marketing princiles unit 8 price and value

Unit 8
Price and Value

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R d Map:
Road
M
Previewing
P i i the
th Concepts
C
t
 Identify
Id tif and
d explain
l i the
th external
t
l and
d internal
i t
l factors
f t
affecting
ff ti
a firm's pricing decisions.

 Contrast the three general approaches to setting prices.
 Describe the major strategies for pricing imitative and new
products.
 Explain how companies find a set of prices that maximizes the
profits from the total product mix.
 Discuss how companies adjust their prices to take into account
diff
different
t ttypes off customers
t
and
d situations.
it ti
 Discuss the key issues related to initiating and responding to
price changes.
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We will begin learning about
pricing
i i strategy
t t
by
b discussing
di
i beer!
b !

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Factors Affecting Price
Decisions

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Internal Factors Affecting Pricing
Decisions: Marketing Objectives
Survival

Low Prices Hoping to Increase Demand.

Current Profit Maximization

Marketing
g

Choose the Price that Produces the
Maximum Current Profit,, Etc.

Objectives

Market Share Leadership

Low as Possible Prices to Become
the Market Share Leader
Leader.

Product Quality Leadership
High Prices to Cover Higher
Performance Quality and R&D.

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Four Seasons Hotel
Four Seasons uses the

product quality
leadership strategy.
strategy

It starts with very high
quality service, then
charges a price to
match.
rseasons.
com
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Internal Factors Affecting Pricing
Decisions:
D i i
Marketing
M k ti Mix
Mi Strategy
St t

Product Design

Nonprice
Positions

Price

Distribution

P
Promotion
ti
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Types of Cost Factors that
Affect Pricing Decisions
Fixed Costs
(Overhead)
Costs that don’t
vary with sales or
production levels
Executive Salaries, Rent

Variable Costs
Costs that do vary
di tl with
directly
ith the
th
level of production
Raw materials

Total Costs
Sum of the Fixed and Variable Costs for Any Given
Level of Production
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External Factors Affecting
Pricing Decisions
Market and
Demand
Competitors’ Costs,
Prices and Offers
Prices,
Other External Factors
Economic Conditions
Reseller Reactions
Government Actions
S i l Concerns
Social
C

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Market and Demand Factors
Affecting Pricing Decisions
Pricing in Different Types of Markets
Pure Competition

Many Buyers and Sellers
Who Have Little
Eff t on th
Effect
the P
Price
i

Monopolistic
C
Competition
titi

Pure Monopoly
Single Seller

Oligopolistic
Competition

Few Sellers Who Are
Many Buyers and Sellers
Sensitive to Each Other’s
Who Trade Over a
Pricing/ Marketing

Range of Prices
Strategies

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Pricce

Price Elasticity of Demand
A. Inelastic Demand Demand Hardly Changes With
g in Price.
a Small Change

P2
P1

Price

Q2 Q1

Quantity Demanded per Period
B. Elastic Demand Demand Changes Greatly With
a Small Change in Price.
P’
2

P’1

P
Q2

Q1

Quantity Demanded per Period

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Major Considerations in
Setting Price

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Cost-Based Pricing
g
Certainty About
C t
Costs

Cost-Plus
Pricing is an

Approach That
Adds a
Standard
Markup
to the
Attitudes
Costofof the
Others
Product
Unexpected
Situational
Factors

Pricing is
Simplified

Price Competition
Is Minimised

Fairer to Buyers
& Sellers

Simplest
Pricing
g
Method

Ignores
Current
Demand &

Competition
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Breakeven Analysis or Target
Profit Pricing

Cost in D
Dollars (milllions)

Tries to Determine the Price at Which a Firm
Will Break Even or Make a Certain Target Profit.
Total Revenue

12
10

Target Profit
($2 million)

8
6

Total Cost

4

Fixed Cost

2

200

400

600

800

1,000

Sales Volume in Units (thousands)
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Cost-Based
Cost
Based Versus ValueValue
Based Pricing

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After examining the previous slide,
p
and contrast cost-based
compare
pricing and value-based pricing.
What are situations that favor each
pricing method?

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Competition-Based
Pricing
p
g
Methods for
Setting Prices

Going-Rate

Company Sets Prices Based on What
Competitors Are Charging

Sealed-Bid

? Company Sets Prices Based on
What They Think Competitors
?
Will Charge
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New-Product Pricing
Strategies
Market-Skimming
 Setting a High Price for a
New Product to “Skim”
Maximum Revenues from the
T
Target
tM
Market.
k t
 Results in Fewer, But More
Profitable Sales.
 I.e. Intel, Sony Playstation,
New Televisions

 Use Under These
Conditions:
 Product
Product’ss 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.

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New-Product Pricing
Strategies
Use Under These
Conditions:
 Market Must be Highly
Price-Sensitive
i S
i i so a Low
Price Produces More
Market Growth.
P d ti /Di t ib ti
 Production/Distribution
Costs Must Fall as Sales
Volume Increases.
 Must
Out

M t Keep
K
O t Competition
C
titi
& Maintain Its Low Price
Position or Benefits May
Only be Temporary
Temporary.

Market 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

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Which pricing strategy – (Market Skimming or
Market Penetration) does each of the
following companies/products use?
 McDonald

McDonald’s
s,
 Sony (television and other home electronics),
 Bic Corporation (pens, lighters, shavers, and related
products),
d t ) and
d
 IBM (personal computers).
 Salt
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Product Mix-Pricing
g Strategies:
g

Product Line Pricing
Involves setting price
steps between various
products in a product
line based on:
Cost differences
d ff
b
between
products,
Customer evaluations of

different features, and
Competitors’ prices.
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Product Mix
Mix-Pricing
Pricing
Strategies
Optional-Product
Pricing
g optional
p
or
accessory products sold
with the main product.
i e camera bag
i.e
bag.

Captive-Product
Pricing products that
must be used with the
main product. i.e. film.
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Adjusting Basic Price to
Reward
d Customers for
f Certain
Responses
Cash Discount
Quantity Discount
Functional Discount
Seasonal Discount
Trade in Allowance
Trade-in
Promotional Alowance
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Segmented
d Pricing
Selling Products at two or more prices
even through
g there is no difference in
cost.
Customer
Customer Segment
Product - Form

Location Pricing
Time Pricing
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How much does a bottle of
perfume cost?

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