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Chap 10 e161
 

Chap 10 e161

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Chap 10 e161 Chap 10 e161 Presentation Transcript

  • Chapter 10 Pricing Products: Pricing Considerations and Approaches
  • Learning Goals
    • Identify and define the internal factors affecting a firm’s pricing decisions
    • Identify and define the external factors affecting pricing decisions, including the impact of consumer perceptions of price and value
    • Contrast the three general approaches to setting prices
    • “ Buyer-driven commerce” concept offers lower prices to consumers and the ability to sell excess inventory to sellers
    • 13.5 million user customer base
    • Tremendous growth
    • Most deals relate to travel or time sensitive/perishable services
    • Not all ventures have been profitable
    • Some customers find it difficult to commit to purchase prior to learning details
    Case Study Priceline.com 10 -
  • Learning Goals
    • Identify and define the internal factors affecting a firm’s pricing decisions
    • Identify and define the external factors affecting pricing decisions, including the impact of consumer perceptions of price and value
    • Contrast the three general approaches to setting prices
  • Definition
    • Price
      • The amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service.
  • Price has Many Names
    • Rent
    • Fee
    • Rate
    • Commission
    • Assessment
    • Tuition
    • Fare
    • Toll
    • Premium
    • Retainer
    • Bribe
    • Salary
    • Wage
    • Interest
    • Tax
  • What is Price?
    • Dynamic Pricing on the Web allows SELLERS to:
      • Monitor customer behavior and tailor offers.
      • Change prices on the fly to adjust for changes in demand or costs.
      • Aid consumers with price comparisons.
      • Negotiate prices in online auctions and exchanges.
  • Online travel seller Orbitz guarantees the lowest price Marketing in Action Click on screenshot for website 10 -
  • What is Price?
    • Price and the Marketing Mix
      • Only element to produce revenues
      • Most flexible element
      • Can be changed quickly
    • Common Pricing Mistakes
      • Reducing prices too quickly to get sales
      • Pricing based on costs, not customer value
  • Factors to Consider When Setting Price
    • Marketing objectives
    • Marketing mix strategies
    • Costs
    • Organizational considerations
    • Market positioning influences pricing strategy
    • Other pricing objectives:
      • Survival
      • Current profit maximization
      • Market share leadership
      • Product quality leadership
    Internal Factors
  • In these ads, State Farm positions on “relationship,” but Allstate positions on “price” Marketing in Action 10 -
  • Factors to Consider When Setting Price
    • Marketing objectives
    • Marketing mix strategies
    • Costs
    • Organizational considerations
    • Pricing must be carefully coordinated with the other marketing mix elements
    • Target costing is often used to support product positioning strategies based on price
    • Non-price positioning can also be used
    Internal Factors
  • Discussion Question
    • You are the marketer of a new high-end coffee maker. What should you consider when planning your:
        • Price
        • Product
        • Place
        • Promotion
    10 -
  • Factors to Consider When Setting Price
    • Marketing objectives
    • Marketing mix strategies
    • Costs
    • Organizational considerations
    • Types of costs:
      • Variable
      • Fixed
      • Total costs
    • How costs vary at different production levels will influence price setting
    Internal Factors
  • Cost per Unit at Varying Production Levels Figure 10.2 10 -
  • Factors to Consider When Setting Price
    • Marketing objectives
    • Marketing mix strategies
    • Costs
    • Organizational considerations
    • Types of costs:
      • Variable
      • Fixed
      • Total costs
    • How costs vary at different production levels will influence price setting
    • Experience (learning) curve affects price
    Internal Factors
  • The Experience Curve Figure 10.3 10 -
  • Factors to Consider When Setting Price
    • Marketing objectives
    • Marketing mix strategies
    • Costs
    • Organizational considerations
    • Who sets the price?
      • Small companies: CEO or top management
      • Large companies: Divisional or product line managers
    • Price negotiation is common in industrial settings where pricing departments may be created
    Internal Factors
  • Learning Goals
    • Identify and define the internal factors affecting a firm’s pricing decisions
    • Identify and define the external factors affecting pricing decisions, including the impact of consumer perceptions of price and value
    • Contrast the three general approaches to setting prices
  • Factors to Consider When Setting Price
    • Nature of market and demand
    • Competitors’ costs, prices, and offers
    • Other environmental elements
    • Types of markets
      • Pure competition
      • Monopolistic competition
      • Oligopolistic competition
      • Pure monopoly
    • Consumer perceptions of price and value
    • Price-demand relationship
      • Demand curve
      • Price elasticity of demand
    External Factors
    • The Mastercard “Priceless” campaign helps show that prices are somewhat intangible and can be relative to the consumer and the situation
    Marketing in Action 10 -
  • Factors to Consider When Setting Price
    • Nature of market and demand
    • Competitors’ costs, prices, and offers
    • Other environmental elements
    • Types of markets
      • Pure competition
      • Monopolistic competition
      • Oligopolistic competition
      • Pure monopoly
    • Consumer perceptions of price and value
    • Price-demand relationship
      • Demand curve
      • Price elasticity of demand
    External Factors
  • The Demand Curve Figure 10.4 10 -
  • Factors to Consider When Setting Price
    • Nature of market and demand
    • Competitors’ costs, prices, and offers
    • Other environmental elements
    • Consider competitors’ costs, prices, and possible reactions when developing a pricing strategy
    • 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
    External Factors
  • Prices for MP3 players get more competitive with the help of online shopping agents like PriceGrabber.com Marketing in Action Click on screenshot for website 10 -
  • Factors to Consider When Setting Price
    • Nature of market and demand
    • Competitors’ costs, prices, and offers
    • Other environmental elements
    • 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
    External Factors
  • Learning Goals
    • Identify and define the internal factors affecting a firm’s pricing decisions
    • Identify and define the external factors affecting pricing decisions, including the impact of consumer perceptions of price and value
    • Contrast the three general approaches to setting prices
  • Major Considerations in Setting Price Figure 10.5 10 -
    • Cost-Based Pricing: Cost-Plus Pricing
      • Adding a standard markup to cost
      • Ignores demand and competition
      • Popular pricing technique because:
        • It simplifies the pricing process
        • Price competition may be minimized
        • It is perceived as more fair to both buyers and sellers
    General Pricing Approaches
    • Cost-Based Pricing Example
      • - Variable costs: $20 - Fixed costs: $ 500,000
      • - Expected sales: 100,000 units - Desired Sales Markup: 20%
      • Variable Cost + Fixed Costs/Unit Sales = Unit Cost
      • $20 + $500,000/100,000 = $25 per unit
      • Unit Cost/(1 – Desired Return on Sales) = Markup Price
      • $25 / (1 - .20) = $31.25
    General Pricing Approaches
    • Cost-Based Pricing: Break-Even Analysis and Target Profit Pricing
      • Break-even charts show total cost and total revenues at different levels of unit volume.
      • The intersection of the total revenue and total cost curves is the break-even point.
      • Companies wishing to make a profit must exceed the break-even unit volume.
    General Pricing Approaches
    • Break-Even Analysis and Target Profit Pricing
    General Pricing Approaches Fixed Costs Total Costs Revenues Sales Volume in Thousands of Units Thousands of Dollars 0 10 20 30 40 1000 800 600 400 200 Break-even point Target Profit $200,000 Quantity To Be Sold To Meet Target Profit
  • Cost-based versus Value-based Pricing Figure 10.7 10 -
  • General Pricing Approaches
    • Value-Based Pricing:
      • Uses buyers’ perceptions of value rather than seller’s costs to set price.
      • Measuring perceived value can be difficult.
      • Consumer attitudes toward price and quality have shifted during the last decade.
      • Value pricing at the retail level
        • Everyday low pricing (EDLP) vs. high-low pricing
    Video Snippet Song uses value based pricing
  • The discount retailer Target has begun to offer “no wait” medical clinics in some stores at lower prices than traditional health care institutions Marketing in Action Source: Business Week 10 -
    • Competition-Based Pricing:
      • Also called going-rate pricing
      • May price at the same level, above, or below the competition
      • Bidding for jobs is another variation of competition-based pricing
        • Sealed bid pricing
    General Pricing Approaches
  • Competitive Prices on Music Downloads Marketing in Action 10 -
  • Learning Goals
    • Identify and define the internal factors affecting a firm’s pricing decisions
    • Identify and define the external factors affecting pricing decisions, including the impact of consumer perceptions of price and value
    • Contrast the three general approaches to setting prices