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Principles of Marketing
Chapter Ten :Pricing Considerations and Approaches
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Price
Price is the sum of all the values that consumers exchange for the benefits of having or using the product or service. has been the major factor affecting buyer choice; non-price factors have become increasingly important in buyer-choice behavior. is the only element in the marketing mix that produces revenues; all others represent costs.
Price
Price
When is price set?
1. 2. 3.
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New product Regular product in new channel New bids & contract
Consumer Psychology and Pricing
1. Reference prices 2. Price Quality-Inferences 3. Price ques
Factors to Consider When Setting Prices
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Mkt. strategy, Objectives and mix Nature of the market and demand
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Value based pricing vs. Cost based pricing
Cost-Based Pricing Value-Based Pricing
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Customer Price Cost Value Product
Product PriceValue Cost Customers
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Value-Based Pricing
Good-Value Pricing:
Offering just the right combination of quality and good service at a fair price.
Value
Added Pricing:
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Attaching value-added features and services to differentiate a companys offers and to support charging higher prices.
Settin g Prices
Going -Rate
Compa ny Sets Prices Based on What Compe titors Are Chargi ng.
.
Competition-Based Pricing
Compa ny Sets Prices Based on What They Think Compe titors Will Charge
Seale d-Bid
? ?
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Types of Cost Factors that Affect Pricing Decisions
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Costs that dont vary with sales or production levels. Executive Salaries, Rent
Fixed Costs (Overhead)
Variable Costs
Costs that do vary directly with the level of production. Raw materials
Total Costs Sum of the Fixed and Variable Costs for a Given
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Cost-Based Pricing
Variable cost 10 300,000 Sales 50,000 Mark Up 20%
Fixed cost Desired Sales
Expected Variable
cost +Fixed Cost/Unit Sales = Unit cost Tk. 10+300,000/50,000=Tk. 16 per
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unit
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Cost-Based Pricing
Unexpected Situational Factors
Certainty About Costs
Pricing is Simplified
Price Competition Is Minimized
Cost-Plus Pricing EthicalApproach is an That Adds a Standard Markup to the Cost of the Product.
Attitudes of Others
Simplest Pricing Method
Much Fairer to Buyers & Sellers
Ignores Current Demand & Competition 10
10
Breakeven Analysis or Target Profit Pricing
Tries to Determine the Price at Which a Firm Will Break Even or Make a Certain Target Profit.
Cost in Dollars (millions)
12 10 8 6 4 2 Total Revenue
Target Profit ($2 million)
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Total Cost Fixed Cost
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Sales Volume in Units (thousands)
400
600
800
1,000
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Other Factors Affecting Price Decisions ( Fig. 10.1)
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Internal Factors
Marketing Objectives Marketing Mix Strategy Organizational considerations
External Factors Pricing Decision s
Nature of the market and demand Competition Other environmental factors (economy, resellers, government)
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Internal Factors Affecting Pricing Decisions: Marketing Objectives
Survival Low Prices to Cover Variable Costs and Some Fixed Maximization Current Profit Costs to Stay in Business. Choose the Price that Produces the Maximum Current Profit, Etc. Market Share Leadership Low as Possible Prices to Become the Market Share Leader. Product Quality Leadership High Prices to Cover Higher Performance Quality and R & D.
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Marketing Objectives
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Internal Factors Affecting Pricing Decisions: Marketing Objectives
Other
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specific objectives include:
Set prices low to prevent competition from entering the market, might be reduced temporarily to create excitement or draw more customers.
Prices
Nonprofit
and public organization may have other pricing objectives such as:
University Hospital Theater
aims for partial cost recovery,
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may aim for full cost recovery, may price to fill maximum number of
External Factors Affecting Pricing Decisions
Mark et and Dema nd
Comp etitor s Costs, Prices , and Offers
Economic Condition s Reseller Needs Governme nt Actions Social Concerns
Other External Factors
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External Factors to Consider
When
Setting Prices
The Market and Demand
Before setting prices, the marketer must understand the relationship between price and demand for its products
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Market and Demand Factors Affecting Pricing Decisions
Pricing in Different Types of Markets
Pure Monopoly
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Pure Competition
Many Buyers and Sellers Who Have Monopolistic Little Effect on the Competition Price Many Buyers and Sellers Who Trade Over a Range of Prices
Single Seller
Few Sellers Who Are Sensitive to Each Others Pricing/ Marketing
Oligopolistic Competition
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Factors to Consider When Setting Prices
Other Internal and External Considerations Affecting Price Decisions
The demand curve shows the number of units the market will buy in a given period at different prices
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Normally, demand and price are inversely related Higher price = lower demand For prestige (luxury) goods, higher price can equal higher demand when consumers perceive higher prices as higher quality
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Factors to Consider When Setting Prices
Other Internal and External Considerations Affecting Price Decisions
Price elasticity of demand illustrates the response of demand to a change in price
Inelastic demand occurs when demand hardly changes when there is a small change in price Elastic demand occurs when demand changes greatly for a small change in price 19 19
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10-
price elasticity of demand= % change in quantity demand 32
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External Factors to Consider
When
Setting Prices
Competition strategies and prices Factors to consider
Comparison of offering in terms of customer value Strength of competitors Competition pricing strategies Customer price sensitivity
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External Factors to Consider When Setting Prices
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Other external factors
Economic conditions Resellers response to price Government Social concerns
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