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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

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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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