1. Pricing Chapter 12 PowerPoint slides Express version Instructor name
Course name
School name
Date
Principles of Marketing, Sixth Canadian Edition

2. Learning Objectives
After studying this chapter, you should be able to:
Identify and define the internal factors affecting a firm’s pricing decisions
Identify and define the external factors affecting pricing decisions, including the impact of consumer perceptions of price and value
Contrast the two general approaches to setting prices
Discuss how companies adjust their prices to take into account different types of customers and situations
Discuss the key issues related to initiating and responding to price changes
Principles of Marketing, Sixth Canadian Edition

3. What is a Price?
Price: the amount of money charged for a product or service, or the sum of values exchanged for the benefits of having or using the product or service
Fixed pricing
Dynamic pricing
Only marketing mix element that produces revenue
Pricing best practices:
Develop a 1% pricing mindset
Consistently deliver more value
Price strategically, not opportunistically
Know your competition
Make pricing a process
Principles of Marketing, Sixth Canadian Edition

4. Factors Affecting Pricing Decisions
Marketing objectives:
Survival
Current profit maximization
Market share leadership
Product quality leadership
Marketing mix strategy:
Price should be consistent with other mix elements
Target costing
Non-price positions
Figure 12.1
Principles of Marketing, Sixth Canadian Edition

5. Costs Fixed costs: costs that do not vary with production
Variable costs: costs that vary directly with the level of production
Total costs: sum of fixed and variable costs
Figure 12.2
Principles of Marketing, Sixth Canadian Edition

6. Cost Per Unit/Accumulated Production
Experience (learning) curve: the drop in the average per-unit production cost that comes with accumulated production experience
Figure 12.3
Principles of Marketing, Sixth Canadian Edition

7. Skimming price drops in steps
New-Product Pricing
Market skimming pricing: setting a high price to skim maximum revenues layer by layer from the segments willing to pay the high price
Market penetration pricing: setting a low price for a new product to attract a large number of buyers and achieve a large market share
Skimming price drops in steps
Figure 7.7
Principles of Marketing, Sixth Canadian Edition

8. External Factors Affecting Pricing Decisions
Types of markets:
Pure competition
Monopolistic competition
Oligopolistic competition
Pure monopoly
Competition:
Consumers will compare
High margins attract competition
Benchmarking costs
Figure 12.1
Principles of Marketing, Sixth Canadian Edition

9. The Price-Demand Relationship
Demand curve: a curve that shows the number of units the market will buy at different possible prices in a given time period
Calculated as the % change in quantity demanded divided by the % change in price; values >1 and <-1 are elastic
Elastic products: lower price to maximize revenue
Inelastic products: raise price to maximize revenue
Prestige goods behave in a contrary fashion
Figure 12.4
Principles of Marketing, Sixth Canadian Edition

10. General Pricing Approaches
Cost-based pricing: adding a standard markup to the cost of the product; using formula:
Average unit cost equals variable cost plus (fixed cost/unit sales)
Markup price equals Unit cost/(1 minus desired return on sales)
Example: $10 + ($300,000/50,000) = $16
Selling price based on 20%: $16/( ) = $20
Double-check: $4 profit/selling price = 20% profit margin
Note: multiplying $16 by 1.2 equals a selling price of $19.20, and a profit margin of only 17%
Figure 12.5
Principles of Marketing, Sixth Canadian Edition

11. Break-even Chart
Break-even (target profit) pricing: setting price to break even (or make a target profit) on the costs of making and marketing a product
Break-even equals fixed cost divided by (price minus variable cost)
Figure 12.6
Example (a):
B/E = $300,000/($20 - $10)
B/E = 30,000 units
Example (b):
B/E = ($300,000 + $75,000 profit)/($20 - $10)
B/E = 37,500 units
Principles of Marketing, Sixth Canadian Edition

12. Cost Versus Value Pricing
Value-based pricing: setting price based on buyers’ perceptions of value rather than on the seller’s cost
Everyday low pricing (EDLP): charging a constant low price with few discounts or promotional sales; used successfully by Wal-Mart, suits busy consumers, encourages impulse buying due to trust
Figure 12.7
Principles of Marketing, Sixth Canadian Edition

13. Price Adjustment Strategies
Discount and
Allowance pricing
Reducing prices to reward customer
responses such as paying early
Segmented
pricing
Adjusting prices to allow for differences
in customers, products, or locations
Psychological
pricing
Adjusting prices for
psychological effect
Promotional
pricing
Temporarily reducing prices
to increase short-run sales
Geographical
pricing
Adjusting prices to account for
geographic location of customers
International
pricing
Adjusting prices for
international markets
Table 12.2
Principles of Marketing, Sixth Canadian Edition

14. Geographical Pricing
FOB-origin pricing: goods are placed “free on board” a carrier; the customer pays the freight from the factory to the destination
Uniform-delivered price: the company charges the same price including freight to all customers, regardless of their location
Zone pricing: the company sets up two or more zones, all customers within a zone pay the same price, the more distant the zone, the higher the price
Principles of Marketing, Sixth Canadian Edition

15. Responding to Price Changes
Note to user: this figure is from the U.S. edition of this text
Principles of Marketing, Sixth Canadian Edition

16. Public Policy and Pricing
The Competition Act: Sections 34, 36, and 38
Price fixing: cannot collude to restrict pricing competition
Price discrimination: customers must be given proportionally equal discounts when used
Deceptive pricing: cannot mislead customers as to value received
Figure 12.9
Principles of Marketing, Sixth Canadian Edition

17. In Conclusion… The learning objectives for this chapter were:
Identify and define the internal factors affecting a firm’s pricing decisions
Identify and define the external factors affecting pricing decisions, including the impact of consumer perceptions of price and value
Contrast the two general approaches to setting prices
Discuss how companies adjust their prices to take into account different types of customers and situations
Discuss the key issues related to initiating and responding to price changes
Principles of Marketing, Sixth Canadian Edition