Setting the Price

Step 1: Selecting the Pricing Objective Survival Maximum current profits Maximum market share (market-penetration pricing) Market skimming - appeals to high-end market segment Product-quality leadership - premium quality connotes premium price

Step 2: Determining Demand 1. Price sensitivity 2. Estimating demand curves 3. Price elasticity of demand a) Determination of the effect of a change in price on overall demand b) If demand changes considerably with a change in price, it is elastic. If demand does not change significantly or in parallel with the price, it is inelastic Step 3: Estimating Costs Types of costs and levels of production - fixed, variable, and total costs Activity-based cost accounting - differentiated marketing offers and measures real costs of serving each customer, which leads to more accurate profitability measurement Target costing - determine price that must be charged according to market research

Step 4: Analyzing Competitors Costs, Prices, and Offers (evaluate from customer perspective, compare, value and reaction) Step 5: Selecting a Pricing Method Markup pricing - standard markup, but can vary according to product categories Target return pricing - to make a fair return on investment Perceived value pricing - based on buyer perception Value pricing - fairly low price for a high-quality offering, everyday low pricing, etc. Going-rate pricing - base price on that of competitors (follow the leader) Auction-type pricing - ascending, descending, and sealed-bid Step 6: Selecting Final Price The influence of other marketing activities - brands quality and advertising relative to the competition (brands with high quality and high relative advertising can command higher prices) The influence of other marketing-mix elements - note relationships between relative price, relative quality, and relative advertising Company pricing policies - contemplated price must be consistent Gain-and-risk sharing pricing - risk losing customers if cannot deliver full promised value Impact of price on other parties - distributors, sales force, competitors, suppliers, government, etc.