Chapter 11

Pricing
Pricing and Factors Affecting a
Firm’s Pricing Decisions

By
Mr. Ghulam
Murtaza
 Learning Goals
• Identify and define the internal factors affecting a
firm’s pricing decisions
• Identify and define the external factors affecting
pricing decisions, including the impact of consumer
perceptions of price and value
• Contrast the two general approaches to setting
prices
• Discuss how companies adjust their prices to take
into account different types of customers and
situations
• Discuss the key issues related to initiating and
responding to price changes

11-3
 Learning Goals
• Identify and define the internal factors affecting a
firm’s pricing decisions
• Identify and define the external factors affecting
pricing decisions, including the impact of consumer
perceptions of price and value
• Contrast the two general approaches to setting
prices
• Discuss how companies adjust their prices to take
into account different types of customers and
situations
• Discuss the key issues related to initiating and
responding to price changes

11-4
 What Is Price?
• The amount of money charged for a
product or service, or the sum of the
values that consumers exchange for the
benefits of having or using the product or
service.

11-5
 Price Has Many Names
• Premium
Rent
• Fee, Fare
Retainer
• Rate
Bribe
• Commission
Salary
• Assessment
Wage
• Tuition
Interest
• Toll
Tax

11-6
Today’s New Pricing Environment
• Dynamic Pricing, charging different prices
depending on individual customers and
situations
• Dynamic pricing on the Web allows SELLERS to:
– Monitor customer behavior and tailor offers.
– Change prices on the fly to adjust for changes in
demand or costs.
– Negotiate prices in online auctions and exchanges.

11-7
 Pricing: An Important but
Difficult Decision
• Price and the Marketing Mix
– Only element to produce revenues
– Most flexible element
– Can be changed quickly
• Common Pricing Mistakes
– Reducing prices too quickly to get sales
– Pricing based on costs, not customer value

11-8
 Factors to Consider When
Setting Price
• Internal Factors • Market positioning
– Marketing objectives influences pricing
– Marketing mix strategy strategy
– Costs • Other pricing
– Product considerations objectives:
– Organizational – Survival
considerations – Current profit
maximization
– Market share
leadership
– Product quality
leadership

11-9
 Factors to Consider When
Setting Price
• Internal Factors • Pricing must be carefully
– Marketing objectives coordinated with the
– Marketing mix strategy other marketing mix
– Costs elements
– Product considerations • Target costing is often
– Organizational considerations used to support product
positioning strategies
based on price
• Non-price positioning
can also be used

11-10
 Discussion Question
• You are the marketer of a new high-end coffee
maker. What should you consider when
planning your:

?
1. Price
2. Product
3. Place
4. Promotion

11-11
 Factors to Consider When
Setting Price
• Internal Factors • Costs set the floor, or
– Marketing objectives lowest amount that
– Marketing mix strategy should be charged
– Costs • Ideally, prices charged
– Product considerations cover all costs and leave
– Organizational considerations something left over for
profit
• Types of costs:
– Variable
– Fixed
– Total costs
• How costs vary at
different production
levels will influence price
setting

11-12
 Factors to Consider When
Setting Price
• Internal Factors
– Marketing objectives
– Marketing mix strategy
– Costs
– Product considerations
– Organizational considerations
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• Market skimming pricing
– Used when the product is
new technology, and not
easily copied
• Market penetration
pricing
– Used when there are
advantages to be gained by
large volumes early in the
life cycle
• Product line pricing
– Setting the price steps
between products in a line
 Factors to Consider When
Setting Price
• Internal Factors • Who sets the price?
– Marketing objectives – Small companies:
– Marketing mix strategy CEO or top
– Costs management
– – Large companies:
Product considerations
– Divisional or product
Organizational line managers
considerations
• Price negotiation is
common in industrial
settings where pricing
departments may be
created

11-14
 Learning Goals
• Identify and define the internal factors affecting
a firm’s pricing decisions
• Identify and define the external factors affecting
pricing decisions, including the impact of
consumer perceptions of price and value
• Contrast the two general approaches to setting
prices
• Discuss how companies adjust their prices to
take into account different types of customers
and situations
• Discuss the key issues related to initiating and
responding to price changes

11-15
 Factors to Consider When
Setting Price
• External Factors • Types of markets
– Nature of market and demand – Pure competition
– Competitors’ costs, prices, – Monopolistic competition
and offers – Oligopolistic competition
– Other environmental – Pure monopoly
elements • Consumer perceptions of
price and value
• Price-demand
relationship
– Demand curve
– Price elasticity of demand

11-16
 Factors to Consider When
Setting Price
• External Factors
– Nature of market and demand
– Competitors’ costs, prices, and
offers
– Other environmental elements
• Consider competitors’ costs,
prices, and possible reactions
when developing a pricing
strategy
• Pricing strategy influences the
nature of competition
– Low-price low-margin
strategies inhibit competition
– High-price high-margin
strategies attract competition
• Benchmarking costs against
the competition is
recommended

11-17
 Factors to Consider When
Setting Price
• External Factors • Economic conditions
– Nature of market and demand – Affect production costs
– Competitors’ costs, prices, – Affect buyer perceptions of
and offers price and value
– Other environmental • Reseller reactions to
elements prices must be considered
• Government may restrict
or limit pricing options
• Social considerations may
be taken into account

11-18
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