3 Internal Factors Affecting Pricing Decisions: Marketing Objectives SurvivalLow Prices Hoping to Increase Demand.Current Profit Maximization Choose the Price that Produces the Maximum Current Profit, Etc.MarketingObjectivesMarket Share LeadershipLow as Possible Prices to Becomethe Market Share Leader.Product Quality LeadershipHigh Prices to Cover HigherPerformance Quality and R&D.
4 Types of Cost Factors that Affect Pricing Decisions Fixed Costs(Overhead)Costs that don’tvary with sales orproduction levelsExecutive Salaries, RentVariable CostsCosts that do varydirectly with thelevel of productionRaw materialsTotal CostsSum of the Fixed and Variable Costs for Any GivenLevel of Production
5 Market and Demand Factors Affecting Pricing Decisions Pricing in Different Types of MarketsPure MonopolySingle SellerPure CompetitionMany Buyers and SellersWho Have LittleEffect on the PriceOligopolisticCompetitionFew Sellers Who AreSensitive to Each Other’sPricing/ MarketingStrategiesMonopolisticCompetitionMany Buyers and SellersWho Trade Over aRange of Prices
6 Cost-Based PricingCertainty About CostsFactorsSituationalUnexpectedAttitudesofOthersEthicalIgnores Current Demand & CompetitionCost-Plus Pricing is an Approach That Adds a Standard Markup to the Cost of the ProductSimplest Pricing MethodPricing is SimplifiedPrice Competition Is MinimizedFairer to Buyers & Sellers
7 Cost-Based Versus Value-Based Pricing (Fig. 10-5)
8 Competition-Based Pricing Methods for Setting PricesGoing-RateCompany Sets Prices Based on WhatCompetitors Are ChargingSealed-BidCompany Sets Prices Based onWhat They Think CompetitorsWill Charge?
9 New-Product Pricing Strategies Use Under These Conditions:Product’s Quality and Image Must Support Its Higher Price.Costs Can’t be so High that They Cancel the Advantage of Charging More.Competitors Shouldn’t be Able to Enter Market Easily and Undercut the High Price.Market-SkimmingSetting a High Price for a New Product to “Skim” Maximum Revenues from the Target Market.Results in Fewer, But More Profitable Sales.I.e. Intel
10 New-Product Pricing Strategies Use Under These Conditions:Market Must be Highly Price-Sensitive so a Low Price Produces More Market Growth.Production/Distribution Costs Must Fall as Sales Volume Increases.Must Keep Out Competition & Maintain Its Low Price Position or Benefits May Only be Temporary.Market PenetrationSetting a Low Price for a New Product in Order to “Penetrate” the Market Quickly and Deeply.Attract a Large Number of Buyers and Win a Larger Market Share.I.e. Dell
11 Product Mix-Pricing Strategies: Product Line Pricing Involves setting price steps between various products in a product line based on:Cost differences between products,Customer evaluations of different features, andCompetitors’ prices.
12 Product Mix-Pricing Strategies Optional-ProductPricing optional or accessory products sold with the main product. i.e camera bag.Captive-ProductPricing products that must be used with the main product. i.e. film.
13 Product Mix-Pricing Strategies By-ProductPricing low-value by-products to get rid of them and make the main product’s price more competitive.I.e. sawdust, Zoo DooProduct-BundlingCombining several products and offering the bundle at a reduced price.I.e. theater season tickets.
16 Psychological Pricing Considers the psychology of prices and not simply the economics.Customers use price less when they can judge quality of a product.Price becomes an important quality signal when customers can’t judge quality; price is used to say something about a product.Retail $100.00Cost $3.00
17 Promotional Pricing Loss Leaders Special-Event Pricing Cash RebatesLow-Interest FinancingLonger WarrantiesFree MaintenanceDiscountsLoss LeadersTemporarily Pricing Products Below List Price Through:
18 Other Price Adjustment Strategies Geographical PricingPricing products for customerslocated in different parts ofthe country or world.i.e. FOB-Origin, Uniform-Delivered, Zone, Basing-Point, & Freight-Absorption.Adjusting prices for customersin different counties.Price Depends on Costs,Consumers, EconomicConditions, CompetitiveSituations, & Other Factors.International Pricing
19 Initiating Price Changes Price IncreasesWhy?Cost InflationOverdemand: Company Can’t Supply All Customers’ NeedsPrice CutsWhy?Excess CapacityFalling Market ShareDominate Market Through Lower Costs
21 Pricing to build trust with your customers Pricing should: Be straightforward and easy to understand.Be complete.Give the customer reasonable control over the transaction
22 Make pricing straightforward and easy to understand. Do not confuse or mislead customers.Many potential customers shy away from a business because they don’t understand the pricing and are too shy to ask.
23 Pricing should be complete, including everything a customer expects. AVOID:“Package” fees that don’t include everythinge.g., computers without keyboards“Package” fees that force customers to pay for unwanted/unneeded itemsCharge for items that are poor quality or unusable.
24 Give the customer reasonable control over the transaction Examples:Phone customer with estimate before doing workSelling by each and by bulk priceCredit for recycling certain itemsAllow customers to do some of their own work (construction, legal, bike repair).