10-1 Chapter 10 Pricing Products: Pricing Considerations and Strategies.
33
10-1 Chapter 10 Pricing Products: Pricing Considerations and Strategies
-
Upload
felicia-gregory -
Category
Documents
-
view
237 -
download
2
Transcript of 10-1 Chapter 10 Pricing Products: Pricing Considerations and Strategies.
10-1
Chapter 10
Pricing Products:Pricing Considerations and Strategies
10-2
Road Map: Previewing the ConceptsIdentify and explain the external and internal factors affecting a firm's pricing decisions.Contrast the three general approaches to setting prices.Describe the major strategies for pricing imitative and new products.Explain how companies find a set of prices that maximizes the profits from the total product mix.Discuss how companies adjust their prices to take into account different types of customers and situations.Discuss the key issues related to initiating and responding to price changes.
10-3
Factors Affecting Price Decisions (Fig. 10-1)
10-4
Marketing
Objectives
SurvivalLow Prices Hoping to Increase
Demand.
Current Profit Maximization Choose the Price that Produces the Maximum Current Profit, Etc.
Market Share LeadershipLow as Possible Prices to Become
the Market Share Leader.
Product Quality LeadershipHigh Prices to Cover Higher
Performance Quality and R&D.
Internal Factors Affecting Pricing Decisions: Marketing Objectives
10-5
Four Seasons Hotel
Four Seasons uses the product quality leadership strategy.It starts with very high quality service, then charges a price to match.http://www.fourseasons.com
10-6
Price
Product Design
Distribution
Promotion
NonpricePositions
Internal Factors Affecting Pricing Decisions: Marketing Mix Strategy
10-7
Types of Cost Factors that Affect Pricing Decisions
Total CostsSum of the Fixed and Variable Costs for Any Given
Level of Production
Total CostsSum of the Fixed and Variable Costs for Any Given
Level of Production
Variable Costs
Costs that do varydirectly with the
level of productionRaw materials
Fixed Costs(Overhead)
Costs that don’tvary with sales or production levels
Executive Salaries, Rent
10-8
Market andDemand
Competitors’ Costs, Prices, and Offers
Other External FactorsEconomic ConditionsReseller Reactions
Government ActionsSocial Concerns
External Factors Affecting Pricing Decisions
10-9
Pure CompetitionPure CompetitionMany Buyers and Sellers
Who Have Little Effect on the Price
Pure CompetitionPure CompetitionMany Buyers and Sellers
Who Have Little Effect on the Price
Monopolistic Monopolistic CompetitionCompetition
Many Buyers and Sellers Who Trade Over a
Range of Prices
Monopolistic Monopolistic CompetitionCompetition
Many Buyers and Sellers Who Trade Over a
Range of Prices
Pricing in Different Types of Markets
Market and Demand Factors Affecting Pricing Decisions
Oligopolistic Oligopolistic CompetitionCompetition
Few Sellers Who AreSensitive to Each Other’s
Pricing/ Marketing Strategies
Oligopolistic Oligopolistic CompetitionCompetition
Few Sellers Who AreSensitive to Each Other’s
Pricing/ Marketing Strategies
Pure MonopolyPure MonopolySingle Seller
Pure MonopolyPure MonopolySingle Seller
10-10
Demand Curve (Fig. 10-2)
10-11
Price Elasticity of DemandPri
ce
Quantity Demanded per Period
A. Inelastic Demand - Demand Hardly Changes Witha Small Change in Price.
P2
P1
Q1Q2
Pri
ce
Quantity Demanded per Period
P’2
P’1
Q1Q2
B. Elastic Demand -Demand Changes Greatly Witha Small Change in Price.
10-12
Major Considerations in Setting Price (Fig. 10-3)
10-13
Cost-Based PricingCertainty About Costs
Pricing is Simplified
Price Competition Is Minimized
UnexpectedSituational
Factors
Attitudes of
Others
Ethical
Ignores Current
Demand & Competitio
n
Cost-Plus Pricing is an
Approach That Adds a
Standard Markup to the
Cost of the Product
Simplest Pricing Method
Fairer to Buyers & Sellers
10-14
Breakeven Analysis or Target Profit Pricing (Fig. 10-4)
2
4
6
8
10
12
200 400 600 800 1,000
Total Revenue
Total Cost
Fixed Cost
Target Profit($2 million)
Sales Volume in Units (thousands)Cost
in
Dolla
rs (
mill
ion
s)
Tries to Determine the Price at Which a Firm Will Break Even or Make a Certain Target
Profit.
10-15
Cost-Based Versus Value-Based Pricing (Fig. 10-5)
10-16
After examining Figure 10-5, compare and contrast cost-based pricing and value-based pricing. What are situations that favor each pricing method?
10-17
Methods for Setting Prices
Going-Rate Company Sets Prices Based on
WhatCompetitors Are Charging
Sealed-BidCompany Sets Prices Based on What They Think Competitors
Will Charge??
Competition-Based Pricing
10-18
New-Product Pricing StrategiesMarket-Skimming
Setting a High Price for a New Product to “Skim” Maximum Revenues from the Target Market.
Results in Fewer, But More Profitable Sales.
I.e. Intel
Use Under These Conditions:
Product’s Quality and Image Must Support Its Higher Price.Costs Can’t be so High that They Cancel the Advantage of Charging More.Competitors Shouldn’t be Able to Enter Market Easily and Undercut the High Price.
10-19
New-Product Pricing StrategiesMarket Penetration
Setting a Low Price for a New Product in Order to “Penetrate” the Market Quickly and Deeply.
Attract a Large Number of Buyers and Win a Larger Market Share.
I.e. Dell
Use Under These Conditions:
Market Must be Highly Price-Sensitive so a Low Price Produces More Market Growth.Production/Distribution Costs Must Fall as Sales Volume Increases.Must Keep Out Competition & Maintain Its Low Price Position or Benefits May Only be Temporary.
10-20
Form students into groups of three to five. Which pricing strategy--market skimming or market penetration--does each of the following companies use?
McDonald’s, Sony (television and other home electronics), Bic Corporation (pens, lighters, shavers, and related products), and IBM (personal computers).
10-21
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.
10-22
Product Mix-Pricing StrategiesOptional-Product
Pricing optional or accessory products sold with the main product. i.e camera bag.
Captive-ProductPricing products that must be used with the main product. i.e. film.
10-23
Product Mix-Pricing Strategies
By-ProductPricing low-value by-products to get rid of them and make the main product’s price more competitive.I.e. sawdust, Zoo Doo
Product-Bundling
Combining several products and offering the bundle at a reduced price.I.e. theater season tickets.
10-24
Discount and Allowance Pricing
Cash Discount Seasonal Discount
Quantity Discount Trade-In Allow ance
Functional Discount Prom otional Allow ance
A djus ting Bas ic Pr ice to Rew ard C us tom ersF or C erta in Responses
Cash Discount Seasonal Discount
Quantity Discount Trade-In Allow ance
Functional Discount Prom otional Allow ance
A djus ting Bas ic Pr ice to Rew ard C us tom ersF or C erta in Responses
10-25
Segmented Pricing
Custom er - Segm ent Location Pricing
Product - Form T im e Pricing
S e ll ing Products A t 2 or M ore Prices E venT hough T here is No D iffe rence in C ost
Custom er - Segm ent Location Pricing
Product - Form T im e Pricing
S e ll ing Products A t 2 or M ore Prices E venT hough T here is No D iffe rence in C ost
10-26
Psychological PricingConsiders the psychology of prices and not simply the economics.Customers use price less when they can judge quality of a product.Price becomes an important quality signal when customers can’t judge quality; price is used to say something about a product.
Retail $100.00Cost $3.00
10-27
Temporarily Pricing Products Below List Price
Through:
Promotional Pricing
Special-Event PricingSpecial-Event Pricing
Cash RebatesCash Rebates
Low-Interest FinancingLow-Interest Financing
Longer WarrantiesLonger Warranties
Free MaintenanceFree Maintenance
DiscountsDiscounts
Loss LeadersLoss Leaders
10-28
•Pricing products for customers located in different parts of the country or world.• i.e. FOB-Origin, Uniform- Delivered, Zone, Basing- Point, & Freight-Absorption.
• Adjusting prices for customers in different counties.• Price Depends on Costs, Consumers, Economic Conditions, Competitive Situations, & Other Factors.
Geographical Pricing
International Pricing
Other Price Adjustment Strategies
10-29
Why?
Excess Capacity
Falling Market Share
Dominate Market Through Lower
Costs
Initiating Price Changes
Why?
Cost Inflation
Overdemand: Company Can’t
Supply All Customers’ Needs
10-30
Being Replaced by Newer Models
Being Replaced by Newer Models
Current Models Are Not Selling Well
Current Models Are Not Selling Well
Company is in Financial TroubleCompany is in
Financial Trouble
Quality Has Been Reduced
Quality Has Been Reduced
Price May Come Down Further
Price May Come Down Further
Price Cuts Are Seen by Buyers As:
Reactions to Price Changes
Number of Firms is Small
Number of Firms is Small
Product is UniformProduct is Uniform
Buyers are Well Informed
Buyers are Well Informed
Competitors Mostly React When:
10-31
Assessing/Responding to Competitor’s Price Changes (Fig. 10-6)
10-32
Public Policy Issues in Pricing (Fig. 10-7)
10-33
Rest Stop: Reviewing the ConceptsIdentify and explain the external and internal factors affecting a firm's pricing decisions.Contrast the three general approaches to setting prices.Describe the major strategies for pricing imitative and new products.Explain how companies find a set of prices that maximizes the profits from the total product mix.Discuss how companies adjust their prices to take into account different types of customers and situations.Discuss the key issues related to initiating and responding to price changes.
