There are internal and external factors that determine price. Internal factors include marketing objectives, costs, and organizational considerations. External factors include market demand, competition, economic conditions, and government actions. When setting price, companies consider costs, value to customers, competition, and promotional strategies. The optimal pricing strategy depends on the product, market conditions, and business objectives.

1. DETERMINANTS OF PRICE

2. Factors Affecting Price
Decisions
External Factors
Internal Factors
Nature of the market
Marketing Objectives
Marketing Mix Strategy
Pricing and demand
Decisions Competition
Costs
Other environmental
Organizational
factors (economy,
considerations
resellers, government)

3. Internal Factors Affecting Pricing
Decisions: 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 the
Marketing 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.

4. Internal Factors Affecting Pricing
Decisions: Marketing Mix
Product Design
Nonprice
Price Distribution
Positions
Promotion

5. COSTS
TYPES OF COST:
 Fixed cost
 Variable cost
 Total cost
How costs vary at different
production levels will influence price
setting.

6. External Factors Affecting
Pricing Decisions
Market and
Demand
Competitors’ Costs,
Prices, and Offers
Other External Factors
Competitor Costs
Economic Conditions
This ad by LCI International accuses its competitors of using
unfair 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.

7. Market and Demand Factors
Affecting Pricing Decisions
Pricing in Different Types of Markets
Pure Competition
Many 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

8. COMPETITORS COSTS PRICES
AND 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

9. 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

10. Major Considerations in Setting
Price (Fig. 10.5)

11. 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
Standard
Price Competition
Is Minimized Markup to the
Attitudes Ignores
Costof the
of Current
Others
Product. Demand &
Much Fairer to Competition
Buyers & Sellers

12. Cost-Based Versus Value-Based
Pricing
Cost-Based Pricing Value-Based Pricing
Product Customer
Cost Value
Price Price
Value Cost
Customers Product

13. 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.

14. 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.

15. New Product Pricing Strategies
Use Under These Market Penetration
Conditions:
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.

16. Product Mix-Pricing
Strategies:
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.

17. 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.

18. Product Mix- Pricing
Strategies
By-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

19. 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

20. 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.

21. Promotional Pricing
Loss Leaders Temporarily Pricing
Products Below List
Special-Event Pricing Price to Increase
Short-Term Sales
Cash Rebates Through:
Low-Interest Financing
Longer Warranties
Free Merchandise
Discounts