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Chapter 11 (pricing concept)
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Chapter 11 (pricing concept)


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  • Note to Instructor Discussion Question How does a company like Starbuck’s price their products? This will lead to a good overview of the chapter as students will most likely focus on customers, costs and competitors.
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    • 1. Fundamental Of Marketing MKT243 Chapter 11 Pricing ConceptDHD2009 MKT243 Fundamental Of 1 Marketing
    • 2. Slide Outline• Pricing Objective• Demand determination of price• Cost determination of price• Other determination of priceDHD2009 MKT243 Fundamental Of 2 Marketing
    • 3. What Is a Price?Price is the amount of money charged for a product or service. It is the sum of all the values that consumers give up in order to gain the benefits of having or using a product or service.Price is that which is given up in an exchange to acquire a product and servicePrice is the only element in the marketing mix that produces revenue; all other elements represent costsDHD2009 MKT243 Fundamental Of 3 Marketing
    • 4. The Importance of Price Revenue = Unit Price  Number of units sold  Revenue pays for every activity.  What’s left over is Profit. Price Low High = Price Price Perceived ValueDHD2009 MKT243 Fundamental Of 4 Marketing
    • 5. Profit-Oriented Pricing Objectives Profit-Oriented Pricing Objectives Profit-Oriented Pricing Objectives Target Target Profit Profit Satisfactory Satisfactory Return on Return onMaximizationMaximization Profits Profits Investment InvestmentDHD2009 MKT243 Fundamental Of 5 Marketing
    • 6. Pricing Objectives1. Profit –Oriented Pricing Objectivei. Profit Maximization -Setting prices so that Total Revenue is larger as possible -As long as the revenue exceed the costii. Satisfactory profits -Setting prices so that company gets a reasonable level of profits or consistent profits -Level of profit must be consistent with the level of the risk that the organization have to faceiii. Target return on Investment/ROI -The higher the ROI, the better off the firms is -High risk, High return (finance theory)DHD2009 MKT243 Fundamental Of 6 Marketing
    • 7. Sales-Oriented Pricing Objectives Sales-Oriented Pricing Objectives Sales-Oriented Pricing Objectives Market Market Sales Sales Share Share Maximization MaximizationDHD2009 MKT243 Fundamental Of 7 Marketing
    • 8. Pricing Objectives2. Sales-Oriented Pricing Objectivei. Market share-is a company’s sales as a percentage of total sales for the industryii. Sales Maximization-Maximizing sales, ignores profits, competition and marketing environment as long as sales are risingDHD2009 MKT243 Fundamental Of 8 Marketing
    • 9. Status Quo Pricing Objectives Status Quo Pricing Objectives Status Quo Pricing Objectives Maintain Maintain Meet Meet existing existing competition’s competition’s prices prices prices pricesDHD2009 MKT243 Fundamental Of 9 Marketing
    • 10. Pricing Objectives3. Status-Quo Pricing Objectivei. A pricing objective that maintains existing prices or meets competitor’s priceii. Keep monitoring competitor’s prices, compare prices and make adjustmentsiii. Based on the competitor pricesDHD2009 MKT243 Fundamental Of 10 Marketing
    • 11. Demand and Supply The quantity of a product that The quantity of a product that Demand Demand will be sold in the market at various will be sold in the market at various prices for a specified period. prices for a specified period. The quantity of a product The quantity of a product Supply Supply that will be offered to the market that will be offered to the market by a supplier at various prices by a supplier at various prices for a specific period. for a specific period.DHD2009 MKT243 Fundamental Of 11 Marketing
    • 12. Elasticity of Demand Elastic  Consumers buy more or less Elastic of a product when the Demand Demand price changes Inelastic  An increase or decrease in Inelastic price will not significantly Demand Demand affect demand  An increase in sales exactly Unitary Unitary offsets a decrease in prices, Elasticity Elasticity and revenue is unchangedDHD2009 MKT243 Fundamental Of 12 Marketing
    • 13. Factors that Affect Elasticity of Demand Availability of substitutes Availability of substitutes Price relative to Price relative to purchasing power purchasing power Product durability Product durability A product’s other uses A product’s other usesDHD2009 MKT243 Fundamental Of 13 Marketing
    • 14. The Cost Determinant of Price Types of Costs Types of Costs Variable Variable Fixed Costs Fixed Costs Costs CostsDHD2009 MKT243 Fundamental Of 14 Marketing
    • 15. The Cost Determinant of Price Markup pricing Markup pricing Keystoning Keystoning Methods Methods Used to Used to Profit Maximization Profit Maximization Set Prices Set Prices Pricing Pricing Break-Even Break-Even Pricing Pricing Target-Return Target-Return Pricing PricingDHD2009 MKT243 Fundamental Of 15 Marketing
    • 16. Break-Even Pricing Total Revenue fi t Pro 4,000 Total Costs Break-even point Price s L os 2,000 Fixed costs 0 1,000 2,000 3,000 4,000 5,000 6,000 Quantity DHD2009 MKT243 Fundamental Of 165 Marketing
    • 17. Other Determinants of Price Stages of the Stages of the Product Life Cycle Product Life Cycle Competition Competition Distribution Strategy Distribution Strategy Promotion Strategy Promotion Strategy Perceived Quality Perceived QualityDHD2009 MKT243 Fundamental Of 17 Marketing