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Marketing Basics - Kotler Philip

Chapter 10. Pricing: objectives and pricing policies


After reading this chapter, you should be able to:

1. List and characterize four types of market competition.

2. Explain how firms determine the demand for their goods.

5. Tell how firms choose pricing methods.

4. Name three factors affecting the establishment of the final price of goods.

Museum Approaches for Admission Sizing

In the mid-70s, Parliament passed the first law in the history of Great Britain to introduce admission to the country's leading museums . The law caused a storm of protests. Advocates of admission set forth the following arguments: 1. The state is no longer in a position to annually pay $ 44 million alone to maintain museums. 2. Foreign visitors received the service without paying for it. 3. The establishment of admission will make visitors feel the importance of museums more deeply. 4. Museum directors will have an incentive to be more proactive and prepare more interesting exhibits. 5. The money received could be used to expand museums and staff more representative funds. 6. Museums in Europe and the United States have long been charging entry fees. Opponents of the introduction of admission put forward the following counterarguments: 1. Admission will prevent visiting slum children, students, and the elderly. 2. The costs associated with the collection of admission - the involvement of additional employees, the organization of an access control system at the entrance, the increase in administrative paper work - will absorb most of the money received. 3. Museums should not be pushed to the path of public entertainment, on the contrary, they should concentrate on preparing serious exhibitions. Despite such objections, the law was passed, and British museums began to think in what form it is best to charge admission and fees. Three main options were considered. 1. Entrance fees are charged daily, except for one day a week. The establishment of a day of free visits will provide an opportunity to visit museums for the poor and young people. The amount of admission should vary depending on the type of visitors. Children, students, people over 65, disabled people and veterans should be charged at a lower rate (or not at all). 2. Instead of setting a specific entrance fee, museums encourage donations from visitors. The Metropolitan Museum of Art in New York encourages visitors to donate $ 4 for their needs, or as much as they can. The voluntary nature of the donations allows the poor and youth, if they want to, to visit the museum for free. 3. Museums can charge a small admission fee and at the same time form clubs of their friends, providing members of such clubs with certain privileges in the form of sending them a monthly magazine, annual reports, invitations or exhibitions, discounts when buying goods at the museum's souvenir kiosk or free entrance to the museum. Privileges may vary depending on the status of a club member, determined by the size of his contributions - from $ 15 for ordinary members to $ 100 for full members and $ 500 for life members. Having considered these and other options, various museums soon realized that the main question was what satisfaction should the price mechanism serve1.

All commercial and many non-profit organizations are faced with the task of setting prices for their goods or services. Price appears in many different ways.

We are surrounded by prices on all sides. For housing you pay a rent, for study - a tuition, for a doctor or dentist you pay a fee. Airlines, railways, taxis, and buses charge you a fare. Local utilities call their rates utility bills, and a local bank charges interest on the loan you receive . You pay a toll to drive your own car on the Florida Sunshine Parkway . The company that insured your car receives insurance premiums from you . A visiting speaker receives a fee for a story about a government official who received a bribe for helping a swindler who stole membership fees collected by a professional association. The clubs and societies of which you are a member conduct additional fees to cover unforeseen expenses . A lawyer may request a deposit for you. The “price” of a managerial employee is his salary. The seller’s price may be the commission he receives . The price of a worker is his salary. Finally, although economists disagree with this, many of us feel that income tax is the price we pay for the right to make money. 2

How are prices set? Historically, buyers and sellers set prices during negotiations with each other. Sellers usually asked for a price higher than what they hoped to receive, and buyers lower than what they expected to pay. After bargaining, they finally agreed on a mutually acceptable price.

Setting a single price for all customers is a relatively new idea. It received distribution only with the appearance at the end of the XIX century. large retailers. Firms “F. W. Woolworth ”,“ Tiffany & Co. ”,“ John Wanamaker ”,“ J. L. Hudson ”and others touted a“ strict single price policy ”because they offered a wide variety of goods and held a large number of employees.

Historically, price has always been a major determinant of customer choice. This situation is still true in poor countries among poor groups in relation to products such as consumer goods. However, in recent decades, non-price factors, such as sales promotion, organization of distribution of goods and services for customers, have become relatively more influential in consumer choice.

Firms have different approaches to pricing. At small prices are often set by senior management. In large companies, pricing problems are usually dealt with by department managers and product assortment managers. But here, top management determines the general principles and goals of price policy and often approves the prices proposed by the leaders of the lower echelons. In industries where pricing factors play a decisive role (aerospace, railways, oil companies), firms often set up price departments that either develop prices themselves or help other units do so. Among those whose influence also affects pricing, managers of the sales department, production managers, finance managers, accountants.

In this and the next chapters we will consider the problem of pricing goods. In this chapter, we will familiarize ourselves in detail with the procedure for establishing a firm's initial price for a product. We will talk about all six stages of this procedure: setting objectives for pricing, determining demand, estimating costs, analyzing competitors' prices, choosing a pricing method and setting the final price. In the next chapter, we will look at specific pricing techniques by which the initial price is adapted to important environmental factors. Among these methods are geographic pricing, discount pricing, pricing to promote sales, discriminatory pricing, pricing of new products, and pricing within the product range. At the same time, we will consider the problems of price reductions and responses of the company to competitors' price changes.