PRICING

WHAT IS PRICING
• Is the process whereby a business sets
the price at which it will sell its products
and services.
• Is the value that is put to a product or
service and is the result of a complex
set of calculations.
FACTORS AFFECTING
PRICE DECISIONS
 INTERNAL FACTORS AFFECTING
PRICING DECISIONS: MARKETING
OBJECTIVES
Survival
Low Prices Hoping to Increase Demand.

Current Profit Maximization

Choose the Price that Produces the
Marketing Maximum Current Profit, Etc.

Objectives Market Share Leadership

Low as Possible Prices to Become
the Market Share Leader.

Product Quality Leadership

High Prices to Cover Higher
Performance Quality and R&D.
 TYPES OF COST FACTORS THAT
AFFECT PRICING DECISIONS
Fixed Costs Variable Costs
(Overhead)
Costs that don’t Costs that do vary
vary with sales or directly with the
production levels level of production
Executive Salaries, Rent Raw materials

Total Costs
Sum of the Fixed and Variable Costs for Any Given
Level of Production
 MARKET AND DEMAND
FACTORS AFFECTING PRICING
DECISIONS
Pricing in Different Types of Markets

Pure Competition
Many Buyers and Sellers Pure Monopoly
Who Have Little Single Seller
Effect on the Price

Monopolistic Oligopolistic
Competition Competition
Many Buyers and Sellers Few Sellers Who Are
Who Trade Over a Sensitive to Each Other’s
Range of Prices Pricing/ Marketing
Strategies
 COST-BASED PRICING
Certainty About
Costs
Simplest
Cost-Plus Pricing is Pricing
Ethical
an Approach That Method
Factors
Pricing is Adds a Standard
Situational
Markup to the Cost of
Simplified Unexpected
the Product

Price Competition Ignores Current

Attitudes
Is Minimized Demand &
of Competition
Others
Fairer to Buyers
& Sellers
NEW-PRODUCT PRICING STRATEGIES
Market-Skimming • Use Under These
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
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.
 NEW-PRODUCT PRICING STRATEGIES
• Use Under These Market Penetration
Conditions:
• Market Must be Highly Setting a Low Price for
Price-Sensitive so a Low a New Product in
Price Produces More Market Order to “Penetrate”
Growth. the Market Quickly
• Production/Distribution and Deeply.
Costs Must Fall as Sales Attract a Large
Volume Increases.
Number of Buyers and
• Must Keep Out Competition Win a Larger Market
& Maintain Its Low Price Share.
Position or Benefits May
Only be Temporary. I.e. Dell
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.

10-10
PRODUCT MIX-PRICING STRATEGIES
• Optional-Product
• Pricing optional or
accessory products
sold with the main
product. i.e camera
bag.
• Captive-Product
• Pricing products that
must be used with the
main product. i.e. film.

10-11
 PRODUCT MIX-PRICING STRATEGIES

• By-Product • Product-
• Pricing low- Bundling
value by- • Combining
products to get several
rid of them and products and
make the main offering the
product’s price bundle at a
more reduced price.
competitive. • I.e. theater
• I.e. sawdust, season tickets.
Zoo Doo
 DISCOUNT AND ALLOWANCE
PRICING

Adjusting Basic Price to Reward Customers

For Certain Responses

Cash Discount Seasonal Discount

Quantity Discount Trade-In Allowance

Functional Discount Promotional Allowance

 PROMOTIONAL PRICING
Loss Leaders
Temporarily Pricing
Special-Event Pricing Products Below List Price
Through:
Cash Rebates

Low-Interest Financing

Longer Warranties
Free Maintenance
Discounts
 PRICING TO BUILD TRUST WITH YOUR
CUSTOMERS
PRICING SHOULD:
• Be straightforward and easy to understand.

• Be complete.

• Give the customer reasonable control over the

transaction
MAKE PRICING STRAIGHTFORWARD
AND EASY TO UNDERSTAND.

• Do not confuse or mislead customers.

• Many potential customers shy away from
a business because they don’t understand
the pricing and are too shy to ask.