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Prof. Bauer-Ramazani MARKETING Pricing Strategies.

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Presentation on theme: "Prof. Bauer-Ramazani MARKETING Pricing Strategies."— Presentation transcript:

1 Prof. Bauer-Ramazani MARKETING Pricing Strategies

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

5 Factors in Setting Price

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

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

8 Marketing Strategy Over the Product Life Cycle INTRODUCTIONGROWTH MATURITY DECLINE Marketing strategy Market developmentIncrease 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 throughBuild intensive Enlarge Be selective in selective outletsnetwork of distribution distribution, trim outlets network unprofitable outlets Pricing High price/uniqueLower 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 Price- Setting Tools Cost-Oriented - Variable/Fixed EconomicSupply/Demand Break-even Analysis Determining Prices

10 Elasticity of Demand measure of the sensitivity of demand to changes in prices not price sensitive - no real change in demandprice sensitive - changes in demand Inelastic Demand Q 2 Q 1 Quantity P1P1P1P1 P2P2P2P2 Electricity Price Elastic Demand Q2Q2Q2Q2 Quantity P1P1P1P1 P2P2P2P2 Fast food Q1Q1 Price

11 Market-based Pricing nPricing Existing Products/Services - 3 options Pricing below market prices price wars EX: airlines, store brand vs. manufacturers 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 nPrice Lining Price points: Setting a limited number of prices for certain categories of products nPsychological Pricing Odd-even nDiscounting Quantity discounts Cash discounts (2/10 net 30) Web programs: free!

13 Cost-based Pricing (Cost-Plus) costs 1.Cover costs Material Labor Capital resources Marketing 2.Mark-up Targeted return for shareholders Costsmark-up = Sales price Costs + mark-up = Sales price $1.00 + $0.50 = $1.50 (50% markup) $1.00 + $0.50 = $1.50 (50% markup) variable costs fixed costs

14 Mark-up Calculation – Exercise 1.Price per product 2.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

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