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10-1 Pricing. 10-2 Factors Affecting Price Decisions.

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Presentation on theme: "10-1 Pricing. 10-2 Factors Affecting Price Decisions."— Presentation transcript:

1 10-1 Pricing

2 10-2 Factors Affecting Price Decisions

3 10-3 Marketing Objectives Survival Low Prices Hoping to Increase Demand. Current Profit Maximization Choose the Price that Produces the Maximum Current Profit, Etc. Market Share Leadership Low as Possible Prices to Become the Market Share Leader. Product Quality Leadership High Prices to Cover Higher Performance Quality and R&D. Internal Factors Affecting Pricing Decisions: Marketing Objectives

4 10-4 Types of Cost Factors that Affect Pricing Decisions Total Costs Sum of the Fixed and Variable Costs for Any Given Level of Production Total Costs Sum of the Fixed and Variable Costs for Any Given Level of Production Variable Costs Costs that do vary directly with the level of production Raw materials Fixed Costs (Overhead) Costs that dont vary with sales or production levels Executive Salaries, Rent

5 10-5 Pure Competition Many Buyers and Sellers Who Have Little Effect on the Price Pure Competition Many Buyers and Sellers Who Have Little Effect on the Price MonopolisticCompetition Many Buyers and Sellers Who Trade Over a Range of PricesMonopolisticCompetition Many Buyers and Sellers Who Trade Over a Range of Prices Pricing in Different Types of Markets Market and Demand Factors Affecting Pricing Decisions OligopolisticCompetition Few Sellers Who Are Sensitive to Each Others Pricing/ Marketing StrategiesOligopolisticCompetition Few Sellers Who Are Sensitive to Each Others Pricing/ Marketing Strategies Pure Monopoly Single Seller Pure Monopoly Single Seller

6 10-6 Cost-Based Pricing Certainty About Costs Pricing is Simplified Price Competition Is Minimized Unexpected Situational Factors Attitudes of Others Ethical Ignores Current Demand & Competition Cost-Plus Pricing is an Approach That Adds a Standard Markup to the Cost of the Product Simplest Pricing Method Fairer to Buyers & Sellers

7 10-7 Cost-Based Versus Value-Based Pricing (Fig. 10-5)

8 10-8 Methods for Setting Prices Going-Rate Company Sets Prices Based on What Competitors Are Charging Sealed-Bid Company Sets Prices Based on What They Think Competitors Will Charge ? ? Competition-Based Pricing

9 10-9 New-Product Pricing Strategies Market-Skimming Setting a High Price for a New Product to Skim Maximum Revenues from the Target Market. Results in Fewer, But More Profitable Sales. I.e. Intel Use Under These Conditions: Products Quality and Image Must Support Its Higher Price. Costs Cant be so High that They Cancel the Advantage of Charging More. Competitors Shouldnt be Able to Enter Market Easily and Undercut the High Price.

10 10-10 New-Product Pricing Strategies Market Penetration Setting a Low Price for a New Product in Order to Penetrate the Market Quickly and Deeply. Attract a Large Number of Buyers and Win a Larger Market Share. I.e. Dell Use Under These Conditions: Market Must be Highly Price- Sensitive so a Low Price Produces More Market Growth. Production/Distribution Costs Must Fall as Sales Volume Increases. Must Keep Out Competition & Maintain Its Low Price Position or Benefits May Only be Temporary.

11 10-11 Product Mix-Pricing Strategies: Product Line Pricing Involves setting price steps between various products in a product line based on: Cost differences between products, Customer evaluations of different features, and Competitors prices.

12 10-12 Product Mix-Pricing Strategies Optional-Product Pricing optional or accessory products sold with the main product. i.e camera bag. Captive-Product Pricing products that must be used with the main product. i.e. film.

13 10-13 Product Mix-Pricing Strategies By-Product Pricing low- value by- products to get rid of them and make the main products price more competitive. I.e. sawdust, Zoo Doo Product- Bundling Combining several products and offering the bundle at a reduced price. I.e. theater season tickets.

14 10-14 Discount and Allowance Pricing

15 10-15 Segmented Pricing

16 10-16 Psychological Pricing Considers the psychology of prices and not simply the economics. Customers use price less when they can judge quality of a product. Price becomes an important quality signal when customers cant judge quality; price is used to say something about a product. Retail $ Cost $3.00

17 10-17 Temporarily Pricing Products Below List Price Through: Promotional Pricing Special-Event Pricing Cash Rebates Low-Interest Financing Longer Warranties Free Maintenance Discounts Loss Leaders

18 10-18 Pricing products for customers located in different parts of the country or world. i.e. FOB-Origin, Uniform- Delivered, Zone, Basing- Point, & Freight-Absorption. Adjusting prices for customers in different counties. Price Depends on Costs, Consumers, Economic Conditions, Competitive Situations, & Other Factors. Geographical Pricing International Pricing Other Price Adjustment Strategies

19 10-19 Why? Excess Capacity Falling Market Share Dominate Market Through Lower Costs Initiating Price Changes Why? Cost Inflation Overdemand: Company Cant Supply All Customers Needs

20 10-20 Public Policy Issues in Pricing

21 10-21 Pricing to build trust with your customers Pricing should : Be straightforward and easy to understand. Be complete. Give the customer reasonable control over the transaction

22 10-22 Make pricing straightforward and easy to understand. Do not confuse or mislead customers. Many potential customers shy away from a business because they dont understand the pricing and are too shy to ask.

23 10-23 Pricing should be complete, including everything a customer expects. AVOID: Package fees that dont include everything o e.g., computers without keyboards Package fees that force customers to pay for unwanted/unneeded items Charge for items that are poor quality or unusable.

24 10-24 Give the customer reasonable control over the transaction Examples: Phone customer with estimate before doing work Selling by each and by bulk price Credit for recycling certain items Allow customers to do some of their own work (construction, legal, bike repair).


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