Price

Video Transcription

Hi, I'm Jeff. In this lesson, we'll explore the price P in the four P's. And we'll also talk about what skimming and penetration pricing are, and how price will behave for different product classifications.

So let's get started. We've learned about the marketing mix model called the four P's-- product, price, place, and promotion. In this lesson, we're going to explore price in more detail.

Price is the amount charged at retail for a good or service. But what determines price? Well, price is driven by a number of factors. And even similar products can have different pricing.

A product might have a higher price or a lower price due to sourcing where one company may not be able to source the components that make up a product as cheaply as another company. So a higher price might be charged.

Expenses. The marketing, research and development, or cost of workers might be higher or lower for different companies.

Manufacturing. One company may pay more for the equipment to produce a product. Or the cost to assemble the product might be higher.

And there can also be non-cost-related reasons a product is priced higher or lower. One company's brand might be positioned better in the marketplace. So, consumers are willing to pay more for their products.

Or it might be that pricing is near identical for products due to perfect competition where a number of companies are creating similar products in identical marketplace.

In any case, when a company launches a new product, these are some of the considerations for pricing. But there are also pricing strategies that are not driven solely by the market. Two of these are often used for new products are skimming pricing, which is setting a steep introductory price with the intent of generating consumer interest and penetration pricing, which is setting a low price so the organization can enter the market and gain traction with the market.

These type of strategies are used because new products are often a challenge for a company. And it is often price that is used to drive sales instead of the other P's of product, place, and promotion. And as with marketing, pricing considerations change based on the different classifications of a product.

The pricing of convenience goods varies mostly by factors driven by location. For example, toothpaste in the United States may be priced differently than the same toothpaste in Europe. Since consumers compare substitutes with shopping goods, pricing would mostly be concerned with the price of those substitutes.

And finally, the price of specialty goods is driven by brand positioning. So the price can vary greatly for these products as a brand's position shifts within the market.

And that's all for this lesson. Good job. We learned about price, one of the four P's. We discussed what determines price. And we talked about skimming and penetration pricing for new products. And we learned how pricing varies based on product classification.

Thanks for your time, and have a great day.