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Price Management

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Another resource from uneOpen – the first open online site to offer credit towards a university degree. Enrol now at https://www.uneopen.com/

Another resource from uneOpen – the first open online site to offer credit towards a university degree. Enrol now at https://www.uneopen.com/

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  • 1. Week 5Week 5Topic 1:Price Management
  • 2. Price and PricingIn the narrowest sense, price is the amount of money chargedfor a product or service.In the broadest sense, price is the sum of all the values thatconsumers exchange for the benefits of having or using theproduct or service. Fixed pricing and Dynamic pricing Price is the only element in the marketing mix thatproduces revenue. Price is also one of the most flexible elements.Topic 1:Topic 1:Price ManagementPrice Management
  • 3. The Most Common Mistakes of Pricing1. Pricing that is too cost oriented rather than customer valueoriented2. Prices that are not revised often enough to reflect marketchanges3. Pricing that does not take the rest of the marketing mix intoaccount4. Prices that are not varied enough for different products,market segments, and purchase occasionsTopic 1:Topic 1:Price ManagementPrice Management
  • 4. Internal Factors Affecting the Pricing Decision1. Marketing objectives The clearer a firm is about its objectives, the easier it is to set price. Common objectives are Survival Current profit maximization Market share leadership Product quality leadershipTopic 1:Topic 1:Price ManagementPrice Management
  • 5. Internal Factors Affecting the Pricing Decision (cont.) Other objectives A company can set prices low to prevent competition from enteringthe market Company can set prices at competitors’ levels to stabilize the market Prices can be set to keep the loyalty and support of resellers Prices can be set to avoid government intervention. Prices can be reduced temporarily to create excitement for a productor to draw more consumers into retail store One product may be priced to sell other products in the company’sline.Topic 1:Topic 1:Price ManagementPrice Management
  • 6. 2. Marketing mix strategy Companies often position their products on price Target costing: Pricing that starts with an ideal selling price, then targets coststhat will ensure that the price is met. Other companies de-emphasize price and use other marketing mix toolsto create non-price positions. The best strategy is not to charge the lowest price but rather to differentiatethe marketing offer to make it worth a higher price.Internal Factors Affecting the Pricing Decision (cont.)Topic 1:Topic 1:Price ManagementPrice Management
  • 7. 3. Cost Total cost Fixed cost and variable cost Experience curve (learning curve): The drop in the average per unitproduction cost that comes with accumulated production experience.4. Organisational considerations Management must decide who within organisation should set prices.Topic 1:Topic 1:Price ManagementPrice ManagementInternal Factors Affecting the Pricing Decision (cont.)
  • 8. 1. The market and demand Pricing is different types of markets Pure competition Monopolistic competition Oligopoly competition Monopoly competition 2. Consumer perceptions of price and valueExternal Factors Affecting the Pricing DecisionTopic 1:Topic 1:Price ManagementPrice Management
  • 9. 3. Analyzing the price-demand relationship Demand curve slopes downward, sometimes upward (prestigeproducts) Price elasticity of demand: Price elasticity is the measure of the sensitivity of the demand tochanges in price. If demand hardly changes with a small change in price, the demand isinelastic. If demand changes greatly with a small change in price, the demand iselastic.Topic 1:Topic 1:Price ManagementPrice ManagementExternal Factors Affecting the Pricing Decision (cont.)
  • 10.  What determines the price elasticity of demand?Buyers are less price sensitive when: The product is unique, high quality, prestige, and exclusive Substitute products are hard to find or cannot easily be comparedwith the quality of substitute. Total expenditure for a product is low relative to income. The cost is shared by another party.Topic 1:Topic 1:Price ManagementPrice ManagementExternal Factors Affecting the Pricing Decision (cont.)
  • 11. 4. Competitors’ costs, prices, and offers5. Other external factors, such as economic conditions,government, and social concerns.External Factors Affecting the Pricing Decision (cont.)Topic 1:Topic 1:Price ManagementPrice Management
  • 12. General Pricing Approaches1. Cost based pricingCost + Markups = Selling priceUnit cost = Variable cost + (Fixed cost/Unit sales)2. Break-even analysis and Target profit pricing  Fixed costBreak-even volume = ---------------------------Price – Variable costTopic 1:Topic 1:Price ManagementPrice Management
  • 13. 3. Value-based pricing Setting price based on buyers’ perceptions of value rather than on theseller’s cost. Value pricing: Offering just the right combination of quality and goodservice at a fair price. Everyday Low Pricing (EDLP) High-low pricingTopic 1:Topic 1:Price ManagementPrice ManagementGeneral Pricing Approaches
  • 14.  4. Competition-based pricing Setting prices based on the prices that competitors charge forsimilar products. Going rate pricing: Based on competitors’ price, paid less attentionto its own costs or to demand.General Pricing ApproachesTopic 1:Topic 1:Price ManagementPrice Management
  • 15. Thank You!