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CHAPTER 11
THE IMPORTANCE OF PRICE
To
To the
the seller...
seller... To
To the
the consumer...
consumer...
Price
Price is
is revenue
revenue Price
Price is
is the
the cost
cost
of
of something
something
Price
Price allocates
allocates resources
resources
in
in a
a free-market
free-market economy
economy
WHAT IS PRICE?
Price
Price is that which is
given up in an exchange
to acquire a good or
service.
THE IMPORTANCE OF PRICE TO
MARKETING MANAGERS
Flood
Flood of
of new
new products
products
Increased
Increased availability
availability of
of bargain-priced
bargain-priced private
private
and
and generic
generic brands
brands
Price
Price cutting
cutting as
as aa strategy
strategy to
to maintain
maintain or
or
regain
regain market
market share
share
Internet
Internet used
used for
for comparison
comparison shopping
shopping
REVIEW LEARNING OUTCOME
THE IMPORTANCE OF PRICING DECISIONS
Profit-Oriented
Sales-Oriented
Status Quo
PROFIT-ORIENTED PRICING
OBJECTIVES
Target
Target
Profit
Profit Satisfactory
Satisfactory Return
Returnonon
Maximization
Maximization Profits
Profits Investment
Investment
PROFIT MAXIMIZATION
Profit
Maximization
Setting prices so that
total revenue is as large
as possible relative to
total costs.
RETURN ON INVESTMENT
Return
Net profit after taxes
on
Investment divided by total assets.
Market
Market Sales
Sales
Share
Share Maximization
Maximization
MARKET SHARE
Maintain
Maintain Meet
Meet
existing
existing competition’s
competition’s
prices
prices prices
prices
REVIEW LEARNING OUTCOME
PRICING OBJECTIVES
THE DEMAND
DETERMINANT OF PRICE
Consumers’ responsiveness
Elasticity
of Demand
or sensitivity to changes
in price.
PRICE EQUILIBRIUM
ELASTICITY OF DEMAND
Price
Price Goes...
Goes... Revenue
Revenue Goes...
Goes... Demand is...
Down Up Elastic
Up Up Inelastic
Up Down Elastic
Availability
Availability of
of substitutes
substitutes
Price
Price relative
relative to
to
purchasing
purchasing power
power
Product
Product durability
durability
A
A product’s
product’s other
other uses
uses
Rate
Rate of
of inflation
inflation
THE POWER OF
YIELD MANAGEMENT
SYSTEMS
Discounting
Discounting early
early purchases
purchases
Limiting
Limiting early
early sales
sales at
at discounted
discounted prices
prices
Overbooking
Overbooking capacity
capacity
YIELD MANAGEMENT
SYSTEMS
Rental property landlords use yield
management systems to raise rents at a
faster pace.
Describe cost-oriented
pricing strategies
THE COST DETERMINANT OF
PRICE
Types
Types of
of Costs
Costs
Variable
Variable Fixed
Fixed Cost
Cost
Cost
Cost
Varies
Varies with
with changes
changes Does
Does not
not change
change
in
in level
level of
of output
output as
as level
level of
of output
output changes
changes
THE COST DETERMINANT OF
PRICE
Markup
Markup pricing
pricing
Keystoning
Keystoning
Methods
Used to
Set Prices Profit
Profit Maximization
Maximization
Pricing
Pricing
Break-Even
Break-Even
Pricing
Pricing
MARKUP PRICING
The cost of buying the
product from the producer
Markup
plus amounts for profit and
Pricing
for expenses not
otherwise accounted for.
Fixed cost
Contribution
= Price - Avg. Variable Cost
REVIEW LEARNING OUTCOME
COST-ORIENTED PRICING STRATEGIES
OTHER DETERMINANTS OF
PRICE
Stages
Stages of
of the
the
Product
Product Life
Life Cycle
Cycle
Competition
Competition
Distribution
Distribution Strategy
Strategy
Promotion
Promotion Strategy
Strategy
Perceived
Perceived Quality
Quality
STAGES IN THE PRODUCT
LIFE CYCLE
Introducto Growth Maturit Decline
ry Stage y Stage
Stage Stage $
$ $ $ Decrease
High Stable Decrease Stable
High
THE COMPETITION
Franchising
Selling against
Stocking well-known
the brand
branded items at high prices
in order to sell
store brands at discounted
prices.
THE IMPACT OF THE
INTERNET
Product
Product selection
selection
Second
Second opinions
opinions from
from expert
expert sites
sites
Shopping
Shopping bots
bots
Internet
Internet auctions
auctions
THE RELATIONSHIP OF
PRICE TO QUALITY
Prestige Pricing
Charging a high price to
help promote a high-
quality image.
DIMENSIONS OF QUALITY
Ease of use
Versatility
Durability
Serviceability
Performance
Prestige
REVIEW LEARNING OUTCOME
FACTORS AFFECTING PRICE
Q&A
SESSION
THANK YOU…