mkt ch #11
TRANSCRIPT
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Chapter # 10
Pricing Products:Pricing Considerations
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P rice is the amount of money charged for aproduct or service or the some of the values thatconsumer exchange for the benefits of having orusing the product or service.
F ixing pricing setting one price for all buyersD ynamic pricing charging different pricingdepending on individual consumers andsituations.
What is a price ?
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Importance of pricing
Price is the only one element of marketing mixthat can generate revenue
Most flexible element of the marketing mix
Many companies do not handle pricing well -
One problem Companies are too quick toreduce price to get sale rather convincing buyerthat their product are worth a higher price ;
Other mistake pricing is too cost orientedrather customer value oriented.
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Factors affecting price decision
Internal FactorsMarketing objectives
Marketing mix strategyCost
Organizational consideration
Pricing Decisions
External FactorsNature of market and demand
CompetitionOther environmental factors ( economy, Gvt.)
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Marketing-MixStrategy
Product Designand Quality
DistributionPromotion
Marketing Mix Variables that
Affect Pricing Decisions
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C o s
t p e r u n
i t
12
3 4SRAC
LRAC
Quantity Produced per Day
1 , 0
0 0
2 , 0
0 0
3 , 0
0 0
4 , 0
0 0
Cost Per Unit at Different Levels of Production Per Period
Costs Considerations
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Organizational consideration
In small companies, price are set by top
management rather by the marketing or salesdepartments.
In large companies, pricing is typically handled
by divisional or product line managers.In industrial markets, sales people may beallowed to negotiate with customer within certainprice ranges.
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The Market and Demand
Competitors Costs, Prices, and Offers
Other External FactorsEconomic Conditions, Reseller NeedsGovernment Actions, Social Concerns
External Factors Affecting Pricing
Decisions
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Pure CompetitionMany Buyers and Sellers Who
Have Little Affect on the Price.
Monopolistic CompetitionMany Buyers and Sellers Trading
Over a Range of Prices.
Oligopolistic CompetitionFew Sellers Each Sensitive to Others
Pricing/ Marketing Strategies
Pure MonopolySingle Seller
Different Types of Markets
The Market and Demand Factors
that Affect Pricing Decisions
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Analyzing the Price- demand Relationship
A. Inelastic Demand -Demand Hardly Changes Witha Small Change in Price.
Quantity Demanded per Period
B. Elastic Demand -Demand Changes Greatly Witha Small Change in Price.
P r i c e
P 2
P 1
Q 1Q 2
P r i c e
Quantity Demanded per Period
P 2
P 1
Q 1Q 2
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Competitors costs, prices and offers
Another external factor affecting the companys decision is competitors costs and prices and
possible competitors reactions to the companys own pricing movesIn addition, the companys pricing strategy may
affects the the nature of competitors it faces.if the company follows a high price, high -margin strategy, it may attract competitors, but alow- price, low margin strategy may stopcompetitors, or drive them out of the market.
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Other external factors
Economic Conditions Economic factors such
as boom or recession, Inflation and interest ratesaffect the pricing decision.
Reseller Needs the company should setprice that ensure the resellers fair profit and helpthem to sell their product effectively.
Government Actions
Social Concerns -
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General pricing Approaches
1. Cost-based approach Cost- plus pricing Break- even
Target-profit pricing2. Buyer-based approach3. Competition-based approach
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Simplest pricing method - adding a standard markup to thecost of the productTo illustrate mark- up cost, suppose a manufacturer had thefollowing cost and expected salesVariable cost $ 10Fixed cost $ 300000Expected unit sales 50000
Unit cost = Variable cost + Fixed cost / unit sales= 10+ $ 300000/50000 = $ 16Now say, the manufacturer wants to earn 20% mark up onsale, thus
Mark-up Price = unit cost / 1- desired return on sale= $ 16 / 1- .2 = $ 20
Cost-Plus Pricing
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Why Cost-Plus Pricing Popular?
Minimizesprice competition
Perceivedfairness to
both buyersand sellers
Sellers are morecertain about
costs thandemand
Drawback : C ost based pricing works only if thatprice actually brings the expected level of sales.
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The firm tries to determine the price at which a firm willbreak even or make a target profit
According to the information of cost- based pricingBreak even volume = fixed cost / price variable cost
= $ 300,000 / $ 20 - $ 10 = $ 30,000
If the target profit is $ 200,000, the sales would be 50,000unites.
With the increases or decreases of unit price the break-evenvolume will changes, expected demand, total revenue, totalcoat and finally profit will be changed. (Table 11.1, pageno 359)
Break- even analysis and target
Profit pricing
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200
400
600
800
1,000
1,200
10 20 30 40 50
Total Revenue
Total Cost
Fixed Cost
Target Profit($200,000)
Sales Volume in Units (thousands)
C o s
t i n
D o
l l a
r s ( t h o u s a n
d s )
Break- even analysis and target
Profit pricing
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Value-Based Pricing
Setting price based on buyers perceptions ofvalue rather than on the seller cost.
Value pricing offering just the rightcombination of quality and good service at afair price
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Product
Cost
Price
Value
Customers
Customer
Value
Price
Cost
Product
Cost-Based Pricing Value-Based Pricing
Comparison of value-based
Pricing and cost based pricing
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Setting Prices based on the prices that competitorscharges for similar products
Sealed-BidCompany Sets Prices Based on What They
Think Competitors Will Charge.
Going-RateCompany Sets Prices Based on What
Competitors Are Charging.
??
Competition-Based Pricing