2 The Importance of Price To the seller... Price is revenueand profit sourceWhat is Price?To the consumer... Price is the cost of somethingIn the broadest sense, price allocates resources in a free-market economy
3 The Importance of Price Revenue = Unit Price * Number of units soldRevenue pays for every activity.What’s left over is Profit.Marketers must select a pricethat is not too highor not too low,a price that equalsthe perceived value to target consumers
4 Demand and Supply Demand Supply The quantity of a product that will be sold in the market at various prices for a specified period.SupplyThe quantity of a productthat will be offered to the marketby a supplier at various prices for a specific period.
5 The Demand Curve D Price .50 1.00 1.50 2.00 2.50 20 40 60 80 100 120 20406080100120Quantity demanded
6 The Supply Curve Quantity supplied S Price .50 1.00 1.50 2.00 2.50 20 20406080100120
8 Elasticity of Demand Elastic Demand Inelastic Demand Consumers buy more or less of a product when the price changesInelastic DemandAn increase or decrease in price will not significantly affect demandUnitary ElasticityAn increase in sales exactly offsets a decrease in prices, and revenue is unchanged
9 Elasticity of Demand Price Goes... Revenue Goes... Demand is... Down UpElasticInelasticUp or DownStays the SameUnitary Elasticity
10 Elasticity of Demand Completely Elastic Demand Inelastic Demand D D QuantityPriceDQuantityPriceCompletelyInelastic Demand
11 Factors that Affect Elasticity ofDemandAvailability of SubstitutesPrice relative toPurchasing PowerProduct DurabilityProduct’s Other Uses
12 The Cost Determinant of Price Deviate with changesin level of outputTypes of CostsVariableCostsFixed CostsDo not deviateas level of output changes
13 The Cost Determinant of Price Target-ReturnPricingBreak-EvenProfit Maximization PricingKeystoningMarkup pricingMethodsUsed toSet Prices
14 Markup Pricing Profit Maximization The cost of buying the product from the producer plus amounts for profit and for expenses not otherwise accounted for.KeystoningThe practice of marking up pricesby 100%, or doubling the cost.Profit MaximizationProfitMaximizationA method of setting prices that occurs when marginal revenue equals marginal cost.MarginalRevenueThe extra revenue associated with selling an extra unit of output, or the change in total revenue with a one-unit change in output.
15 Break-Even Pricing Total Revenue Profit Total Costs Break-even point QuantityPrice2,0001,0003,0004,0005,0006,000Fixed costsLossProfitTotal RevenueTotal CostsBreak-even point
17 Other Determinants of Price Perceived QualityPromotion StrategyDistribution StrategyCompetitionStages of theProduct Life CycleOther FactorsThatInfluencePrice
18 Stages in the Product Life Cycle IntroductoryStageGrowthDecline$HighStableDecreaseMaturityDecrease Stable High
19 Distribution Strategy Offer a largerprofit marginConvincing Distributorsto Carry ProductGive dealers a largetrade allowance
20 Regaining Price Control DEVELOP BRAND LOYALTYPackage marked with selling priceAvoid business withprice-cutting discountersFranchisingExclusive distribution systemMethodsUsed toRegainPrice Control
21 The Impact of the Internet Allows price and product comparisonsPrices are coming downData collection allows sellers to tailor products and pricesExtranetA private electronic network that links a company with its suppliers and customers.
22 Indicators of QualityBrand NamePriceAppearanceRetailer Reputation
23 Steps in Setting the Right Price Results lead to the right priceFine tune with pricing tacticsChoose a price strategyEstimate demand, costs, and profitsEstablish pricing goals
25 Choosing a Price Strategy A basic, long-term pricing framework, which establishes the initial price for a product and the intended direction for price movements over the product life cycle.Choosing a Price StrategyBasic StrategiesforSetting PricesStatus Quo PricingPrice SkimmingPenetration Pricing
26 Legal Protection of Product Technological Breakthrough Price SkimmingSituationswhenPrice Skimmingis SuccessfulSuperior ProductLegal Protection of ProductLimited ProductionTechnological BreakthroughInelastic Demand
27 Penetration Pricing Advantages Disadvantages Discourages or blocks competition from market entryDisadvantagesRequires gear up for mass productionSelling large volumes at low pricesStrategy to gain market share may fail
28 Status Quo Pricing Advantages Simplicity Safest route to long- term survival for small firmsDisadvantagesStrategy may ignore demand or cost
29 Tactics for Fine-Tuning the Base Price PricingTacticsSpecial Pricing TacticsDiscountsGeographic Pricing
30 Tactics for Fine-Tuning the Base Price Common TacticsforFine-Tuningthe Base PriceQuantity DiscountsCash DiscountsFunctional DiscountsSeasonal DiscountsPromotional AllowancesRebatesValue-Based Pricing
31 Value-Based Pricing Trade Loading The price is set at a level that seems to the customer to be a good price compared to the prices of other options.Trade LoadingThe practice of temporarily lowering the price to induce wholesalers and retailers to buy more goods than can be sold in a reasonable time.
32 Geographic Pricing FOB Pricing Uniform Delivered Common Methods of Basing-PointPricingFreight AbsorptionZone PricingUniform DeliveredFOB PricingCommonMethods ofGeographic
33 Geographic Pricing FOB Origin Pricing Uniform Delivered Zone Pricing The buyer absorbs the freight costs from the shipping point (“free on board”).UniformDeliveredThe seller pays the freight charges and bills the purchaser an identical flat freight charge.Zone PricingThe U.S. is divided into zones and a flat freight rate is charged to customers in a given zone.FreightAbsorptionPricingThe seller pays for all or part of the freight charges and does not pass them on to the buyer.Basing-PointThe seller designates a location as a basing point and charges all buyers the freight costs from that point.
34 Special Pricing Tactics Single-Price TacticFlexible PricingProfessionalServices PricingPrice LiningLeader PricingBait PricingOdd-Even PricingPrice BundlingTwo-Part PricingAll goods offered at the same priceDifferent customers pay different priceUsed by professionals with experience,training or certificationSeveral line items at specific price pointsSell product at near or below costLure customers through false or misleadingprice advertisingOdd-number prices imply bargainEven-number prices imply qualityCombining two or more products in asingle packageTwo separate charges to consume a single good