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Pricing strategies

Lecture-8

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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 togain the benefits of having or using a

product or service.

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What Is a Price?

Price is the only element in the marketing mixthat produces revenue; all other elementsrepresent costs

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Procedure for setting the price

Selecting the price objective

Determining demand

Estimating costs

Analyzing competitors cost, prices,offers

Selecting a pricing method Selecting the final price

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Selecting the pricing objective

Survival

Maximum current profit

Maximum market share

Maximum market skimming

Product quality leadership

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Determining demand

Price sensitivity

- customers are less price sensitive when:

a) There are few competitors

b) They buy infrequently

c) Low cost itemsd) They think higher prices are justified.

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The demand curve shows the number of units the marketwill buy in a given period at different prices

Normally, demand and price are inversely related

Higher price = lower demand

For prestige (luxury) goods, higher price can equal higherdemand when consumers perceive higher prices as higherquality

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Price elasticity of demand illustrates the response of demandto a change in price

Inelastic demand occurs when demand hardly changes when there isa small change in price

Elastic demand occurs when demand changes greatly for a smallchange in price

Price elasticity of demand = % change in quantity demand% change in price

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Estimating costs

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Types of costs

Fixed costs are the costs that do not vary with

production or sales level

Rent

Heat

Interest

Executive salaries

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Types of costs

Variable costs are thecosts that vary with the

level of production

Packaging

Raw materials

Total costs are the sum ofthe fixed and variable

costs for any given level

of production

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Costs as a Function of ProductionExperience

Experience or learning curve is when average cost falls as

production increases because fixed costs are spread over

more units

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Analyzing competitors costs,prices

Selecting a pricing method

- value pricing

- Going rate pricing

- Auction type pricing

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Selecting the final price

Impact of other marketing activities

Company pricing policies

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Adapting the price

Geographical pricing

- Barter

- Compensation deal

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Promotional pricing

- Special event pricing

- Cash rebates

- Low interest financing

- Longer payment terms- Warranties and service contracts

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Differentiated pricing

- customer segment pricing

- Channel pricing

- Location pricing

- Time pricing- Location pricing

- Time pricing