demand-oriented pricing

Examples of demand-oriented pricing in the following topics:

• Impacts of Supply and Demand on Pricing

  • The supply and demand model states that the price of a good will be the level where the quantity demanded equals the quantity supplied.
  • As a result of the fall in demand, price drops as well (while the actual quantities of demand and supply will depend on the shape of the demand and supply curves, for the sake of example, let's say the price drops to $4).
  • Should price decline, demand would increase.
  • A demand curve shows the quantity demanded at various price levels.
  • Demand-oriented pricing focuses on the nature of the demand curve for the product or service being priced.

• The History of the Marketing Concept

  • The marketing orientation evolved from earlier orientations; namely, the production orientation, the product orientation and the selling orientation.
  • A production orientation may be deployed when a high demand for a product or service exists, coupled with a good certainty that consumer tastes will not rapidly alter (similar to the sales orientation).
  • Product: quality of the product until the 1960s; a firm employing a product orientation is chiefly concerned with the quality of its own product.
  • Such an orientation may suit scenarios in which a firm holds dead stock, or otherwise sells a product that is in high demand, with little likelihood of changes in consumer tastes that would diminish demand.
  • Marketing: needs and wants of customers 1970 to present day; the marketing orientation is perhaps the most common orientation used in contemporary marketing.

• Impacts of Supply and Demand on Businesses

  • Using this logic, we can construct a demand curve that shows the quantity of a product that will be demanded at different prices.
  • Note that as the price of apples goes down, buyers' demand goes up.
  • The demand curve would change, resulting in an increase in equilibrium price.
  • This outcome makes intuitive sense: As demand increases, prices will go up.
  • Supply and Demand: P - price Q - quantity of good S - supply D - demand

• Competition-Based Pricing

  • Competitive-based pricing occurs when a company sets a price for its good based on what competitors are selling a similar product for.
  • Competitive-based pricing, or market-oriented pricing, involves setting a price based upon analysis and research compiled from the target market .
  • For instance, if the competitors are pricing their products at a lower price, then it's up to them to either price their goods at a higher or lower price, all depending on what the company wants to achieve.
  • One advantage of competitive-based pricing is that it avoids price competition that can damage the company.
  • Status-quo pricing, also known as competition pricing, involves maintaining existing prices or basing prices on what other firms are charging.

• Demand-Based Pricing

  • Demand-based pricing uses consumer demand (and therefore perceived value) to set a price of a good or service.
  • Price skimming is sometimes referred to as "riding down the demand curve."
  • Demand-based pricing is any pricing method that uses consumer demand, based on perceived value, as the central element.
  • Price skimming is sometimes referred to as riding down the demand curve.
  • Illustration of price points, or concave-downward cusps on a demand curve (P is price; Q is quantity demanded; A, B, and C are the price points)

• Demanding a Premium

  • Firms can engage in premium pricing by keeping the price of their good artificially higher than the benchmark price.
  • Premium pricing is the practice of keeping the price of a product or service artificially high in order to encourage favorable perceptions among buyers, based solely on the price.
  • A premium pricing strategy involves setting the price of a product higher than similar products .
  • It is also called image pricing or prestige pricing.
  • Luxury has a psychological association with price premium pricing.

• Cost-Based Pricing

  • Cost-plus pricing is the simplest pricing method used by companies.
  • This method, although simple, has two flaws; it takes no account of demand and there is no way of determining if potential customers will purchase the product at the calculated price.
  • Information on demand and costs is not easily available, and managers have limited knowledge as far as demand and costs are concerned.
  • Cost-plus pricing is the simplest pricing method.
  • Cost-plus pricing is used primarily because it is easy to calculate and requires little information, therefore it is useful when information on demand and costs is not easily available.

• Differential

  • Differential pricing exists when sales of identical goods or services are transacted at different prices from the same provider.
  • Price differentiation, or price discrimination, exists when sales of identical goods or services are transacted at different prices from the same provider.
  • This usually entails using one or more means of preventing any resale: keeping the different price groups separate, making price comparisons difficult, or restricting pricing information.
  • First, the firm must be able to identify market segments by their price elasticity of demand.
  • For example, airlines routinely engage in price differentiation by charging high prices for customers with relatively inelastic demand (business travelers) and discount prices for tourists who have relatively elastic demand .

• Ethical Issues at an Organizational Level

  • Human resource (HR) management involves recruitment selection, orientation, performance appraisal, training and development, industrial relations and health and safety issues.
  • Discrimination by age (preferring the young or the old), gender, sexual orientation, race, religion, disability, weight, and attractiveness are all ethical issues that the HR manager must deal with.
  • Ethical marketing issues include marketing redundant or dangerous products/services; transparency about environmental risks, product ingredients (genetically modified organisms), possible health risks, or financial risks; respect for consumer privacy and autonomy; advertising truthfulness; and fairness in pricing and distribution.
  • Marketing ethics involves pricing practices, including illegal actions such as price fixing and legal actions including price discrimination and price skimming.
  • In some cases, consumers demand products that harm them, such as tobacco products.

• Psychological Pricing

  • Psychological pricing or price ending is a marketing practice based on the theory that certain prices have a psychological impact.
  • Psychological pricing or price ending is a marketing practice based on the theory that certain prices have a psychological impact.
  • The retail prices are often expressed as odd prices: a little less than a round number, such as $19.99 or £2.98.
  • The theory is that this drives demand greater than would be expected if consumers were perfectly rational.
  • By charging $350 for designer jeans, retailers are at times able to create more demand for the product than if they were priced at $19.99 for example.