1. MARKETING Pricing Strategies
Prof. Bauer-Ramazani

2. Overview Definition of price Prices in BU113 companies
Factors that influence the pricing decision
Pricing objectives
Three major pricing strategies and their advantages and disadvantages
Pricing strategies over the product life cycle
Pricing tactics

3. Price -- Definition
the amount of money charged for a product or service
the sum of all the values that consumers exchange for the benefits of having or using the product or service
Examples of “price?”
Tuition, rent, fare, retainer, toll, salary/wage, dues

4. Prices -- BU113 Companies
What objectives did the managers have in mind when they set their prices?

5. Factors in Setting Price

6. Volume Sales Maximization
Pricing Objectives
Volume Sales Maximization
Market Share
Profit-Maximization
Profitability
Target Return Goals
Meet
Business
Objectives
Other Pricing Objectives
Status Quo
Image
Social & Ethical Considerations

7. Price Strategies for New Products
Penetration Pricing
PRICE
Low price  establish product in the market
Skimming Pricing
High price/Prestige pricing
 appeal to early adopters; recover high R&D costs
PRICE
Skimming  Penetration
PRICE
Lower price over time
 Move inventory, stimulate D, extend product life

8. Marketing Strategy Over the Product Life Cycle
INTRODUCTION GROWTH MATURITY DECLINE
Marketing strategy Market development Increase market Defend market Maintain efficiency in
emphasis share share exploiting product
Promotion Mount sales Appeal to Emphasize Reinforce loyal
Strategy promotion for mass market brand differences, customers; reduce
product awareness benefits & loyalty promotion costs
Place strategy Distribute through Build intensive Enlarge Be selective in
selective outlets network of distribution distribution, trim
outlets network unprofitable outlets
Pricing High price/unique Lower price Price at or below Set price to strategy product / cover over time competition remain profitable production costs or reduce to
Low price/gain liquidate market share

9. Cost-Oriented - Variable/Fixed Economic—Supply/Demand
Determining Prices
Cost-Oriented - Variable/Fixed
Break-even Analysis
Price-Setting
Tools
Economic—Supply/Demand

10. Elasticity of Demand Inelastic Demand Elastic Demand Price Electricity
measure of the sensitivity of demand to changes in prices
Inelastic Demand
Q2 Q1
Quantity P1 P2
Electricity
Price
Elastic Demand Q2
Quantity P1 P2
Fast food Q1
Price
not price sensitive - no real change in demand
price sensitive - changes in demand

11. Market-based Pricing Pricing Existing Products/Services - 3 options
Pricing below market prices  price wars
EX: airlines, store brand vs. manufacturer’s brand
Dumping
Pricing above prevailing market prices for similar products
EX: Sony  higher price = higher quality?
Pricing at or near market prices

12. Pricing Tactics Price Lining Psychological Pricing Discounting
Price points: Setting a limited number of prices for certain categories of products
Psychological Pricing
Odd-even
Discounting
Quantity discounts
Cash discounts (2/10 net 30)
Web programs: free!

13. Cost-based Pricing (Cost-Plus)
Cover costs
Material
Labor
Capital resources
Marketing
Mark-up
Targeted return for shareholders
 Costs + mark-up = Sales price
$ $0.50 = $1.50 (50% markup)
variable costs
fixed costs

14. Mark-up Calculation – Exercise
Price per product
Less the cost per product (what you paid the supplier, e.g. total cost paid / # of items purchased)

15. Breakeven Analysis
TC = TR

16. Breakeven Point Formula
(Contribution Margin)

17. Review 5 Factors that influence prices Pricing objectives
Pricing strategies at different stages of the Product Life Cycle (advantages/disadvantages)
Methods of Determining Prices
Elasticity of demand
Mark-up
Breakeven Analysis