1. Introduction to Pricing Concepts
Chapter Sixteen
Introduction to Pricing Concepts 1

2. 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

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

4. 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

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

6. 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

7. 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
Supply

8. 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
Supply

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

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

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

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

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

14. Target Market Considerations
Who
Price sensitivity
Price perception
Willingness to pay

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

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

17. Total Price InelasticityD
Q1,Q2 P1 P2
Quantity

18. Total Price ElasticityD
Quantity

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

20. Know Your Costs
Average
cost
Marginal
cost
Total
cost

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

22. Intersection of Marginal Cost and Marginal RevenueMR
Cost greater
than revenue
Marginal cost =
marginal revenue MC
Cost and revenue
Cost less
than revenue
Units produced and sold

23. 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