mkt 101 chap 10

7/31/2019 mkt 101 chap 10

1/21

Click to edit Master subtitle style

7/29/12

Principles of Marketing

Chapter Ten :PricingConsiderations andApproaches

7/31/2019 mkt 101 chap 10

2/21

7/29/12

Price

Price is the sum of all the values thatconsumers exchange for the benefits ofhaving or using the product or service.

Price has been the major factor affectingbuyer choice; non-price factors have becomeincreasingly important in buyer-choicebehavior.

Price is the only element in the marketing mixthat produces revenues; all others representcosts.

7/31/2019 mkt 101 chap 10

3/21

7/29/12

When is price set?

1. New product

2. Regular product in new channel

3. New bids & contract

Consumer Psychology and Pricing

1. Reference prices

2. Price Quality-Inferences

3. Price ques

7/31/2019 mkt 101 chap 10

4/21

7/29/12

Factors to Consider When SettingPrices

44

Mkt. strategy, Objectives andmix

Nature of the market and

demand

7/31/2019 mkt 101 chap 10

5/21

7/29/12

Value based pricing vs.Cost based pricing

55

Product

Cost

Price

Value

Custome

rs

C

ustom

er

Value

Price

Cost

Produc

t

Cost-Based Pricing Value-Based Pricing

7/31/2019 mkt 101 chap 10

6/21

7/29/12

Value-Based Pricing

Good-Value Pricing:

Offering just the right combination of quality and good

service at a fair price.

Value Added Pricing:

Attaching value-added features and services todifferentiate a companys offers and to supportcharging higher prices.

66

7/31/2019 mkt 101 chap 10

7/21

7/29/12

Competition-Based Pricing

77

Settin

gPrice

s

Sea

le

d-B

id

Comp

a

nySet s

Prices

Base

d

on

What

The

y

Thin

k

Compe

titor

s

Will

Charge

.

Going

-Rate

Comp

a

nySets

Prices

Based

on

What

Compe

titors

Are

Charg

i

ng.

?

?

7/31/2019 mkt 101 chap 10

8/21

7/29/12

Types of Cost Factors thatAffect Pricing Decisions

88Total Costs

Sum of the Fixed and Variable Costsfor a Given

Variable Costs

Costs that do varydirectly with the

level of production.Raw materials

Fixed Costs(Overhead)

Costs that dontvary with sales orproduction levels.

Executive Salaries, Rent

7/31/2019 mkt 101 chap 10

9/21

7/29/12

Cost-Based Pricing

Variable cost 10 Fixed cost300,000

Expected Sales 50,000 Desired SalesMark Up 20%

Variable cost +Fixed Cost/Unit Sales =

Unit cost

Tk. 10+300,000/50,000=Tk. 16 per

unit

99

7/31/2019 mkt 101 chap 10

10/21

7/29/12

Cost-Based Pricing

1010

Certainty AboutCosts

Pricing isSimplified

Price CompetitionIs Minimized

Unexpected

Situa

tional

Fac

tors

Attitudes

of

Others

Ethical

IgnoresCurrent

Demand &Competition

Cost-Plus Pricing

is an ApproachThat Adds a

Standard Markupto the Cost of the

Product.

Simplest

PricingMethod

Much Fairer to Buyers

& Sellers

7/31/2019 mkt 101 chap 10

11/21

7/29/12

Breakeven Analysis or Target ProfitPricing

1111

2

4

6

8

10

12

200 400 600 800 1,000

TotalRevenue

TotalCost

FixedCost

Target Profit($2 million)

Sales Volume in Units(thousands)

Costin

Dollars(millions)

Tries to Determine the Price at Which aFirm Will Break Even or Make a Certain Target

Profit.

7/31/2019 mkt 101 chap 10

12/21

7/29/12

Other Factors Affecting Price Decisions( Fig. 10.1)

1212

Internal Factors

MarketingObjectivesMarketing MixStrategyOrganizationalconsiderations

External Factors

Nature of themarketand demand

CompetitionOther

environmentalfactors (economy,resellers,

government)

PricingDecisions

I t l F t Aff ti

7/31/2019 mkt 101 chap 10

13/21

7/29/12

Internal Factors AffectingPricing Decisions: Marketing

Objectives

1313

Marketing

Objectives

SurvivalLow Prices to Cover Variable Costs

and

Some Fixed Costs to Stay inBusiness.

Current Profit MaximizationChoose the Price that Produces

the Maximum Current Profit, Etc.

Market Share LeadershipLow as Possible Prices to Become

the Market Share Leader.

Product Quality LeadershipHigh Prices to Cover Higher

Performance Quality and R & D.

7/31/2019 mkt 101 chap 10

14/21

7/29/12

Internal Factors Affecting PricingDecisions: Marketing Objectives

Other specific objectives include:

Set prices low to prevent competition from

entering the market,Prices might be reduced temporarily to create

excitement or draw more customers.

Nonprofit and public organization may have

other pricing objectives such as:

University aims for partial cost recovery,

Hospital may aim for full cost recovery,

Theater may price to fill maximum number of

1414

7/31/2019 mkt 101 chap 10

15/21

7/29/12

External Factors Affecting PricingDecisions

1515

Mar

k

et

and

Dem

a

nd

Comp

etitor

s

Costs,

Price

s

,and

Offer s

Othe

r

Exter n

al

Facto

rs

Econo

m

ic

Condi tio

n

s

Reselle

r

Needs

Governm

e

ntActio

ns

Socia

l

Conce

rns

7/31/2019 mkt 101 chap 10

16/21

7/29/12

External Factors to ConsiderWhen Setting Prices

The Market and Demand

Before setting prices, the marketer mustunderstand the relationship between

price and demand for its products

1616

10-27

7/31/2019 mkt 101 chap 10

17/21

7/29/12

Market and Demand Factors AffectingPricing Decisions

1717

PureCompetitionMany Buyersand Sellers

Who Have LittleEffect on thePrice

MonopolisticCompetitionMany Buyersand SellersWho Trade

Over aRange of Prices

Pricing in Different Types of Markets

OligopolisticCompetitionFew Sellers Who

AreSensitive to Each

OthersPricing/ Marketing

PureMonopolySingle Seller

7/31/2019 mkt 101 chap 10

18/21

7/29/12

Factors to Consider WhenSetting Prices

Other Internal and External ConsiderationsAffecting Price Decisions

The demand curve shows the number of unitsthe market will buy in a given period atdifferent prices

Normally, demand and price are inverselyrelated

Higher price = lower demand

For prestige (luxury) goods, higher price canequal higher demand when consumers

perceive higher prices as higher quality

1818

10-31

7/31/2019 mkt 101 chap 10

19/21

7/29/12

Factors to Consider WhenSetting Prices

Other Internal and External ConsiderationsAffecting Price Decisions

Price elasticity of demand illustrates the response ofdemand to a change in price

Inelastic demand occurs when demand hardly changes when

there is a small change in price

Elastic demand occurs when demand changes greatly for asmall change in price

price elasticity of demand= % change in quantity demand

1919

10-32

7/31/2019 mkt 101 chap 10

20/21

7/29/12


Competition strategies and prices

Factors to consider

Comparison of offering in terms of customervalue

Strength of competitors

Competition pricing strategies

Customer price sensitivity 2020

10-34

7/31/2019 mkt 101 chap 10

21/21

7/29/12


Other external factors

Economic conditions

Resellers response to price

Government

Social concerns

2121

10-35

mkt 101 chap 10

Documents