Pricing Products: Pricing Considerations and Approaches
Pricing Products: Pricing Considerations and Approaches
Pricing Products: Pricing Considerations and Approaches
Pricing Products:
Pricing Considerations and
Approaches
Price
Price is the sum of all the values that consumers
exchange for the benefits of having or using the
product or service.
Price has been the major factor affecting buyer
choice; nonprice factors have become increasingly
important in buyer-choice behavior.
Price is the only element in the marketing mix that
produces revenues; all others represent costs.
Price
Marketing
Objectives
Survival
ST Profit Max
Market Share
Quality Leadership
Psychological
Aspects
Reference Price
Price/Perceived Quality
Price points
Decision
Maker
Industry
Conditio
Threatns
of new
entrants
Market power
Substitutes
Capacity
Government
Social Concerns
Marketing
Objectives
Survival
Low Prices to Cover Variable Costs
and
SomeProfit
Fixed Costs
to Stay in
Current
Maximization
Business.
Choose the Price
that Produces the
Maximum Current Profit, Etc.
Nonprice
Positions
Price
Promotion
Distribution
Variable Costs
Raw materials
Total
Total Costs
Costs
Sum
Sum of
of the
the Fixed
Fixed and
and Variable
Variable Costs
Costs for
for aa Given
Given
Level
Level of
of Production
Production
Costs Considerations
2,000
SRAC
4,000
3,000
1,000
LRAC
Economic Conditions
Reseller Needs
Government Actions
Social Concerns
Many
ManyBuyers
Buyersand
andSellers
Sellers
Who
WhoHave
HaveLittle
Little
Effect
Effecton
onthe
thePrice
Price
Monopolistic
Monopolistic
Competition
Competition
Pure
Pure Monopoly
Monopoly
Single
SingleSeller
Seller
Oligopolistic
Oligopolistic
Competition
Competition
Many
FewSellers
SellersWho
WhoAre
Are
ManyBuyers
Buyersand
andSellers
Sellers Few
Who
Sensitiveto
toEach
EachOthers
Others
WhoTrade
TradeOver
Overaa Sensitive
Pricing/
Range
Pricing/Marketing
Marketing
Rangeof
ofPrices
Prices
Strategies
Strategies
Price
P2
P1
Price
Q2 Q1
P1
Q2
Q1
Cost-Based Pricing
Certainty
About Costs
Price
Competition Is
Minimized
Much Fairer to
Buyers & Sellers
Unexpected
Situational
Factors
Pricing is
Simplified
Cost-Plus
Ethical
Pricing is an
Approach
That Adds a
Standard
Markup
to the
Attitudes
Costofof the
Others
Product.
Simples
t Pricing
Method
Ignores
Current
Demand &
Competitio
n
Dollars (millions)
T34
Target profit
$2 million
Total cost
12
10
8
Fixed cost
6
4
2
0
200
400
600
800
1,000
Value-Based
Pricing
Customer
Customer
Cost
Cost
Value
Value
Price
Price
Price
Price
Value
Value
Cost
Cost
Customers
Customers
Product
Product
Competition-Based Pricing
Setting Prices
Going-Rate
Company Sets Prices Based on What
Competitors Are Charging.
Sealed-Bid
Chapter 11
Pricing Products:
Pricing Considerations and Strategies
New
New Product
Product Pricing
Pricing
Strategies
Strategies
Market
Market Skimming
Skimming
Market
Market Penetration
Penetration
NewProduct
Productto
toSkim
Skim
New
MaximumRevenues
Revenuesfrom
from
Maximum
theTarget
TargetMarket.
Market.
the
Results
Resultsin
inFewer,
Fewer,But
But
MoreProfitable
ProfitableSales.
Sales.
More
Market Penetration
Penetration
Market
Setting
SettingaaLow
LowPrice
Pricefor
foraa
NewProduct
Productin
inOrder
Orderto
to
New
Penetratethe
theMarket
Market
Penetrate
Quicklyand
andDeeply.
Deeply.
Quickly
Attract
AttractaaLarge
LargeNumber
Numberof
of
Buyersand
andWin
WinaaLarger
Larger
Buyers
MarketShare.
Share.
Market
Product
Product Mix
Mix Pricing
Pricing Strategies
Strategies
Product
Product Line
Line Pricing
Pricing
Setting
SettingPrice
PriceSteps
StepsBetween
BetweenProduct
ProductLine
LineItems
Items
i.e.
i.e.$299,
$299,$399
$399
Optional-Product
Optional-Product Pricing
Pricing
Product
Product
Mix
Mix
Pricing
Pricing
Strategies
Strategies
Pricing
PricingOptional
Optionalor
orAccessory
AccessoryProducts
Products
Sold
SoldWith
WithThe
TheMain
MainProduct
Product
i.e.
i.e.Car
CarOptions
Options
Captive-Product
Captive-Product Pricing
Pricing
Pricing
PricingProducts
ProductsThat
ThatMust
MustBe
BeUsed
Used
With
WithThe
TheMain
MainProduct
Product
i.e.
i.e.Razor
RazorBlades,
Blades,Film,
Film,Software
Software
By-Product
By-Product Pricing
Pricing
Pricing
PricingLow-Value
Low-ValueBy-Products
By-ProductsTo
ToGet
GetRid
Rid
of
ofThem
Them
i.e.
i.e. Lumber
LumberMills,
Mills,Zoos
Zoos
Product-Bundle
Product-Bundle Pricing
Pricing
Pricing
PricingBundles
BundlesOf
OfProducts
ProductsSold
SoldTogether
Together
i.e.
i.e.Season
SeasonTickets,
Tickets,Computer
ComputerMakers
Makers
Price-Adjustment
Price-Adjustment Strategies
Strategies
Price
Price Adjustment
Adjustment Strategies
Strategies
Discount
Discount &&Allowance
Allowance
Reducing
ReducingPrices
Pricesto
toReward
Reward
Customer
CustomerResponses
Responsessuch
suchas
as
Paying
PayingEarly
Earlyor
orPromoting
Promoting
the
theProduct.
Product.
Segmented
Segmented
Adjusting
AdjustingPrices
Pricesto
toAllow
Allow
for
forDifferences
Differencesin
inCustomers,
Customers,
Products,
Products,or
orLocations.
Locations.
Cash
CashDiscount
Discount
Customer
Customer
Quantity
QuantityDiscount
Discount
Product
ProductForm
Form
Functional
FunctionalDiscount
Discount
Location
Location
Seasonal
SeasonalDiscount
Discount
Time
Time
Trade-In
Trade-InAllowance
Allowance
Price-Adjustment
Price-Adjustment Strategies
Strategies
Psychological Pricing
Promotional Pricing
Geographical Pricing
International Pricing
Product
Product is
is Uniform
Uniform
Company
Company is
is in
in
Financial
Financial Trouble
Trouble
Buyers
Buyers are
are Well
Well
Informed
Informed
Quality
Quality Has
Has Been
Been
Reduced
Reduced
Price
Price Comes
Comes Down
Down
Further
Further
Price-Adjustment
Price-Adjustment Strategies
Strategies
Has
HasCompetitor
CompetitorCut
Cut
Price?
Price?
No
Will
WillLower
LowerPrice
Price
Negatively
NegativelyAffect
AffectOur
Our
Market
Share
&
Profits?
Market Share & Profits?
No
Hold
HoldCurrent
CurrentPrice;
Price;
Continue
Continueto
toMonitor
Monitor
Competitors
CompetitorsPrice.
Price.
Reduce
ReducePrice
Price
Can/
Can/Should
ShouldEffective
Effective
Action
be
Taken?
Action be Taken?
No
Raise
RaisePerceived
Perceived
Quality
Quality
Yes
Improve
ImproveQuality
Quality
&&Increase
IncreasePrice
Price
Launch
LaunchLow-Price
Low-Price
Fighting
FightingBrand
Brand
Price
Price
Fixing
Fixing
Predatory
Predatory
Pricing
Pricing
Resale
Resale Price
Price
Maintenance
Maintenance
Deceptive
Deceptive
Pricing
Pricing
Ensure
Ensure Sellers
Sellers
Offers
Offers the
the
Same
Same Price
Price
Terms
Terms to
to aa
Given
Given Level
Level
Of
Of Trade
Trade
Manufacturer
Manufacturer
Cant
Cant Require
Require
Dealers
Dealers to
to
Charge
Charge aa
Specified
Specified Retail
Retail
Price
Price for
for Its
Its
Product
Product
Occurs
Occurs When
When aa
Seller
Seller States
States
Prices
Prices or
or Prices
Prices
Savings
Savings that
that
Available
Available
To
To Consumers
Consumers