10-1 pricing. 10-2 factors affecting price decisions
TRANSCRIPT
10-1
Pricing
10-2
Factors Affecting Price Decisions
10-3
Marketing
Objectives
SurvivalLow Prices Hoping to Increase
Demand.
Current Profit Maximization Choose the Price that Produces the Maximum Current Profit, Etc.
Market Share LeadershipLow as Possible Prices to Become
the Market Share Leader.
Product Quality LeadershipHigh Prices to Cover Higher
Performance Quality and R&D.
Internal Factors Affecting Pricing Decisions: Marketing Objectives
10-4
Types of Cost Factors that Affect Pricing Decisions
Total CostsSum of the Fixed and Variable Costs for Any Given
Level of Production
Total CostsSum of the Fixed and Variable Costs for Any Given
Level of Production
Variable Costs
Costs that do varydirectly with the
level of productionRaw materials
Fixed Costs(Overhead)
Costs that don’tvary with sales or production levels
Executive Salaries, Rent
10-5
Pure CompetitionPure CompetitionMany Buyers and Sellers
Who Have Little Effect on the Price
Pure CompetitionPure CompetitionMany Buyers and Sellers
Who Have Little Effect on the Price
Monopolistic Monopolistic CompetitionCompetition
Many Buyers and Sellers Who Trade Over a
Range of Prices
Monopolistic Monopolistic CompetitionCompetition
Many Buyers and Sellers Who Trade Over a
Range of Prices
Pricing in Different Types of Markets
Market and Demand Factors Affecting Pricing Decisions
Oligopolistic Oligopolistic CompetitionCompetition
Few Sellers Who AreSensitive to Each Other’s
Pricing/ Marketing Strategies
Oligopolistic Oligopolistic CompetitionCompetition
Few Sellers Who AreSensitive to Each Other’s
Pricing/ Marketing Strategies
Pure MonopolyPure MonopolySingle Seller
Pure MonopolyPure MonopolySingle Seller
10-6
Cost-Based PricingCertainty About Costs
Pricing is Simplified
Price Competition Is Minimized
UnexpectedSituational
Factors
Attitudes of
Others
Ethical
Ignores Current
Demand & Competitio
n
Cost-Plus Pricing is an
Approach That Adds a
Standard Markup to the
Cost of the Product
Simplest Pricing Method
Fairer to Buyers & Sellers
10-7
Cost-Based Versus Value-Based Pricing (Fig. 10-5)
10-8
Methods for Setting Prices
Going-Rate Company Sets Prices Based on
WhatCompetitors Are Charging
Sealed-BidCompany Sets Prices Based on What They Think Competitors
Will Charge??
Competition-Based Pricing
10-9
New-Product Pricing StrategiesMarket-Skimming
Setting 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
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.
10-10
New-Product Pricing StrategiesMarket Penetration
Setting 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
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.
10-11
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, and Competitors’ prices.
10-12
Product Mix-Pricing StrategiesOptional-Product
Pricing 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.
10-13
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 Doo
Product-Bundling
Combining several products and offering the bundle at a reduced price.I.e. theater season tickets.
10-14
Discount and Allowance Pricing
Cash Discount Seasonal Discount
Quantity Discount Trade-In Allow ance
Functional Discount Prom otional Allow ance
A djus ting Bas ic Pr ice to Rew ard C us tom ersF or C erta in Responses
Cash Discount Seasonal Discount
Quantity Discount Trade-In Allow ance
Functional Discount Prom otional Allow ance
A djus ting Bas ic Pr ice to Rew ard C us tom ersF or C erta in Responses
10-15
Segmented Pricing
Custom er - Segm ent Location Pricing
Product - Form T im e Pricing
S e ll ing Products A t 2 or M ore Prices E venT hough T here is No D iffe rence in C ost
Custom er - Segm ent Location Pricing
Product - Form T im e Pricing
S e ll ing Products A t 2 or M ore Prices E venT hough T here is No D iffe rence in C ost
10-16
Psychological PricingConsiders 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
10-17
Temporarily Pricing Products Below List Price
Through:
Promotional Pricing
Special-Event PricingSpecial-Event Pricing
Cash RebatesCash Rebates
Low-Interest FinancingLow-Interest Financing
Longer WarrantiesLonger Warranties
Free MaintenanceFree Maintenance
DiscountsDiscounts
Loss LeadersLoss Leaders
10-18
•Pricing products for customers located in different parts of the country or world.• i.e. FOB-Origin, Uniform- Delivered, Zone, Basing- Point, & Freight-Absorption.
• Adjusting prices for customers in different counties.• Price Depends on Costs, Consumers, Economic Conditions, Competitive Situations, & Other Factors.
Geographical Pricing
International Pricing
Other Price Adjustment Strategies
10-19
Why?
Excess Capacity
Falling Market Share
Dominate Market Through Lower
Costs
Initiating Price Changes
Why?
Cost Inflation
Overdemand: Company Can’t
Supply All Customers’ Needs
10-20
Public Policy Issues in Pricing
10-21
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
10-22
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.
10-23
Pricing should be complete, including everything a customer expects.
AVOID:o “Package” fees that don’t include
everythingoe.g., computers without keyboards
o “Package” fees that force customers to pay for unwanted/unneeded items
o Charge for items that are poor quality or unusable.
10-24
Give the customer reasonable control over the transaction
Examples:
Phone customer with estimate before doing work
Selling by each and by bulk price
Credit for recycling certain items
Allow customers to do some of their own work (construction, legal, bike repair).