for 50 cents
you want to sell for a dollar great you
make 50 cents
uh profit or top profit you know have a
good margin there
but then your competition is out there
and if you're lower quality than your
competition and your competition is
cheaper
it's not priced right and then the
consumer ultimately says
what's right and what's wrong so the
consumer will make up the mind and tell
you if your price is right
based upon the sales that you get right
that's sort of
how that would work so you have to
understand your cost
in order to understand your price you
have to understand your target market
your consumers
and you have to understand you know how
you uh
are facing the competition what you and
the competition look like
that's important now when you come up
with all the pricing now you can figure
out what your revenue is because you
know what your target market is you know
your estimated
size is you can multiply your estimated
size by the units and the units by price
and now you have a forecasted number
that you can use for everything else if
you're a new business
you have to make some assumptions based
on
research not assumptions based upon what
your gut is telling you or how good you
feel
or things like that you really have to
have some basic
research or or background research that
can validate your assumptions
when you make a marketing plan
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