2Learning objectives1 Discuss the importance of pricing decisions to the economy and to the individual organisation2 List and explain a variety of pricing objectives3 Explain the role of demand in price determination4 Describe cost-oriented pricing strategies
3Learning objectives (cont.) 5 Demonstrate how the product life cycle, competition, distribution and promotion strategies, customer demands, the Internet and extranets, and perceptions of quality can affect price6 Describe the procedure for setting the right price7 Identify the legal and ethical constraints on pricing decisions8 Explain how discounts, geographic pricing and other special pricing tactics can be used to fine-tune the base price
4Define the term marketing Learning objective 1Discuss the importance of pricing decisions to the economy and to the individual organisationDefine the term marketing
51What is price?Price is that which is given up in an exchange to acquire a good or service.
6The importance of price 1The importance of priceTo the seller…Price is revenue and profit sourceTo the consumer…Price is the cost of somethingIn the broadest sense, price allocates resources in a free-market economy
7The importance of price to marketing managers 1The importance of price to marketing managersRevenueThe price charged to customers multiplied by the number of units sold.ProfitRevenue minus expenses.
8The importance of price 1The importance of priceRevenue = Unit price number of units soldRevenue pays for every activity.What’s left over is profit.Marketers must select a price thatis not too highis not too lowequals the perceived value to target consumers
9Describe four marketing management philosophies. Learning objective 2Describe four marketing management philosophies.List and explain a variety of pricing objectives
10Trends influencing price setting 2Trends influencing price settingHigh rate of new product introductionIncreased availability of bargain-priced dealer and generic brandsPrice-cutting as a strategy to maintain or regain market shareMore efficient and better-informed buyers
162Market shareA company’s product sales as a percentage of total sales for that industry.
17Sales maximisation 2 Short-term objective to maximise sales Ignores profits, competition and the marketing environmentMay be used to sell off excess inventory
18Status quo pricing 2 Advantages Simplicity Safest route to long-term survival for small firmsDisadvantagesStrategy may ignore demand or cost
19Learning objective 3Explain the role of demand in price determination
203Demand and supplyDemandThe quantity of a product that will be sold in the market at various prices for a specified period.SupplyThe quantity of a productthat will be offered to the marketby a supplier at various prices for a specific period.
213Elasticity of demandConsumers’ responsiveness or sensitivity to changes in price.
22Elasticity of demand (cont.) 3Elasticity of demand (cont.)Elastic demandConsumers buy more or less of a product when the price changesInelastic demandAn increase or decrease in price will not significantly affect demand
23Elasticity of demand (cont.) 3Elasticity of demand (cont.)Price goes…Revenue goes…Demand is…downupelasticdowndowninelasticupupinelasticupdownelastic
24Factors that affect elasticity 3Factors that affect elasticityAvailability of substitutesPrice relative to purchasing powerProduct durabilityProduct’s other uses
26The cost determinant of price 4The cost determinant of priceTypes of costsVariable costsDeviate with changes in level of outputFixed costsDo not deviate as level of output changes
27The cost determinant of price (cont.) 4The cost determinant of price (cont.)Methods used to set priceMarkup pricingBreak-even pricing
28Markup pricing 4 Markup pricing The cost of buying the product from the producer plus amounts for profit and for expenses not otherwise accounted for.Example:If a pen costs $1.80 and sells for is $2.20, the markup is $0.40 or 22% of cost.
29Break-even pricing 4 Total revenue Profit Total costs Break-even point QuantityPrice2 0001 0003 0004 0005 0006 000Fixed costsLossProfitTotal revenueTotal costsBreak-even point
30Learning objective 5Demonstrate how the product life cycle, competition, distribution and promotion strategies, customer demands, the Internet and extranets, and perceptions of quality can affect price
31Other determinants of price 5Other determinants of priceStages of the product life cycleCompetitionDistribution strategyPromotion strategyPerceived quality
32Stages in the product life cycle 5Stages in the product life cycleIntroductorystageGrowthDecline$HighStableDecreaseMaturity
33Distribution strategy 5Distribution strategyConvincing distributors to carry productOffer a larger profit marginGive dealers a large trade allowance
34The impact of the Internet 5The impact of the InternetAllows price and product comparisons.Prices are coming down.Data collection allows sellers to tailor products and prices.
355ExtranetA private electronic network that links a company with its suppliers and customers.
365Prestige pricingCharging a high price to help promote a high-quality image.
37Indicators of quality 5 Retailer reputation Appearance Price Brand name
38Learning objective 6Describe the procedure for setting the right price
39Steps in setting the right price 6Steps in setting the right priceEstablish pricing goalsEstimate demand, costs and profitsChoose a price strategyFine-tune base price with pricing tacticsResults lead to the right price
416Price strategyA basic, long-term pricing framework which establishes the initial price for a product and the intended direction for price movements over the product life cycle.
42Choosing a price strategy 6Choosing a price strategyBasic strategies for setting pricesPrice skimmingStatus quoPenetration pricing
43Situations when price skimming is successful 6Price skimmingSituations when price skimming is successfulInelastic demandSuperior productLegal protection of productTechnological breakthroughLimited production
446Penetration pricingA pricing policy whereby a firm charges a relatively low price for a product initially as a way to reach the mass market.
45Penetration pricing (cont.) 6Penetration pricing (cont.)AdvantagesDiscourages or blocks competition from market entryDisadvantagesRequires gear up for mass productionSelling large volumes at low pricesStrategy to gain market share may fail
46Learning objective 7Identify the legal and ethical constraints on pricing decisions
47The legality and ethics of price strategy 7The legality and ethics of price strategyIssues that limit pricing decisionsUnfair tradePrice fixingPrice discriminationPredatory pricing
48Learning objective 8Explain how discounts, geographic pricing and other special pricing tactics can be used to fine-tune the base price
49Tactics for fine-tuning the base price 8Tactics for fine-tuning the base priceDiscountsGeographic pricingSpecial pricing tactics
50Tactics for fine-tuning the base price (cont.) 8Tactics for fine-tuning the base price (cont.)Quantity discountsCash discountsFunctional discountsSeasonal discountsPromotional allowancesRebatesValue-based pricing
518Value-based pricingThe price is set at a level that seems to the customer to be a good price compared to the prices of other options.
53Special pricing tactics 8Special pricing tacticsSingle-price tacticAll goods offered at the same price.Flexible pricingDifferent customers pay different price.Professional services pricingUsed by professionals with experience, training or certification.Leader pricingSell product at near or below cost.Bait pricingLure customers through false or misleading price advertising.Odd-even pricingOdd-number prices imply bargain.Even-number prices imply quality.Price bundlingCombining two or more products in a single package.Two-part pricingTwo separate charges to consume a single good.