1. Pricing Concepts

2. Pricing Concepts
Price is something of value that is exchanged for something else
Barter is an exchange without money or currency

3. Pricing Concepts
Consumers relate to price in terms of a Demand Schedule

4. Demand Schedule Pizzas
Quantity Demanded 1 2 3 4 5 6
Price 20 18 16 14 12 10

5. ____________________________
Demand Curve
____________________________
Price 16
Movement on the curve 10
______________________________________ 6
Quantity Desired 3

6. Pricing Concepts
Consumers relate to price in terms of a Demand Schedule
An increase in price relates to a decreased quantity demanded

7. Pricing Concepts
Organisations relate to price in much the same way as consumers.
Orgs are more concerned with labour and component costs.

8. Pricing Concepts
Pricing decisions require consideration of the marketing mix

9. Pricing Concepts Product Factors:
1. Attributes of the product yielding value e.g, accessories for autos
2. Value of the Brand name
3. The added value of Intangibles

10. Pricing Concepts Distribution Factors
Price determination requires not only what the final buyer will pay but what margin the reseller will require to maintain an acceptable level of profit
e.g., Manufacturers suggested retail price

11. Pricing Concepts Promotion Factors
Promotion can reinforce in the buyers minds the value of certain product attributes

12. Pricing Concepts The Competitive Environment
All pricing theory can become irrelevant if competition forces a firm out of the market with lower prices.

13. Pricing Concepts The Competitive Environment
Price Competition used in circumstances where price is the primary variable considered when buying a product
e.g, most newspaper ads are based on price competition only

14. Pricing Concepts The Competitive Environment
Most Marketers would prefer to compete on non-price variables

15. Pricing Concepts The Competitive Environment
1. Price cuts can usually be matched by competitors
e.g., Compass Airlines
2. Many firms try to compete on nonprice variables
e.g., prestige, convenience and taste

16. Experience Curve Price A Total Cost/Unit Price B Cost Company A
Cost Company B
Cumulative Experience

17. Pricing Concepts 3. Non-price competition shifts the demand curve.
The Competitive Environment
3. Non-price competition shifts the demand curve.

18. ___________________________
Demand Curve
___________________________
Price
100 70
Product A
_____________________________________ 20 22 10 15
Quantity Desired

19. Pricing Concepts The Legal Environment
Horizontal Price fixing - a group of competing sellers establish a fixed price at which to sell their products

20. Pricing Concepts The Legal Environment
Vertical Price fixing - when a retailer or wholesaler agrees with a manufacturer to resell a product at an agreed-on price

21. Horizontal vs. Vertical Marketing
Producer 1 Producer 2 Producer 3
Transport 1 Transport 2 Transport 3
Horizontal
Warehouse1 Warehouse2 Warehouse 3
Retail 1 Retail2 Retail 3
Vertical

22. Pricing Concepts The Legal Environment
Price Discrimination - supplier sells at different prices to two identical firms

23. Pricing Concepts The Legal Environment
Deceptive Pricing - e.g., Bait and Switch
Predatory Pricing - different prices in different geographic areas

24. Pricing Concepts Establishing Pricing Objectives Profit Maximization
Profit is Maximized when Marginal Cost = Marginal Revenue

25. Profit Maximization : Economics
___________________________
Price
Marginal Cost
Demand
Marginal Revenue
___________________________________
Quantity

26. Pricing Concepts Establishing Pricing Objectives Profit Maximization
Market Pricing
Target Return
Market-Based Objectives
Market Share is related to profit through the experience effect, lower costs lead to higher profits

27. Pricing Concepts Establishing Pricing Policies
Price policies are the guiding principles for price setting
Price Lining - when a firm has multiple products in a product line and each product is given a different price e.g., Toyota autos

28. Pricing Concepts Establishing Pricing Policies
Geographic Policies - FOB, Uniform delivered pricing and Zone pricing
Discount policies - quantity discounts, cumulative quantity discounts, one-off discounts

29. Pricing Concepts Establishing Pricing Policies
Functional Discounts - a price break given to one who performs certain marketing activities for other channel members
Seasonal Discounts

30. Pricing Concepts Price Determination
Prices are often based on where a firms wants to position its products with respect to competing products
Options: Above MKT., Below MKT. or At Mkt.

31. Pricing Concepts Price Determination
Above Market - product must be positioned above competitor based on tangibles or intangibles
e.g., Rolex, Levis, Lancome

32. Pricing Concepts Price Determination
Below Market - volume-based pricing, less profit
per unit
e.g., McDonalds, Bic, Sharp Calculators

33. Pricing Concepts Price Determination
At Market - price at current market prices
e.g., Japanese Department Stores
Sogo and Seibu

34. Pricing Concepts New Product Price Determination
Skimming - set a high introductory price and lower the price over the PLC

35. Skimming Graphic Price 1 Total Cost/Unit Price 2 Initial Profit
Company a
Profit t2
Cumulative Experience

36. Pricing Concepts New Product Price Determination
Skimming Requirements:
1. Few or any close substitutes
2. Sufficient demand for product at high price

37. Pricing Concepts New Product Price Determination
--Penetration Pricing - set price low at outset and use it as a wedge to enter the market

38. Penetration Strategy Experience Curve Total Cost/Unit Price
Initial Cost
Initial Profit
Profit t2
Profit t3
Cost t2
Cost t3
Cumulative Experience

39. Pricing Concepts New Product Price Determination
Penetration Pricing Requirements
1. Market Segments are Price elastic
-- Price Elasticity - % change in quantity demanded/% change in price

40. _________________________ ___________________ Product A
Demand Curve
_________________________
Perfectly Inelastic
___________________
Product A
Price
__________________________
Perfectly Elastic
Product B
_______________________________________
Quantity Desired

41. Pricing Concepts New Product Price Determination
Penetration Pricing Requirements
1. Market Segments are price elastic
2. Distribution and production costs decrease rapidly per unit output

42. Pricing Concepts New Product Price Determination
Penetration Pricing Requirements
3. Develop high market share before competitors enter the market

43. Pricing Concepts New Product Price Determination
Psychological Pricing - pertains to customers’ perception of price rather than actual price
e.g., Prestige Pricing

44. Prestige Pricing: Prestige Products

45. Prestige Product Demand Curve
________________________
40,000
Price
30,000
10,000
_____________________________________
100
120 80
Quantity Desired