This document discusses various pricing strategies and considerations for setting prices. It defines what a price is and lists objectives a company may want to achieve through pricing, such as profitability, market share, or product positioning. The document also covers types of pricing like cost-based pricing, markup pricing, target-return pricing, and perceived-value pricing. Factors that influence pricing decisions are also examined, including customer demand, marketing mix, economic conditions, and customer perceived value.

1. Pricing in
Practice

2.  The money charged for a product or service
 Everything that a customer has to give up in order
to acquire a product or service
A price is a charge made by a
producer to a consumer for the right
to be supplied with a good or service.
tariffs, charges, premiums and
interest rates are prices in the
appropriate context.

3. achieve the
financial goals
of the
company –
profitability
fit the
environment –
will customers
buy at that
price?
support the
products
positioning
be consistent
with other
variables of
the marketing
mix

4. Dominant Firm Pricing & Consumer Surplus
A dominant firm acting as a monopolist, aiming to
maximize profits and using a single price will equate
marginal revenue to marginal cost and set the
appropriate price for that output.
Price Discrimination
Price discrimination involves exploiting demand characteristics
that allow the same product t o be sold at various prices
unrelated to the cost of supply. In practice a single consumer may
be charged different prices for different units of good bought or
different consumers may be charged different prices for the same
product or service.

6. “It is not the strongest species that survive, nor the most intelligent, but
the ones who are most responsive to change”
Charles Darwin

7. Select the price objective
Steps in Setting Price

9. • Pricing such that you cover variable costs and
some fixed costs. Short-term objectiveSurvival
• Price your product to maximize current profit
Maximum current
profit
• Set lowest price to maximize volume / market
share. Assumes market is price-sensitive
Maximum market
share (Penetration)
• Sell base product at low margin, locking
consumers into higher margin after-market
consumables
Captive Pricing
(Penetration)
• Prices start high and slowly lowered over time.
Highly demanded product
Maximum market
skimming
• Product with high quality, taste, status – priced
just high enough not to be out of consumer’s
reach
Product-quality
leadership
• Priced so only the wealthy can afford itPrestige Pricing

10. • Add a standard mark up to the
product’s cost.
Markup pricing
• Determine price that would deliver company’s
target rate of return on investmentTarget-return pricing
• Price based on the value to the customer (i.e. if
new product innovation saves money, then
should charge more)
Perceived-value
pricing
• Pricing to win loyal customer by charging fairly
low price for high qualityValue pricing
• Price solely based on competitors
prices
Going-rate pricing

11. CUSTOMER
DEMAND
MARKETING MIX
STATE OF THE
ECONOMY
CUSTOMER
PERCEPTION OF
VALUE

12. Two main methods of calculating price
based on average variable costs.
• The first, the full cost method, involves estimating the
average variable (or average direct) costs for a chosen or
normal output and then adding average fixed or (average
indirect) cost s and an average profit margin.
• The second method involves estimating the average
variable or (average direct) costs for a chosen or normal
output and then adding a costing margin to cover indirect
costs and deliver the desired profit margin.

13. Short-run increases in demand will
not influence price. If the firm
cannot increase output to meet an
increase in demand, then it will
adopt a rationing or queuing
system to allocate output.
Cost-plus pricing: responses to cost,
demand and tax changes

14. Pricing intervals
• Firms may attempt to position the price of
their product relative to a similar but
different product.
Relative pricing
•A change in the price of one product may affect sales of
both its own and other firms’ products. Where products are
complements, firms may have to decide on a pricing
structure and whether to sell the goods separately or to
bundle them together.
Product line pricing
• Setting prices for new products presents greater
difficulties, as there is no previous experience of
the costs of production or of the likely level of
demand.
New products