(BQ) Part 2 book “Essentials of marketing” has contents: Pricing strategies, international marketing, marketing planning, implementation and control, marketing communications and promotional tools, distribution, 21st century marketing. | Last A Head on Spread 7 Pricing strategies Objectives After reading this chapter you should be able to: • explain the advantages and disadvantages of different pricing methods; • calculate prices using different approaches; • choose the correct pricing strategy to fit a firm’s overall objectives; • explain some of the economic theories underlying the marketer’s view of price and value. 168 Economic theories of pricing and value 169 INTRODUCTION Pricing may not be exciting, but it is one of the most important issues for marketers; it is crucial not only to the profit that is to be made, but also to the quantity of the products that will be sold. This chapter examines the different ways of pricing that are used, and offers some ideas on how to choose a pricing strategy. ECONOMIC THEORIES OF PRICING AND VALUE Classical economists assumed that prices would automatically be set by the laws of supply and demand. Figure shows how this works. As prices rise, more suppliers find it profitable to enter the market, but the demand for the product falls because fewer customers think the product is worth the money. Conversely, as prices fall there is more demand, but fewer suppliers feel it is worthwhile supplying the product so less is produced. Eventually a state of equilibrium is reached where the quantity produced is equal to the quantity consumed, and at that point the price will be fixed. Unfortunately this neat model has a number of drawbacks. Price determined by market Price Demand line Supply line Quantity supplied or demanded Quantity supplied by market FIGURE Supply and demand 170 Chapter 7 • Pricing strategies • The model assumes that customers know where they can buy the cheapest products (. it assumes perfect knowledge of the market). • Secondly, it assumes that all the suppliers are producing identical products, which is rarely the case. • Thirdly, it assumes that price is the only issue that affects customer behaviour, which is clearly
