PRINCIPLES OF MARKETING Eighth Edition Philip Kotler and Gary Armstrong

Chapter 10
Pricing Products: Pricing Considerations and Approaches
 Copyright 1999 Prentice Hall

Factors to Consider When Setting Prices Internal Factors 10-2 Positioning Objectives Pricing Decisions Target Market External Factors  Copyright 1999 Prentice Hall .

Internal Factors Affecting Pricing Decisions Marketing Objectives Marketing-Mix Strategy Costs Organizational Considerations  Copyright 1999 Prentice Hall 10-3 .

10-4 Current Profit Maximization Marketing Objectives Choose the Price that Produces the Maximum Current Profit. Market Share Leadership Low as Possible Prices to Become the Market Share Leader. Cash Flow or ROI.Marketing Objectives that Affect Pricing Decisions Survival Low Prices to Cover Variable Costs and Some Fixed Costs to Stay in Business. Product Quality Leadership High Prices to Cover Higher Performance Quality  Copyright 1999 Prentice Hall .

Marketing Mix Variables that Affect Pricing Decisions Product Design and Quality 10-5 Non-Price Factors Marketing-Mix Strategy Distribution Promotion  Copyright 1999 Prentice Hall .

Executive Salaries Rent Fixed Costs (Overhead) Variable Costs Costs that do vary directly with the level of production. Raw materials  Copyright 1999 Prentice Hall .Types of Cost Factors that Affect Pricing Decisions Total Costs Sum of the Fixed and Variable Costs for a Given Level of Production 10-6 Costs that don’t vary with sales or production levels.

000 .000 3.000 2.Costs Considerations 10-7 Cost Per Unit at Different Levels of Production Per Period Cost per unit 1 2 3 4 SRAC LRAC 1.000 Quantity Produced per Day  Copyright 1999 Prentice Hall 4.

Prices.External Factors Affecting Pricing Decisions Market and Demand Competitors’ Costs. and Offers Other External Factors Economic Conditions Reseller Needs Government Actions Social Concerns 10-8  Copyright 1999 Prentice Hall .

The Market and Demand Factors that Affect Pricing Decisions Pure Competition Many Buyers and Sellers Who Have Little Affect on the Price. 10-9 Monopolistic Competition Many Buyers and Sellers Trading Over a Range of Prices. Different Types of Markets Oligopolistic Competition Few Sellers Each Sensitive to Other’s Pricing/ Marketing Strategies Pure Monopoly Single Seller  Copyright 1999 Prentice Hall .

Demand Curves Price 10-10 A. Inelastic Demand Demand Hardly Changes With a Small Change in Price. P2 P1 Q 2 Q1 Quantity Demanded per Period B. P’2 P’1 Price Q2 Q1 Quantity Demanded per Period  Copyright 1999 Prentice Hall . Elastic Demand Demand Changes Greatly With a Small Change in Price.

What is Cost-Plus Pricing and Why is it Popular? 10-11 Adding a Standard Markup to the Cost of the Product Sellers Are More Certain About Costs Than Demand Minimizes Price Competition Perceived Fairness to Both Buyers and Sellers  Copyright 1999 Prentice Hall .

000 800 600 400 200 Target Profit ($200.Breakeven Analysis or Target Profit Pricing 10-12 Tries to Determine the Price at Which a Firm Will Break Even or Make a Target Profit Cost in Dollars (thousands) 1.200 1.000) Total Revenue Total Cost Fixed Cost 10 20 30 40 50 Sales Volume in Units (thousands)  Copyright 1999 Prentice Hall .

Value-Based Pricing Cost-Based Pricing Value-Based Pricing 10-13 Product Cost Customer Value Price Value Customers  Copyright 1999 Prentice Hall Price Cost Product .

 Copyright 1999 Prentice Hall Sealed-Bid .Competition-Based Pricing Setting Prices 10-14 Going-Rate Company Sets Prices Based on What Competitors Are Charging. ? Company Sets Prices Based on ? What They Think Competitors Will Charge.