KOTCHA10.ppt 165KB Sep 15 2006 07:05:46 PM
10-1 10-1
Chapter 10
Chapter 10
Pricing Products:
Pricing Considerations
and Approaches
PRINCIPLES OF MARKETING
Eighth Edition
(2)
10-2 10-2
Factors to Consider When Setting
Prices
Factors to Consider When Setting
Prices
Internal Factors
Internal Factors
Pricing
Decisions
Pricing
Decisions
External Factors
External Factors
Target
Market
Positioning
(3)
10-3 10-3
Internal Factors Affecting Pricing
Decisions
Internal Factors Affecting Pricing
Decisions
Marketing
Objectives
Marketing-Mix
Strategy
Costs
Organizational
Considerations
(4)
10-4 10-4
Marketing Objectives that Affect
Pricing Decisions
Marketing Objectives that Affect
Pricing Decisions
Marketing
Objectives
Marketing
Objectives
Survival
Low Prices to Cover Variable Costs and Some Fixed Costs to Stay in Business.
Survival
Low Prices to Cover Variable Costs and Some Fixed Costs to Stay in Business.
Current Profit Maximization Choose the Price that Produces the Maximum Current Profit, Cash Flow or ROI.
Current Profit Maximization Choose the Price that Produces the Maximum Current Profit, Cash Flow or ROI.
Market Share Leadership Low as Possible Prices to Become
the Market Share Leader. Market Share Leadership Low as Possible Prices to Become
the Market Share Leader.
Product Quality Leadership High Prices to Cover Higher
Performance Quality
Product Quality Leadership High Prices to Cover Higher
(5)
10-5 10-5
Marketing Mix Variables that Affect
Pricing Decisions
Marketing Mix Variables that Affect
Pricing Decisions
Marketing-Mix
Strategy
Product Design
and Quality
Product Design
and Quality
Distribution
Distribution
Promotion
Promotion
Non-Price
Factors
Non-Price
Factors
(6)
10-6 10-6
Types of Cost Factors that
Affect Pricing Decisions
Types of Cost Factors that
Affect Pricing Decisions
Total Costs
Sum of the Fixed and Variable Costs for a Given Level of Production
Total Costs
Sum of the Fixed and Variable Costs for a Given Level of Production
Variable Costs
Costs that do varydirectly with the level of production.
Raw materials
Variable Costs
Costs that do varydirectly with the level of production.
Raw materials
Fixed Costs
(Overhead)
Costs that don’t vary with sales orproduction levels. Executive Salaries
Rent
Fixed Costs
(Overhead)
Costs that don’t vary with sales orproduction levels. Executive Salaries
(7)
10-7 10-7
Costs Considerations
Costs Considerations
C
o
st
p
e
r
u
n
it
1
2
3 4 SRAC
LRAC
Quantity Produced per Day
1,
00
0
2,
00
0
3,
00
0
4,
00
0
(8)
10-8 10-8
External Factors Affecting Pricing
Decisions
External Factors Affecting Pricing
Decisions
Market and
Demand
Competitors’ Costs,
Prices, and Offers
Other External Factors
Economic Conditions
Reseller Needs
Government Actions
Social Concerns
(9)
10-9 10-9
The Market and Demand Factors that
Affect Pricing Decisions
The Market and Demand Factors that
Affect Pricing Decisions
Pure Competition
Pure Competition
Many Buyers and Sellers Who Have Little Affect on the Price.
Pure Competition
Pure Competition
Many Buyers and Sellers Who Have Little Affect on the Price.
Monopolistic Competition
Monopolistic Competition
Many Buyers and Sellers TradingOver a Range of Prices.
Monopolistic Competition
Monopolistic Competition
Many Buyers and Sellers TradingOver a Range of Prices.
Oligopolistic Competition
Few Sellers Each Sensitive to Other’s Pricing/ Marketing Strategies
Oligopolistic Competition
Few Sellers Each Sensitive to Other’s Pricing/ Marketing Strategies
Pure Monopoly
Single SellerPure Monopoly
Single SellerDifferent Types of Markets
(10)
10-10 10-10
Demand Curves
Demand Curves
P
ri
c
e
Quantity Demanded per Period
A. Inelastic Demand -
Demand Hardly Changes With a Small Change in Price.
P2 P1
Q1 Q2
P
ri
c
e
P’2 P’1
Q Q
B. Elastic Demand
-Demand Changes Greatly With a Small Change in Price.
(11)
10-11 10-11
Minimizes
Price
Competition
Minimizes
Price
Competition
What is Cost-Plus Pricing and Why
is it Popular?
What is Cost-Plus Pricing and Why
is it Popular?
Perceived
Fairness to
Both Buyers
and Sellers
Perceived
Fairness to
Both Buyers
and Sellers
Sellers Are More
Certain About
Costs Than
Demand
Sellers Are More
Certain About
Costs Than
Demand
(12)
10-12 10-12
Breakeven Analysis or Target Profit Pricing
Breakeven Analysis or Target Profit Pricing
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
st
in
D
o
lla
rs
(
th
o
u
sa
n
d
s)
Tries to Determine the Price at Which a Firm Will
Break Even or Make a Target Profit
(13)
10-13 10-13
Value-Based Pricing
Value-Based Pricing
Product
Product
Cost
Cost
Price
Price
Value
Value
Customers
Customers
Customer
Customer
Value
Value
Price
Price
Cost
Cost
Product
Product
(14)
10-14 10-14
Competition-Based Pricing
Competition-Based Pricing
Setting Prices
Setting Prices
Sealed-Bid
Company Sets Prices Based on
What They Think Competitors
Will Charge.
Sealed-Bid
Company Sets Prices Based on
What They Think Competitors
Will Charge.
Going-Rate
Company Sets Prices Based on What
Competitors Are Charging.
Going-Rate
Company Sets Prices Based on What
Competitors Are Charging.
?
?
(1)
10-9
10-9
The Market and Demand Factors that
Affect Pricing Decisions
The Market and Demand Factors that
Affect Pricing Decisions
Pure Competition
Pure Competition
Many Buyers and Sellers Who Have Little Affect on the Price.
Pure Competition
Pure Competition
Many Buyers and Sellers Who Have Little Affect on the Price.
Monopolistic Competition
Monopolistic Competition
Many Buyers and Sellers Trading Over a Range of Prices.
Monopolistic Competition
Monopolistic Competition
Many Buyers and Sellers Trading Over a Range of Prices.
Oligopolistic Competition
Few Sellers Each Sensitive to Other’s Pricing/ Marketing Strategies
Oligopolistic Competition
Few Sellers Each Sensitive to Other’s Pricing/ Marketing Strategies
Pure Monopoly
Single Seller
Pure Monopoly
Single Seller
Different Types of Markets
(2)
10-10
10-10
Demand Curves
Demand Curves
P
ri
c
e
Quantity Demanded per Period
A. Inelastic Demand -
Demand Hardly Changes With a Small Change in Price.
P2 P1
Q1 Q2
P
ri
c
e
P’2 P’1
Q Q
B. Elastic Demand
-Demand Changes Greatly With a Small Change in Price.
(3)
10-11
10-11
Minimizes
Price
Competition
Minimizes
Price
Competition
What is Cost-Plus Pricing and Why
is it Popular?
What is Cost-Plus Pricing and Why
is it Popular?
Perceived
Fairness to
Both Buyers
and Sellers
Perceived
Fairness to
Both Buyers
and Sellers
Sellers Are More
Certain About
Costs Than
Demand
Sellers Are More
Certain About
Costs Than
Demand
(4)
10-12
10-12
Breakeven Analysis or Target Profit Pricing
Breakeven Analysis or Target Profit Pricing
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
st
in
D
o
lla
rs
(
th
o
u
sa
n
d
s)
Tries to Determine the Price at Which a Firm Will
Break Even or Make a Target Profit
(5)
10-13
10-13
Value-Based Pricing
Value-Based Pricing
Product
Product
Cost
Cost
Price
Price
Value
Value
Customers
Customers
Customer
Customer
Value
Value
Price
Price
Cost
Cost
Product
Product
(6)
10-14
10-14