Price1 Lamb1

Pricing Concepts
© iStockphoto.com/ktsimage
Chapter 19 Copyright ©2012 by Cengage Learning Inc. All rights reserved 1
The Importance of Price
To the consumer...
To the seller...
Price is the cost
Price is revenue
of something
LO1
What Is Price?
Price
Price is that which is
given up in an exchange
to acquire a good or
service.
LO1
Internal Factors Affecting Pricing
Decisions: Marketing Objectives
Survival
Low Prices to Cover Variable Costs and
Some Fixed Costs to Stay in Business.
Current Profit Maximization

Choose the Price that Produces the
Marketing Maximum Current Profit, Etc.
Objectives 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.
Chapter 19 Copyright ©2012 by Cengage Learning Inc. All rights reserved CHPT: 14- 4
Synonyms for Price
• Rent
• Tuition • Dues
• Fee • Salary
• Fare • Commission
• Rate • Wage
• Toll • Tax
• Premium
• Honorarium
Copyright © 2009 Dorling Kindersley (India)

Profit Maximization
Profit
Maximization
Setting prices so that total

revenue is as large as possible
relative to total costs.
LO2
Sales Maximization
◆ Short-term objective to maximize

sales
◆ Ignores profits, competition, and

the marketing environment
◆ May be used to sell off excess

inventory
LO2
The Demand
Determinant of Price
The quantity of a product that

Demand will be sold in the market at various
prices for a specified period.
The quantity of a product that will

Supply be offered to the market by a supplier
at various prices for a specific period.
LO3
Factors that Affect
Elasticity of Demand
Availability of substitutes
Price relative to purchasing power
Product durability
A product’s other uses
Rate of inflation
LO3
SettiPrice
© BUENA VISTA IMAGES/THE IMAGE BANK/GETTY IMAGES

Choose a Price Strategy
Price Strategy
A basic, long-term
pricing framework that
establishes the initial
price for a product and
the intended direction
for price movements
over the product life
LO1 cycle.
Choose a Price Strategy
Price A firm charges a high introductory price,

Skimming often coupled with heavy promotion.
A firm charges a relatively low price for a

Penetration
product initially as a way to reach the
Pricing mass market.
Status Quo Charging a price identical to or very close

Pricing to the competition’s price.
LO1
Price Skimming
Inelastic Demand
Situations Unique Advantages/Superior

When
Price
Legal Protection of Product
Skimming
Is
Successful Technological Breakthrough
Blocked Entry to Competitors

LO1
Penetration Pricing
Advantages Disadvantages
▪ Can lead to lower
▪ Requires gear up for
cost per unit as
mass production
production expands
▪ Selling large volumes
▪ Discourages or blocks
at low prices
competition from
market entry ▪ Strategy to gain
market share may fail
▪ Boosts sales and
provides large profit
increases
LO1
Status Quo Pricing
Advantages Disadvantages
§ Simplicity § Strategy may ignore

demand and/or cost
§ Safest route to long-
term survival for
small firms
LO1
Predatory Pricing
Predatory
Pricing
The practice of charging a

very low price for a product
with the intent of driving
competitors out of business
or out of a market.
LO2
Value-Based Pricing
Value-Based Pricing is…

setting the price at a level that seems
to the customer to be a good price
compared to the prices of other
options.
LO3
Product Line Pricing
Product Line Pricing is…

setting prices for an entire line of
products.
LO4
Premium Prcing: Gillette Commands a
Price Premium

Auction-Type Pricing
Sealed-bid auctions

Tiffany’s
Price-Quality Relationship

Psychological Pricing
• Considers the psychology of

prices and not simply the
economics.
•
Chapter 19 Copyright ©2012 by Cengage Learning Inc. All rights reserved

CHPT: 25
Price Cues
• “Left to right” pricing ($299 vs. $300)
• Ending prices with 0 or 5
• “Sale” written next to price

When to Use Price Cues
• Customers
purchase item
infrequently
• Customers are new
• Product designs
vary over time
• Prices vary
seasonally
• Quality or sizes vary
across stores
Cost-Based Pricing
Certainty About
Costs
Simplest
Cost-Plus
Ethical Factors Pricing
Pricing is Pricing is an
Situational Method
Simplified Approach That
Unexpected
Adds a
Price Competition Standard
Is Minimized Markup to the
Attitudes Ignores
Costofof the Current
Others Demand &
Product.
Much Fairer to Competition
Buyers & Sellers
Competition-Based Pricing
Setting Prices
Going-Rate
Company Sets Prices Based on What
Competitors Are Charging.
? Sealed-Bid
?
Company Sets Prices Based on
What They Think Competitors
Chapter 19 Will Charge.
Copyright ©2012 by Cengage Learning Inc. All rights reserved CHPT: 14- 29
Promotional Pricing
Loss Leaders Temporarily Pricing

Products Below List
Special-Event Pricing Price to Increase
Short-Term Sales
Cash Rebates Through:
Low-Interest Financing
Longer Warranties
Free Merchandise
Discounts
Factors Affecting Price Decisions
Internal Factors External Factors
Nature of the market

Marketing Objectives Pricing and demand
Marketing Mix Strategy
Costs
Decisions Competition
Other environmental
Organizational
factors (economy,
considerations
resellers, government)
Steps in Setting Price
Select the price objective
Determine demand
Estimate costs
Analyze competitor price mix
Select pricing method
Select final price

Step 1: Selecting the Pricing Objective
• Survival
• Maximum current
profit
• Maximum market
share
• Maximum market
skimming
• Product-quality
leadership

Step 2: Determining Demand
Price Sensitivity
Estimating
Demand Curves
Price Elasticity
of Demand

Table 14.3 Factors Leading to Less Price
Sensitivity
• The product is more distinctive
• Buyers are less aware of substitutes
• Buyers cannot easily compare the quality of substitutes
• The expenditure is a smaller part of buyer’s total income
• The expenditure is small compared .
• Part of the cost is paid by another party
• The product is used with previously purchased assets
• The product is assumed to have high quality and
prestige
• Buyers cannot store the product

Tata motors developed ‘Nano’its
small car with a target price

Step 5: Selecting a Pricing
Method

Step 6: Selecting the Final Price
• Impact of other marketing activities

• Company pricing policies
• Gain-and-risk sharing pricing
• Impact of price on other parties

Special festival
pricing by
Coca-Cola on
the occasion of
Ramzan in
Pakistan.

Pricing for rural markets
• A large proportion have a low and seasonal income
• Several approaches adopted by retailers and
companies to address this
• Rural retailers often extend credit
• Retailers also “break the bulk” and sell in loose form,
in small quantities
• Companies use a similar strategy by introducing
“low-unit packing” or LUP
• Companies also develop low-priced products with a
target price for rural markets
• Companies might offer refill packs or recyclable and
reusable packs

Product Mix-Pricing Strategies:
Product Line Pricing
• Involves setting price

steps between various
products in a product
line based on:
– Cost differences between
products,
– Customer evaluations of
different features, and
– competitors’ prices.

CHPT: 41
Product Mix- Pricing Strategies
• Optional-Product
– Pricing optional or
accessory products sold
with the main product.
i.e camera bag.
• Captive-Product
– Pricing products that
must be used with the
main product. i.e. film.

CHPT: 42
Product Mix- Pricing
Strategies
• By-Product • Product-Bundling
– Pricing low-value – Combining several
by-products to get products and
rid of them and offering the bundle
make the main at a reduced price.
product’s price – i.e. theater season
more competitive. tickets.
– i.e. sawdust
LO2
Price Discrimination
◆ It is the practice of charging different prices
from different buyers.
◆ Different ways in which price discrimination
can be implemented are:
◆ charging separate prices from separate customers
based on their demand patterns
◆ charging less prices from those who buy in large
volumes
◆ charging prices based on distribution channel used
for purchasing
◆ charging based on time of purchase

Price1 Lamb1

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Price1 Lamb1

Uploaded by

Copyright:

Available Formats

Pricing Concepts

Current Profit Maximization

Objectives Market Share Leadership

Product Quality Leadership

Copyright © 2009 Dorling Kindersley (India)

Setting prices so that total

◆ Short-term objective to maximize

◆ Ignores profits, competition, and

◆ May be used to sell off excess

The quantity of a product that

The quantity of a product that will

Price relative to purchasing power

A product’s other uses

© BUENA VISTA IMAGES/THE IMAGE BANK/GETTY IMAGES

Price A firm charges a high introductory price,

A firm charges a relatively low price for a

Status Quo Charging a price identical to or very close

Situations Unique Advantages/Superior

Blocked Entry to Competitors

§ Simplicity § Strategy may ignore

The practice of charging a

Value-Based Pricing is…

Product Line Pricing is…

Copyright © 2009 Dorling Kindersley (India)

Copyright © 2009 Dorling Kindersley (India)

Copyright © 2009 Dorling Kindersley (India)

• Considers the psychology of

Chapter 19 Copyright ©2012 by Cengage Learning Inc. All rights reserved

Copyright © 2009 Dorling Kindersley (India)

Loss Leaders Temporarily Pricing

Internal Factors External Factors

Nature of the market

Analyze competitor price mix

Select pricing method

Select final price

Copyright © 2009 Dorling Kindersley (India)

Copyright © 2009 Dorling Kindersley (India)

Copyright © 2009 Dorling Kindersley (India)

Copyright © 2009 Dorling Kindersley (India)

Copyright © 2009 Dorling Kindersley (India)

• Impact of other marketing activities

Copyright © 2009 Dorling Kindersley (India)

Copyright © 2009 Dorling Kindersley (India)

Copyright © 2009 Dorling Kindersley (India)

• Involves setting price

Chapter 19 Copyright ©2012 by Cengage Learning Inc. All rights reserved

Chapter 19 Copyright ©2012 by Cengage Learning Inc. All rights reserved

Chapter 19 Copyright ©2012 by Cengage Learning Inc. All rights reserved 44

You might also like