Pricing Considerations

and Approaches

Chapter 10
 What is Price?
Price Has Many Names

Rent Tuition Bribe

Fee Fare Salary
Rate Toll Wage
Commission Premium Interest
Assessment Retainer Tax

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 Definition

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.

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 What is Price?

Price and the Marketing Mix:

 Only element to produce revenues
 Most flexible element
 Can be changed quickly
Price Competition
Common Pricing
Mistakes
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Factors Affecting Price
Decisions

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Factors to Consider When
Setting Price
Market positioning
Internal Factors influences strategy
Other pricing objectives:
Marketing  Survival
objectives  Current profit
maximization
Marketing mix  Market share leadership
strategies  Product quality
leadership
Costs
Not-for-profit objectives:
Organizational  Partial or full cost
considerations recovery
 Social pricing
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Factors to Consider When
Setting Price
Pricing must be
Internal Factors carefully coordinated
with the other
Marketing marketing mix
objectives elements
Marketing mix Target costing is often
strategies used to support
product positioning
Costs strategies based on
Organizational price
considerations Nonprice positioning
can also be used
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Factors to Consider When
Setting Price
Types of costs:
Internal Factors  Variable
 Fixed
Marketing
 Total costs
objectives
How costs vary at
Marketing mix different production
strategies levels will influence
Costs price-setting
Organizational Experience (learning)
considerations curve effects on price

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Factors to Consider When
Setting Price
Who sets the price?
Internal Factors  Small companies: CEO
or top management
Marketing  Large companies:
objectives Divisional or product
Marketing mix line managers
strategies Price negotiation is
common in industrial
Costs
settings
Organizational Some industries have
considerations pricing departments
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 Factors to Consider When
Setting Price
Types of markets
External Factors  Pure competition
 Monopolistic competition
Nature of market
 Oligopolistic competition
and demand
 Pure monopoly
Competitors’
Consumer perceptions
costs, prices, and
offers of price and value
Other Price-demand
environmental relationship
 Demand curve
elements
 Price elasticity of demand
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 Factors to Consider When
Setting Price
Consider competitors’ costs,
External Factors prices, and possible
reactions when developing a
pricing strategy
Nature of market
Pricing strategy influences
and demand the nature of competition
Competitors’  Low-price low-margin
strategies inhibit competition
costs, prices, and  High-price high-margin
offers strategies attract
competition
Other
Benchmarking costs against
environmental the competition is
elements recommended

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

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 General Pricing
Approaches

Cost-Based Pricing: Cost-Plus Pricing

 Adding a standard markup to cost
 Ignores demand and competition
 Popular pricing technique because:
 It simplifies the pricing process
 Price competition may be minimized
 It is perceived as fairer to both buyers
and sellers

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 Figure 11-7:
Cost-Based Versus
Value-Based Pricing

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 General Pricing
Approaches

Value-Based Pricing:
 Uses buyers’ perceptions of value rather
than seller’s costs to set price.
 Measuring perceived value can be difficult.
 Consumer attitudes toward price and quality
have shifted during the last decade.
 Introductionof less expensive versions of
established brands has become common.

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 General Pricing
Approaches

Competition-Based Pricing:
 Also called going-rate pricing
 May price at the same level, above,
or below the competition
 Bidding for jobs is another variation
of competition-based pricing
 Sealed bid pricing

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