Factors Affecting Price Decisions External FactorsInternal Factors Nature of the marketMarketing ObjectivesMarketing Mix Strategy Pricing and demand Decisions CompetitionCosts Other environmentalOrganizational factors (economy, considerations resellers, government)
Internal Factors Affecting PricingDecisions: Marketing Objectives Survival Low Prices to Cover Variable Costs and Some Fixed Costs to Stay in Business. Current Profit Maximization Choose the Price that Produces theMarketing Maximum Current Profit, Etc.Objectives Market Share Leadership Low as Possible Prices to Become the Market Share Leader. Product Quality Leadership High Prices to Cover Higher Performance Quality and R & D.
COSTS TYPES OF COST: Fixed cost Variable cost Total cost How costs vary at different production levels will influence price setting.
External Factors Affecting Pricing Decisions Market and Demand Competitors’ Costs, Prices, and Offers Other External Factors Competitor Costs Economic ConditionsThis ad by LCI International accuses its competitors of usingunfair practices in pricing, hiding fees incurred by rounding up. Reseller Needs Government Actions Why is LCI focusing on this practice? Hidden fees, defined as Social Concerns “cramming” by the FCC, are the number one source of billing complaints among long-distance customers.
Market and Demand Factors Affecting Pricing Decisions Pricing in Different Types of Markets Pure CompetitionMany Buyers and Sellers Pure Monopoly Who Have Little Single Seller Effect on the Price Monopolistic Oligopolistic Competition Competition Many Buyers and Sellers Few Sellers Who Are Who Trade Over a Sensitive to Each Other’s Range of Prices Pricing/ Marketing Strategies
COMPETITORS COSTS PRICESAND OFFERS Pricing strategy influences the nature of competition Low price low margin strategies inhibit competition High price high margin strategies attract competition Benchmarking costs against the competition is recommended
OTHER EXTERNAL FACTORS Economic conditions Affect production costs Affect buyer perceptions of price and value Reseller reactions to prices must be considered Government may restrict or limit pricing options Social considerations may be taken into account
Major Considerations in SettingPrice (Fig. 10.5)
Cost-Based Pricing Certainty About Costs Simplest Cost-Plus Ethical Factors Pricing Pricing is Pricing is an Situational Method Simplified Approach That Unexpected Adds a StandardPrice CompetitionIs Minimized Markup to the Attitudes Ignores Costof the of Current Others Product. Demand &Much Fairer to CompetitionBuyers & Sellers
Cost-Based Versus Value-BasedPricing Cost-Based Pricing Value-Based Pricing Product Customer Cost Value Price Price Value Cost Customers Product
Competition-Based Pricing 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.
New Product Pricing Strategies Market Skimming Use Under These Conditions: Setting a High Price Product’s Quality and for a New Product to Image Must Support Its Higher Price. “Skim” Maximum Costs Can’t be so High Revenues from the that They Cancel the Target Market. Advantage of Charging Results in Fewer, But More. More Profitable Sales. Competitors Shouldn’t be Able to Enter Market Easily and Undercut the High Price.
New Product Pricing StrategiesUse Under These Market PenetrationConditions: Market Must be Highly Setting a Low Price for a Price-Sensitive so a Low New Product in Order to Price Produces More “Penetrate” the Market Market Growth. Quickly and Deeply. Production/ Distribution Costs Must Fall as Sales Attract a Large Number Volume Increases. of Buyers and Win a Must Keep Out Larger Market Share. Competition & Maintain Its Low Price Position or Benefits May Only be Temporary.
Product Mix-PricingStrategies:Product Line Pricing Involves setting price steps between various products in a product line based on: Cost differences between products, Customer evaluations of different features, and competitors’ prices.
Product Mix- Pricing Strategies Optional-Product Pricing optional or accessory products sold with the main product. i.e camera bag. Captive-Product Pricing products that must be used with the main product. i.e. film.
Product Mix- Pricing StrategiesBy-Product Product-Bundling Pricing low-value Combining several by-products to get products and rid of them and offering the make the main bundle at a product’s price reduced price. more competitive. i.e. theater season i.e. sawdust, Zoo tickets. Doo
Discount and Allowance Pricing A d ju s tin g B a s ic P r ic e to R e w a r d C u s to m e r s F o r C e rta in R e s p o n s e s C a s h D is c o u n t S e a s o n a l D is c o u n t Q u a n tity D is c o u n t T r a d e -In A llo w a n c e F u n c tio n a l D is c o u n t P r o m o t io n a l A ll o w a n c e
Psychological Pricing Considers the psychology of prices and not simply the economics. Customers use price less when they can judge quality of a product. Valu Price becomes an important e $22 quality signal when Sale .0 0 customers can’t judge $14 .9 9 quality; price is used to say something about a product.