Introduction to Pricing Concepts Chapter Sixteen Introduction to Pricing Concepts 1

Objectives Define & discuss price Describe price interaction with the other “Ps” Analyze price’s role of in the economy Outline pricing strategy fundamentals Review relationship between price and organizational objectives Relate demand to price Overview demand & cost considerations on pricing Differentiate price elasticity, inelasticity, and cross-elasticity

Key Pricing Concepts Value: product’s power to stimulate exchange Barter: Money-less exchange Other terms: Rent Fee Donation Toll Honorarium Tuition

Price in the Marketing Mix Pays for all of a firm’s activities Most flexible element in marketing mix in free economy Major impact on store image List price = basic price quote Mark down = price reduction Consumer 4

Price & Competition Price only competition: Long distance telephone Internet service providers Commodities Nonprice competition: competition emphasizing marketing variables other than price Positioning Differentiation Branding

Relationship between price and demand Demand Curve Relationship between price and demand $2,500 $3,000 $3,500 $4,000 $4,500 $5,000 $5,500 Demand 8,000 13,000 18,000 23,000 28,000

Relationship between price and supply Supply Curve Relationship between price and supply $2,500 $3,000 $3,500 $4,000 $4,500 $5,000 $5,500 Demand 8,000 13,000 18,000 23,000 28,000 Supply

Equilibrium Price Supply = Demand = $4,000 Demand Supply $2,500 $3,000 $3,500 $4,000 $4,500 $5,000 $5,500 Demand 8,000 13,000 18,000 23,000 28,000 Supply

Pricing Strategy Set pricing objectives Establish importance of price to target market Know demand Understand costs Determine strategy $ d s TM ₤ П 10

Relating Pricing to Other Marketing Objectives Company Actual prices Pricing strategies and policies Product objectives Distribution objectives Promotion objectives Price objectives

Pricing Objectives: Income-Oriented ROI Profit maximization Cash flow Survival

Pricing Objectives Sales oriented Competition oriented Market share Sales growth Competition oriented Avoid Meet Undercut Stabilize prices

Pricing Objectives: Social Concerns Behave ethically Maintain employment Public education “Give back to the community” 17

Target Market Considerations Who Price sensitivity Price perception Willingness to pay

Relative Price Inelasticity A relatively large increase in price results in only a small decrease in demand D P1 Q1 Q2 P2 Quantity

Relative Price Elasticity A relatively small decrease in price results in substantial increase in demand D P1 Q1 Q2 P2 Quantity

Total Price Inelasticity D Q1,Q2 P1 P2 Quantity

Total Price Elasticity D Quantity

Cross-Elasticity Relationship in elasticities between products Computer demand increase  printer demand increase Beef prices increase, decreasing demand  fish demand increase

Know Your Costs Average cost Marginal cost Total cost

Types of Costs Price Marginal cost Average cost Demand Marginal revenue Quantity

Intersection of Marginal Cost and Marginal Revenue MR Cost greater than revenue Marginal cost = marginal revenue MC Cost and revenue Cost less than revenue Units produced and sold

Review Define & discuss price Describe price interaction with the other “Ps” Analyze price’s role of in the economy Outline pricing strategy fundamentals Review relationship between price and organizational objectives Relate demand to price Overview demand & cost considerations on pricing Differentiate price elasticity, inelasticity, and cross-elasticity