1. Pricing Strategies

2. What is a Price? Barter?
Price is the money or other consideration (including other goods and services) exchanged for the ownership or use of a good or service.
Barter is the practice of exchanging goods and services for other goods and services rather than money.

3. Value and Value Pricing
Value can be defined as the ratio of perceived benefits to price or:
value = perceived benefits/price
Value-pricing is the practice of simultaneously increasing product and service benefits and maintaining or decreasing price.

4. The Profit Equation Profit = Total revenue – Total cost
Total revenue = Unit price  Quantity sold
Total cost = Fixed cost + Variable cost

5. Steps in Setting Price

6. 1a. Pricing Constraints Identified
Pricing constraints are factors that limit the latitude of prices a firm may set.
demand for the product class, product, and brand
newness of the product: stage in the product life cycle
cost of producing and marketing the product
competitor prices
type of competitive markets
pure monopoly
oligopoly
monopolistic competition
pure competition

7. 1b. Pricing Objectives Expectations that specify the role of price in
an organization’s marketing and strategic
plans are pricing objectives:
1. Profit Unit Volume
2. Sales Survival
3. Market Share 6. Social Responsibility

8. 2. Estimate Demand A demand curve shows a maximum
number of products consumers will
demand/buy at a given price.
Economists stress three key factors in
estimating demand:
1. Consumer tastes
2. Price and availability of other products
3. Consumer income

9. 2b. Fundamental Revenue Concepts
Total revenue (TR)
Is the total money received from the sale of a product, or
Unit Price  Quantity Sold
Average revenue (AR)
Is the average amount of money received for selling one unit of the product, or
Total Revenue/Quantity = Unit Price
Marginal revenue (MR)
Is the change in total revenue obtained by selling one additional unit, or
The Slope of the Total Revenue Curve

10. Price Elasticity of Demand Defined
Price Elasticity of Demand is the percentage change in quantity demanded (QD) relative to a percentage change in price (P) and can be expressed as follows:
E = % change in QD
% change in P
Elastic Demand = % change in QD > % change in P
Inelastic Demand = % change in QD < % change in P
Unitary Demand = % change in QD = % change in P

11. 3. Fundamental cost concepts
Total cost (TC)
Is the total expense incurred by a firm in producing and marketing the product, and is the sum of the fixed cost and variable.
Fixed cost (FC)
Is the sum of the expenses of the firm that are stable and do not change with the quantity of product that is produced and sold .
Variable cost (VC)
Is the sum of the expenses of the firm that vary directly with the quantity of product that is produced and sold.
(continued)

12. 3b.Calculating a Break-Even Point
Total
Total Unit Variable Fixed Total
Quantity Price per Revenue (TR) Variable Cost (TVC) Cost Cost (TC) Profit
Sold (Q) Bushel (P) (P x Q) Cost (UVC) (UVC x Q) (FC) (FC+VC) (TR-TC)
$ $ $ $2, $2, $2,000
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2, , , , ,
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4, , , , , ,000
5, , , , , ,000
6, , , , , ,000

13. 4. Select an approximate price level

14. a) Demand-Oriented Pricing Approaches
Skimming pricing.
Penetration Pricing.
Prestige Pricing.
Price Lining.
Odd-Even Pricing.
Target Pricing.
Bundle Pricing.
Yield Management Pricing.

15. b) Cost-Oriented Pricing Approaches
Standard markup pricing.
Cost-plus pricing.
Experience curve pricing.

16. c) Profit-Oriented Pricing Approaches
target profit pricing
target return-on-sales pricing
target return-on-investment pricing

17. d) Competition-Oriented Pricing Approaches
customary pricing.
above-, at-, or below- market pricing
loss leader pricing.

18. 5. Set the List or Quoted Price
One-Price Policy: setting the same price for similar customers who buy the same product and quantities under the same circumstances.
Flexible-Price Policy: offering the same product and quantities to similar customers but at different prices. (buying a house)

19. 5. Set the List or Quoted Price
Company effects
Customer effects
Competitive effects

20. 6. Special Adjustments to List or Quoted Price
Allowances
Trade-in
Promotional
Discounts
Quantity
cumulative
non cumulative
Cash
Geographical
adjustments

21. Legal and Regulatory aspects of Pricing
Price Fixing
Price Discrimination
Deceptive Pricing
Predatory Pricing
Delivered Pricing

22. Deceptive Pricing Bait and switch
Bargains conditional on other purchases
Comparable value comparisons
Comparisons with suggested prices
Former price comparisons

23. “It is not the cost of the materials that determines the product value, but rather the customers perception of value” Greaves, 1995