Pricing a Product explained by Professor Ken

Summary

The 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.