1. Price Strategy & Management
Chapter 10 & 11

2. Price “The exchange value of a good or service in the marketplace.”
Value derived from tangible and intangible benefits

3. Importance of Price
Organization must establish fair and competitive prices while generating adequate revenues and profit.
Low prices (perceived value) attracts customers
High prices (perceived value) attracts customers

4. Factors Influencing Price
Consumers
Nature of
Market
Price
Profit
Objectives
Channel
Members
Costs

5. Nature of Market
The market and the degree of competition in the market influences pricing strategy.
Monopoly
Oligopoly
Monopolistic Competition
Pure Competition

6. Consumer Demand and Price
Principle:
1. Consumers purchase greater quantity at lower prices.
2. The effect of a price change on demand must be factored into pricing strategy.
Price Elasticity of Demand:
Measures the effect of a change in price on the quantity purchased.

7. Elasticity of Demand Elastic Inelastic
Small change in price; large change in volume
Inelastic
Change in price does not have significant impact on volume

8. Costs Influence Price
Controlling costs delay or minimize the need for price increases. Some alternatives for protecting margins include:
Improving operational efficiency
Less expensive materials
Shrinkage
Relocation of manufacturing

9. Break-Even Analysis
A break-even analysis shows how many units must be sold to exactly break even, given fixed and variable costs, and a price.

10. (Selling Price – Variable Costs)
Break-Even
Fixed Costs
(Selling Price – Variable Costs)
= $800,
($1.00 – $0.40)

11. Channel Members Influence Price
Mfg’r
Wholesaler
Retailer
Consumer
Organizations want distributors to charge prices that agree with their marketing strategy.
1. Adequate Margin
2. Fair Treatment
3. Special Deals
4. Impact of Increases

12. Pricing Methods Demand-Based Pricing Competition-Based Cost-Based
Total costs plus profit determines price
Position relative to competition determines price
What consumers will pay determines price

13. Psychological Pricing Tactics
Appeals to tendencies in consumer behaviour.
1. Prestige Pricing
2. Odd-Even Pricing
3. Price Lining
4. Customary Pricing
5. Unit Pricing
6. EDLP

14. Promotional Pricing Tactics
“Strategies to reduce prices temporarily.”
Loss Leaders
Multiple-Unit Prices

15. New Product Pricing STRATEGY: Price Skimming
“High” entry price to maximize revenue.
Appropriate if:
1. Product is an innovation
2. Competition is limited
3. Patent protection applies

16. New Product Pricing STRATEGY: Price Penetration
“Low” entry price to gain acceptance quickly.
Appropriate if:
1. Demand is elastic
2. Production costs are kept in check
3. Market is segmented on price

17. Managing Price-The Trade Side
Providing incentives to buy more is the name of the game.
1. Quantity Discount
2. Slotting Allowance
3. Performance Allowance
5. Seasonal Discount