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POM

BBA 2K10 (A)

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1. What Is a Price?

2. Factors to ConsiderWhen Setting Prices

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Priceis the amount of money charged for a

product or service. It is the sum of allthe values that consumers give up in

order to gain the benefits of having orusing a product or service.

Priceis the only element in the marketing

mix that produces revenue; all otherelements represent costs

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Effective customer-oriented

pricing involves

understanding how much

value consumers place on

the benefits they receive

from the product and

setting a price that

captures that value

Customer Perception of Value

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Value-based pricinguses the buyers

perceptions of value, not the sellers cost,as the key to pricing. Price is consideredbefore the marketing program is set.

Value-based pricing is customer driven

Cost-based pricing is product driven

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Value-based pricing

Good-value pricing

Value-added pricing
http://www.charmin.com/http://www.bentleymotors.com/

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Good-value pricingoffers the right

combination of quality and good serviceto fair price

Existing brands are being redesigned tooffer more quality for a given price or

the same quality for less price

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Everyday low pricing (EDLP) involves charging a

constant everyday low price with few or notemporary price discounts

High-low pricing involves charging higher prices on

an everyday basis but running frequentpromotions to lower prices temporarily on

selected items

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Value-added pricing attaches value-added

features and services to differentiateoffers, support higher prices, and buildpricing power

Pricing poweris the ability to escape pricecompetition and to justify higher pricesand margins without losing market share

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Company and Product Costs

Cost-based pricing adds a standard markup

to the cost of the product

Unit Cost=Variable cost + Fixed Cost

Unit SalesMark Up Price= Unit Cost

1-Desired Return on Sales

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Types of costs

Fixed costs

Variable costs

Total costs

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Fixed costsare the costs that do not vary

with production or sales level

Rent

Heat

Interest Executive salaries

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Variable costsare the costs that vary with

the level of production

Packaging

Raw materials

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Experience or learning

curveis when averagecost falls as production

increases because fixed

costs are spread over

more units

Costs as a Function of Production Experience

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Break-Even Analysis and Target Profi t Pricing

Break-even pricing is the price when total

costs are equal to total revenue andthere is no profit

Target profit pricing is the price at which

the firm will break even or make theprofit its seeking

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Break-Even Volume

fixed cost

price-variable cost

Break-Even Analysis and Target Profi t Pricing

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Other I nternal and External Consideration

Affecting Price Decisions

Customer perceptions of value set theupper limit for prices, and costs set the

lower limit

Companies must consider internal and

external factors when setting prices

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Other I nternal and External Considerations


Target pricingstarts with an ideal sellingprice based on consumer value

considerations and then targets costs

that will ensure that the price is met

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Non-price strategies differentiate themarketing offer to make it worth a

higher price

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Organizational considerations include: Who should set the price

Who can influence the prices

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The Market and Demand

Before setting prices, the marketer must

understand the relationship between

price and demand for its products

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Types of markets Pure competition

Monopolistic competition

Oligopolistic competition Pure monopoly

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Other I nternal and External ConsiderationAffecting Price Decisions

Pure competitionis a market with many buyers

and sellers trading uniform commodities whereno single buyer or seller has much effect onmarket price

Monopolistic competitionis a market with many

buyers and sellers who trade over a range ofprices rather than a single market price withdifferentiated offers

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Oligopolistic competitionis a market with fewsellers because it is difficult for new sellers toenter who are highly sensitive to each otherspricing and marketing strategies

Pure monopolyis a market with only one seller. In

a regulated monopoly, the government permitsa price that will yield a fair return. In a non-regulated monopoly, companies are free to seta market price.

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The demand curve shows the number of units themarket will buy in a given period at differentprices

Normally, demand and price are inverselyrelated

Higher price = lower demand For prestige (luxury) goods, higher price can

equal higher demand when consumers perceivehigher prices as higher quality

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The Demand Curve



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Other I nternal and External ConsiderationAffecting Pr ice Decisions

Price elasticity of demandillustrates the response of demand to

a change in price

Inelastic demandoccurs when demand hardly changes when there isa small change in price

Elastic demandoccurs when demand changes greatly for a small

change in price

Price elasticity of demand= % change in quantity demand

% change in price

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Competitor's Strategies and Prices

Factors to consider

Comparison of offering in terms of customer

value

Strength of competitors Competition pricing strategies

Customer price sensitivity

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Other external factors Economic conditions

Resellers response to price

Government

Social concerns

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