Chapter 11

Pricing Products:Pricing Considerations and

Approaches

Price

Price is the sum of all the values that consumers exchange for the benefits of having or using the product or service.Price has been the major factor affecting buyer choice; nonprice factors have become increasingly important in buyer-choice behavior.Price is the only element in the marketing mix that produces revenues; all others represent costs.

DYMAMIC PRICINGDYMAMIC PRICING

Charging different prices depending on individual customers and situations

Factors Affecting Price Decisions

Internal Factors

Marketing ObjectivesMarketing Mix StrategyCostsOrganizational considerations

Internal Factors

Marketing ObjectivesMarketing Mix StrategyCostsOrganizational considerations

External Factors

Nature of the market and demandCompetitionOther environmental factors (economy, resellers, government)

External Factors

Nature of the market and demandCompetitionOther environmental factors (economy, resellers, government)

PricingDecisions

PricingDecisions

Marketing

Objectives

SurvivalLow Prices to Cover Variable Costs

andSome Fixed Costs to Stay in Business.

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

Internal Factors Affecting Pricing Decisions: Marketing Objectives

Other specific objectives include: Set prices low to prevent competition

from entering the market, Prices might be reduced temporarily to

create excitement or draw more customers.

Nonprofit and public organization may have other pricing objectives such as:

University aims for partial cost recovery, Hospital may aim for full cost recovery, Theater may price to fill maximum

number of seats.

Price

Product Design

Distribution

Promotion

NonpricePositions

Internal Factors Affecting Pricing Decisions: Marketing Mix

Types of Cost Factors that Affect Pricing Decisions

Total CostsSum of the Fixed and Variable Costs for a Given

Level of Production

Total CostsSum of the Fixed and Variable Costs for a Given

Level of Production

Fixed Costs(Overhead)

Costs that don’tvary with sales or production levels.

Executive Salaries, Rent

Market andDemand

Competitors’ Costs, Prices, and Offers

Other External FactorsEconomic Conditions

Reseller NeedsGovernment Actions

Social Concerns

External Factors Affecting Pricing

DecisionsCompetitor Costs

This ad by LCI International accuses its competitors of using unfair practices in pricing, hiding fees incurred by rounding up.

Hidden fees, defined as“cramming” by theFCC, are the numberone source of billingcomplaints amonglong-distancecustomers.

Why is LCI focusing onthis practice?

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

Major Considerations in Setting Price

Cost-Based Pricing

Price Competition Is Minimized

Ignores Current

Demand & Competitio

n

Simplest

Pricing Method

Much Fairer to Buyers & Sellers

Cost-Plus Pricing is an

Approach That Adds a

Standard Markup to the Cost of

the Product.

ProductProduct

CostCost

PricePrice

ValueValue

CustomersCustomers

CustomerCustomer

ValueValue

PricePrice

CostCost

ProductProduct

Cost-Based Pricing Value-Based Pricing

Cost-Based Versus Value-Based Pricing

Setting Prices

Sealed-BidCompany Sets Prices Based on What They Think Competitors

Will Charge.

Going-Rate Company Sets Prices Based on What

Competitors Are Charging.

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Competition-Based Pricing