Pricing Products: Pricing Considerations and Approaches

Chapter 10
Which is Price??

Price is the sum of all the values that consumers exchange for the benefits of having or using the product or
service.

Factors Affecting Price Decisions ( Fig. 10.1)

Internal Factors

Marketing Objectives
Marketing Mix Strategy
Costs
Organizational considerations

External Factors

Nature of the market and demand

Competition
Other environmental factors

Economy
Resellers
Government

Internal Factors Affecting Pricing Decisions: Marketing Objectives

- Low Prices to Cover Variable Costs and Some Fixed Costs to Stay in Business.
- Choose the Price that Produces the Maximum Current Profit, Etc.
- Low as Possible Prices to Become the Market Share Leader.
- High Prices to Cover Higher Performance Quality and R & D.

Other specific objectives include:

Nonprofit and public organization may have other pricing objectives such as:

Internal Factors Affecting Pricing Decisions: Marketing Mix

Customers Seek Products that Give Them the Best Value in Terms of Benefits Received for the Price Paid.

Types of Cost Factors that Affect Pricing Decisions

Fixed Costs (Overhead)
Variable Costs
Total Costs
Different Levels of Production costs vary with different levels of production and production capability - (in)
efficiency impacts the eventual cost.
Function of Production Experience - As a firm gains experience in production, it learns how to do it better.
The experience curve (or the learning curve) indicates that average cost drops with accumulated production
experience.
External Factors Affecting Pricing Decisions

Market and Demand Factors Affecting Pricing Decisions

- Many Buyers and Sellers Who Have Little Effect on the Price
- Many Buyers and Sellers Who Trade Over a Range of Prices
- Few Sellers Who Are Sensitive to Each Others Pricing/ Marketing Strategies
- Single Seller
Demand Curves and Price Elasticity of Demand
A Demand Curve is a Curve that Shows the Number of Units the Market Will Buy in a Given Time Period at
Different Prices that Might be Charged.

Price / Demand Relationship

-----------------------------------

Major Considerations in Setting Price (Fig. 10.5)

Price Ceiling -

Price Floor Cost Considerations

Types of Mark-Up Pricing
o Cost-plus pricing - a pricing method in which the producer (seller) determines its costs and then adds
a specified profit amount or percentage to the selling price.
o Break-even Analysis & Target Profit Pricing setting price to break even on the costs of making
and marketing a product: or setting price to make a target profit
Cost-Based Pricing

Cost-Plus Pricing is an Approach That Adds a Standard Markup to the Cost of the Product.

Breakeven Analysis

Target Return Pricing

Cost-Based Versus Value-Based Pricing (Fig. 10.7)

Competition-Based Pricing

Setting prices based on the prices that competitors charge for similar products
_________________________ - Company Sets Prices Based on What Competitors Are Charging.

_________________________ - Company Sets Prices Based on What They Think Competitors Will Charge.