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Chapter 10- slide 1Copyright 2009 Pearson Education, Inc.Publishing as Prentice Hall

Chapter Ten

Pricing:Understanding and Capturing

Customer Value

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Chapter 10- slide 2Copyright 2010 Pearson Education, Inc.Publishing as Prentice Hall

Pricing:Understanding and

Capturing Customer Value

What Is a Price?

Customer Perceptionsof Value

Company and ProductCosts

Other Internal andExternalConsiderationsAffecting PriceDecisions

Topic Outline

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Chapter 10- slide 3Copyright 2010 Pearson Education, Inc.Publishing as Prentice Hall

Price is the amount of money charged for a

product or service. It is the sum of all thevalues that consumers give up in order togain the benefits of having or using aproduct or service.

What Is a Price?

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Chapter 10- slide 4Copyright 2010 Pearson Education, Inc.Publishing as Prentice Hall

Price is the onlyelement in themarketing mixthat producesrevenue; all otherelementsrepresent costs

What Is a Price?

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Chapter 10- slide 5Copyright 2010 Pearson Education, Inc.Publishing as Prentice Hall

Factors to Consider WhenSetting Prices

Is the understanding ofthe value consumersplace on the benefitsthey receive from the

product and setting aprice that captures thatvalue

Customer Perceptions of Value

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8/12/2019 Kotler POM13e Instructor 10 - Global Revised

7/35Chapter 10- slide 7Copyright 2010 Pearson Education, Inc.

Publishing as Prentice Hall

Factors to Consider WhenSetting Prices

Value-based pricing : pricing a product or a

service by depending on costumerexpectations, not the sellers cost. Price isconsidered before the marketing programis set.

Value-based pricing is customer driven Cost-based pricing is product driven

Customer Perceptions of Value

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8/35Chapter 10- slide 8Copyright 2010 Pearson Education, Inc.

Publishing as Prentice Hall

Factors to Consider WhenSetting Prices

Customer Perceptions of Value

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8/12/2019 Kotler POM13e Instructor 10 - Global Revised

10/35Chapter 10- slide 10Copyright 2010 Pearson Education, Inc.

Publishing as Prentice Hall

Factors to Consider WhenSetting Prices

Good-value pricing offers the rightcombination of quality and good serviceto fair price

Existing brands are being redesigned to offermore quality for a given price or the samequality for less price

Customer Perceptions of Value

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Chapter 10- slide 11Copyright 2010 Pearson Education, Inc.Publishing as Prentice Hall

Factors to Consider WhenSetting Prices

Everyday low pricing (EDLP) involvescharging a constant everyday low pricewith few or no temporary price discounts

High-low pricing involves charging higher

prices on an everyday basis but runningfrequent promotions to lower pricestemporarily on selected items

Customer Perceptions of Value

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Chapter 10- slide 12Copyright 2010 Pearson Education, Inc.Publishing as Prentice Hall

Factors to ConsiderWhen Setting Prices

Value-added pricing attaches value-addedfeatures and services to differentiate theirproducts, support higher prices, and buildpricing power

Pricing power is the ability to have acompetitive advantage that justify higherprices and margins without losing market

share

Customer Perceptions of Value

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Chapter 10- slide 13Copyright 2010 Pearson Education, Inc.Publishing as Prentice Hall

Factors to ConsiderWhen Setting Prices

Cost-based pricing involves setting pricesbased on the costs for producing,distributing, and selling the product plus afair rate of return for its effort and risk

Cost of raw materials & production + littleprofits

Company and Product Costs

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Chapter 10- slide 14Copyright 2010 Pearson Education, Inc.Publishing as Prentice Hall

Factors to Consider WhenSetting Prices

Cost-based pricing adds a standard markup(profit) to the cost of the product

Company and Product Costs

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Chapter 10- slide 15Copyright 2010 Pearson Education, Inc.Publishing as Prentice Hall

Factors to Consider WhenSetting Prices

Fixedcosts

Variablecosts

Totalcosts

Company and Product CostsTypes of costs

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Chapter 10- slide 16Copyright 2010 Pearson Education, Inc.Publishing as Prentice Hall

Factors to ConsiderWhen Setting Prices

Fixed costs are the costs that do not vary

with production or sales level Rent

Heat

Interest

Executive salaries

Company and Product Costs

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Chapter 10- slide 17Copyright 2010 Pearson Education, Inc.Publishing as Prentice Hall

Factors to Consider WhenSetting Prices

Variable costs are the costs that vary withthe level of production

Packaging

Raw materials

Company and Product Costs

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Chapter 10- slide 18Copyright 2010 Pearson Education, Inc.Publishing as Prentice Hall

Factors to ConsiderWhen Setting Prices

Total costs are the sum of the fixed andvariable costs for any given level ofproduction

Average cost is the cost associated with agiven level of output

Company and Product Costs

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Chapter 10- slide 19Copyright 2010 Pearson Education, Inc.Publishing as Prentice Hall

Factors to Consider WhenSetting Prices

Costs at Different Levels of Production

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Chapter 10- slide 20Copyright 2010 Pearson Education, Inc.Publishing as Prentice Hall

Factors to Consider WhenSetting Prices

Experience or learning curve is when average cost falls asproduction increases because fixed costs are spread overmore units

Costs as a Function of Production Experience

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Chapter 10- slide 21Copyright 2010 Pearson Education, Inc.Publishing as Prentice Hall

Factors to Consider WhenSetting Prices

Cost-plus pricing adds a standard markup tothe cost of the product

Benefits Sellers are certain about costs

Prices are similar in industry and price competition isminimized

Consumers feel it is fair

Disadvantages Ignores demand and competitor prices

Cost-Plus Pricing

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Chapter 10- slide 22Copyright 2010 Pearson Education, Inc.Publishing as Prentice Hall

Factors to ConsiderWhen Setting Prices

Break-even pricing is the price at which total

costs are equal to total revenue and thereis no profit

Target profit pricing is the price at which thefirm will break even or make the profit itsseeking

Break-Even Analysis and Target ProfitPricing

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Chapter 10- slide 23Copyright 2010 Pearson Education, Inc.Publishing as Prentice Hall

Factors to Consider When

Setting PricesBreak-Even Analysis and Target Profit Pricing

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Chapter 10- slide 24Copyright 2010 Pearson Education, Inc.Publishing as Prentice Hall

Considerations in Setting Price

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Chapter 10- slide 25Copyright 2010 Pearson Education, Inc.Publishing as Prentice Hall

Factors to Consider WhenSetting Prices

Customer perceptionsof value set the upperlimit for prices, andcosts set the lowerlimit

Companies mustconsider internal andexternal factors whensetting prices

Other Internal and External ConsiderationsAffecting Price Decisions

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Chapter 10- slide 26Copyright 2010 Pearson Education, Inc.Publishing as Prentice Hall

Factors to ConsiderWhen Setting Prices

Target costing starts with an ideal sellingprice based on consumer valueconsiderations and then targets costs thatwill ensure that the price is met

Other Internal and ExternalConsiderations Affecting PriceDecisions

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Chapter 10- slide 27Copyright 2010 Pearson Education, Inc.Publishing as Prentice Hall

Factors to Consider WhenSetting Prices

Organizational considerations include:

Who should set the price

Who can influence the prices

Other Internal and External ConsiderationsAffecting Price Decisions

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Chapter 10- slide 28Copyright 2010 Pearson Education, Inc.Publishing as Prentice Hall

Factors to Consider WhenSetting Prices

Before setting prices,the marketer mustunderstand therelationship betweenprice and demand forits products

Other Internal and ExternalConsiderations Affecting PriceDecisions

The Market and Demand

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Chapter 10- slide 29Copyright 2010 Pearson Education, Inc.Publishing as Prentice Hall

Factors to Consider WhenSetting Prices

Pure competitionMonopolistic competition

Oligopolistic competitionPure monopoly

Other Internal and External Consideration AffectingPrice Decisions

Competition

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Chapter 10- slide 30Copyright 2010 Pearson Education, Inc.Publishing as Prentice Hall

Factors to Consider WhenSetting Prices

The demand curve shows the number of units the marketwill buy in a given period at different prices

Normally, demand and price are inversely related Higher price = lower demand For prestige (luxury) goods, higher price can equal higher

demand when consumers perceive higher prices ashigher quality

Other Internal and ExternalConsiderations Affecting Price

Decisions

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Chapter 10- slide 31Copyright 2010 Pearson Education, Inc.Publishing as Prentice Hall

Factors to Consider WhenSetting Prices

Other Internal and External ConsiderationsAffecting Price Decisions

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Chapter 10- slide 32Copyright 2010 Pearson Education, Inc.Publishing as Prentice Hall

Factors to Consider WhenSetting Prices

Price elasticity of demand illustrates the response of demand to achange in price

Inelastic demand occurs when demand hardly changes when there is asmall change in price

Elastic demand occurs when demand changes greatly for a small change inprice

Price elasticity of demand = % change in quantity demand% change in price

Other Internal and ExternalConsiderations Affecting PriceDecisions

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Chapter 10- slide 33Copyright 2010 Pearson Education, Inc.Publishing as Prentice Hall

Factors to Consider WhenSetting Prices

Comparison of offering interms of customer value

Strength of competitors

Competition pricing strategies Customer price sensitivity

Other Internal and External ConsiderationsCompetitor's Strategies

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Chapter 10- slide 34Copyright 2010 Pearson Education, Inc.Publishing as Prentice Hall

Factors to ConsiderWhen Setting Prices

Economic conditions

Resellers response toprice

Government

Social concerns

Other Internal and External ConsiderationAffecting Price Decisions

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Ch 10 lid 35Copyright 2010 Pearson Education Inc

All rights reserved. No part of this publication may be reproduced, stored in aretrieval system, or transmitted, in any form or by any means, electronic,

mechanical, photocopying, recording, or otherwise, without the prior written

permission of the publisher. Printed in the United States of America.

Copyright 2010 Pearson Education, Inc.Publishing as Prentice Hall