1.   Price in marketing mix

Pricing strategy and policy is an art. Many hotels offer the tourist with an “acceptable” and attractive price, but their average revenue per head is higher than the other hotels with higher price list.

Price is an important factor of marketing mix and it need to be managed intelligently as the other factors. Generally, price is and attachment of the planning product/ markt

In marketing mix that marketers use as the basis of marketing activities, we have Product, Place, Promotion and Price. The three first elements require us pay to make the outcomes. But Price is the only “P” in marketing mix that we can collect our value for what we have done for our customers. With its own importance, price deserves to be invested time and attention of the maker.

Price shows the value (normally under monetary manner) that the customers are ready to pay for their satisfaction. A brand, which offer higher price than the others, may be because it bring more value for their customers.

For instance, normal jeans is only around 100.000 VND but Levis’ jeans can cost upto 1.000.000 VND but the customers are willing to pay for them.

If you are in Levis’ situation and you did not research deeply about the price and value, are you confident to list your product’s price higher than your competitors 10 times? Vice versa, if you want your customers buy your product at the high price you have listed, you should study well the value brought to your custormer and pricing strategy.

2. Definition of setting price and Setting price model

Price and elastic demand

Price is elastic when a small change in price may lead to a big change in demand. Normally, with popular products that the customer may have plenty of options, a decision to reduce the price of a product may increase the demand of the customer with that product, by the switch of the customers to those products from the other replacement product. Otherwise, a decision to increase the price can reduce the need of customer for those products because they find the other product in replacement.

Price is not elastic when a big change in price leading to a small change in demand. For example, with a specific product for specific market, only people in need use and only use that product so if we reduce greatly the price, the demand of the customer remain unchanged because the quantities of the customers who really need that product are limited while the other don’t want to use that product.

People study the elastic factor of the price when they want to modify the price of a product on the market.

The factors impacting to the elastic factor of the price

Criteria Elastic Non-elastic
Many replacement products x  
Specific products   x
Products with low changing margin x  
Products are easy to compare with the other competitive products x  
Price is a designing factor of product   x
Price is small problem with the customer   x
Product is a part of the total cost price   x

2.   Analyzing the cost price and setting price model

Understanding the price and cost price

We should understand the cost price of a product to know if we can get profit basing on the pricing policies. Basically, we have 4 kinds of expenses:

  • Unit price: the producing cost of an unit product
  • Fixed price: the immutable expenses constituting the cost price such as the rent of factory, plant, and office…
  • Changeable price: the expense varied with the quantities of products produce, such as labor cost, material cost
  • Marginal price: the expense to produce the last product

In order to understand the cost price, people also build the minimum price and break-even point, break-even revenue. Analyzing the recurrence of revenue can make us understand the impact on interest when the changes of price or the quantities of products selling happen.

Price and market factor

Price always goes with a market or a specific group of customer, a distribution channel and remains valuable in a specific period. The foreign companies also follow these principles when they are making specific policies for each nation. That is why sometimes we can face with the actual situation that with a similar brand but the price of that product will be different from the markets (dairy product on Vietnam market is one of the example)

The other market elements impacting on the price (make it higher or lower) are:

  • Aim of price
  • The flexibility of price
  • Discount and bonus
  • Laws
  • Commitment of each market for the price
  • The market transparency
  • Value of the product that the customer perceives
  • The discount habit of the market with respect to each distribution channel
  • Competitive situation
  • Cost price
  • Quotation of supplying/ demanding
  • Price of the other products

Price by market segment

With each market segment, to making the pricing strategy we can have these steps:

  • Understanding market
  • Understanding customer
  • Understanding competitors
  • Understanding our current competitive position
  • Selecting a suitable pricing strategy

The sensitiveness with price

With some markets, price is a sensitive matter, while with the other it is not. What are the elements impacting on the sensitiveness of price?

  • The finance of the customer
  • The need and tracing ability of the customer
  • Competitive situation

3.   Pricing strategy

  1. Price by the market
  • Price by economic effectiveness
  • Price by the sense of value
  • Price by segment
  • Price by strategic partners
  • Price by the market leader
  • Price by supplying and demanding

2.   Price by the cost price

  • Value chain price
  • ROI price
  • Price by the advantage of lowest cost price
  • Price by interest index/ cost price
  • Price by competitive bidding
  • Price by harvesting segment

3. The model and price strategy process

Steps of planning pricing strategy