PRICE

What is a Price?
 In the narrowest sense, price is the amount of money char
ged for a product or a service.
 More broadly, price is the sum of all the values that custo
mers give up to gain the benefits of having or using a pro
duct or service.
 Price is the only element in the marketing mix that produ
ces revenue; all other elements represent costs.
Synonyms for Price
Rent
Tuition
Fee
Fare
Rate
Toll
Premium
Honorarium
Special assessment
Bribe
Dues
Salary
Commission
Wage
Tax
Internal and External Considerations Af
fecting Price Decisions
 Internal factors affecting pricing include the com
pany’s overall marketing strategy, objectives, and
marketing mix, as well as other organizational co
nsiderations.
 External factors include the nature of the market
and demand and other environmental factors.
Overall Marketing Strategy, Objectives, a
nd Mix
 Price is only one element of the company’s broader mark
eting strategy.
 So, before setting price, the company must decide on its o
verall marketing strategy for the product or service.
 Pricing may play an important role in helping to accompli
sh company objectives at many levels.
 Target costing is the pricing that starts with an ideal selli
ng price, then targets costs that will ensure that the price i
s met.
Organizational Considerations
 Top management sets the pricing objectives and policies,
and it often approves the prices proposed by lower level
management or salespeople.
 In industries in which pricing is a key factor, companies o
ften have pricing departments to set the best prices or hel
p others set them.
 These departments report to the marketing department or
top management.
 Others who have an influence on pricing include sales ma
nagers, production managers, finance managers, and acco
untants.
The Market and Demand
 In this section, we take a deeper look at the price-
demand relationship and how it caries for differe
nt types of markets.
 We then discuss methods for analyzing the price-
demand relationship.
Pricing in Different Types of Markets
 Economists recognize
PureOligopolistic
Competition four
Competition
Four types
Monopolistic
types of of Competition
market markets, each
•presenting
It consists
• The ofamarket
different
many • pricing
consists of onlychallenge.
It consists of many buyers and
buyers and sellers
a few largetrading
sellers.sellers who trade over a range of
in a uniform commodity,
• Because there are prices
few rather
Purethan a single market
Monopoly
such
Pureas wheat,
sellers,copper, or price.
each seller •is alert
Pure The market is dominated by
financialand
monopoly securities.
responsive•to A range of prices occurs because
monopoly one seller.
• No singlecompetitors’
buyer or seller
pricing
sellers
• Thecan differentiate
seller may be a their offers
Pure
Pure
has muchstrategies
effect onand
the marketing
to buyers. competition
government monopoly, a
competition
going market
moves.price.
Oligopolistic • Sellers try regulated
to developmonopoly,
Oligopolistic private
competition Monopolistic
differentiated offers for different
competition or a private
Monopolistic unregulated
competition
customer segments and, in
monopoly.
competition
addition to price, freely use
branding, advertising, and personal
selling to set their offers apart.
The Economy
 Economic conditions can have a strong impact on the fir
m’s pricing strategies.
 Economic factors such as a boom or recession, inflation,
and interest rates affect pricing decisions because they aff
ect consumer spending, consumer perceptions of the prod
uct’s price and value, and the company’s costs of produci
ng and selling a product.
Other External Factors
 Resellers react to various prices
 Government
 Social Concerns
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 p
rofit
Maximum market s
hare
Maximum market s
kimming
Product-quality lea
dership
Copyright © 2009 Pearson Education, Inc.  Publishing as Prentice Hall 14-12
 Step 2: Determining Demand

Price Sensitivity

Estimating
Demand Curves

Price Elasticity
of Demand
Copyright © 2009 Pearson Education, Inc.  Publishing as Prentice Hall 14-13
 Figure 14.2 Inelastic
and Elastic Demand

Copyright © 2009 Pearson Education, Inc.  Publishing as

Prentice Hall 14-14
Step 3: Estimating Costs

Fixed costs and variable

cost
Step 4: Analyzing competitors Costs
, Price and Offers
Step 5: Selecting a Pricing Method
Markup pricing
Target-return pricing
Perceived-value pricing
Value pricing
Going-rate pricing
Auction-type pricing
 Step 6: Selecting the Final Price
Impact of other marketin
g activities
Company pricing policies
Gain-and-risk sharing pr
icing
Impact of price on other
parties
• Price-Adaptation Strategies
1. Geographical pricing: set price in different regions, countries, etc. Also how will co
mpany get paid; barter, buyback arrangement, compensation of cash & products, o
r an offset (company receives cash but agrees to spend majority of the money in that
country in a stated time period).
2. Price discounts & allowances: Quantify, seasonal, trade discounts
3. Promotional pricing: cash rebates, special event pricing, low interest financing
4. Differentiated pricing: different prices for different customer segments (senior citize
ns, students); different product forms: trial size; image pricing; location: tickets for
different seating at a concert; time: costs less to call on Sunday
5. Product bundling: auto makers offer a bundle of options at a lower price than if eac
h option was purchased separately

CONTINUED IN NEXT PPT