Professional Documents
Culture Documents
• Price is the only element of the 4Ps that brings
in revenue, all others add to cost
• Prices manifest in various ways:
– Wage, rent, commission, toll, tariff, fare, etc.
Important considerations for setting a price
– Costs
– Competitors’ and substitutes’ prices
– Customers’ assessment of price representing
unique product features
I. Setting the Price
II. Adapting the Price
III. Initiating and Responding
to Price Changes
I. Six Steps in Setting Price
1 • Select the pricing objective
2 • Determine demand at different prices
3 • Estimate costs
4 • Analyze costs, prices and offers of competitors
5
• Select a pricing method
6 • Select the final price
1. Pricing Objective
– Survival
– Maximize current profit
– Maximize market share
– Market skimming
– Product‐quality leadership
– Others
2. Determine Demand
– Price sensitivity and price elasticity of demand
– Demand curves
3. Estimate Costs
– Cost of production (short run and long run
average production costs)
– Experience curve pricing
– Target costing
4. Analyze costs, prices and offers of competitors
5. Select a Pricing Method
1. Markup pricing
2. Target‐return pricing
3. Perceived‐value pricing
4. Value pricing
5. EDLP
6. Going‐rate pricing
7. Auction‐type pricing
6. Select the final price by considering:
– Effect on other marketing activities
– Company’s pricing policies
– Gain and risk sharing pricing
– Impact on distributors, suppliers, competitors,
government
II. Adapting the Price
• Geographical pricing
• Price discounts and allowances
• Promotional pricing
• Differentiated pricing / price discrimination
III. Initiating and Responding to Price
Changes
• Initiating price cuts
• Initiating price increases
• Anticipating competitive responses
• Responding to competitors’ price changes
Pricing and Customer Psychology
• Customers are not mere “price takers”
• They process price information and draw inferences
about quality, appropriateness of price etc.
• Consumers’ perception of price is influenced by:
– Reference prices
– Price‐quality inferences
– Price endings